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Ride Hailing Industry is Ripe for Competition, say Economists


08/26/2016


Ride Hailing Industry is Ripe for Competition, say Economists
The biggest move yet towards consolidation in an industry that many investors and Silicon Valley pundits view as a winner-take-all game was marked by Chinese powerhouse Didi Chuxing's acquisition of Uber Technologies Inc's China operations.
 
Just as Uber struggled to erode Didi's share in China, Uber's rivals in other markets had a slim chance of splitting the market with the dominant player, aid Uber board member Bill Gurley on the day the Didi deal was announced earlier this month.
 
Hans Tung, an Asia-focused investor and managing partner at GGV Capital, which backed Didi and Grab, a Singapore-based ride service said that after China, the industry will consolidate in other markets.
 
"There will be a dominant No. 1," he said that same day.
 
A situation of perpetual competition in a business with relatively few barriers to entry is suggested by a consensus opinion of 11 economists interviewed by Reuters.
 
"That one firm wins is a narrow and not accurate way to think about these firms," said David Evans, chairman of the Global Economics Group and co-author of a recent book that included Uber, "Matchmakers: The New Economics of Multisided Platforms."
 
Room for at least two successful players, and perhaps a few smaller ones, exists in the growing ride-hailing industry that UBS estimates to be a $40 billion market, says ten other economists who have studied the industry.
 
None of the elements that traditionally have enabled single companies to control a sector are present in the industry, they said. For industries that tend to be the first of its kind and if such industries have huge infrastructure costs, then a company can dominate by, for example, a large workforce of employees with specialized skills or customers who get locked into a service and have difficulty leaving for competitors or putting up cell towers or laying pipes.
 
However, dependence on contract labor with no inherent loyalty or specialized skills, being relatively cheap to start and have free apps that can be downloaded in seconds are characteristics of ride-services.
 
"You may not want to try a new social networking site if your friends aren't on it. But you don't care what app your friends use for ride-hailing,"
 
Since Uber started the industry seven years ago, startups and investors have been vexed by the question of whether on-demand ride services will remain open to new players.
 
Grab in Southeast Asia, Ola in India, Lyft in the United States and startups like New York City's Juno are taking on Uber. Part of Uber's attraction to investors is the chance at grabbing the entire industry in the United States in particular.
 
"The ridesharing industry around the world is highly competitive and innovative. That's good for riders," Uber said in a statement.
 
To successfully battle Uber in its strongest markets, any competitor would need to pursue a different strategy - perhaps offering more luxury and high-end services, Uber investor and board member Gurley argued.
 
Didi, Ola and Grab did not respond to requests for comment.
 
(Source:www.reuetrs.com)