Uber’s Goal Is Not to Operate Alongside Public Transit but to Replace It

And that’s exactly what the company is doing in Egypt

Image courtesy of Mark Warner (FCC)

Uber has built its reputation on being a 21st-century alternative to the taxi. Its supporters praise its lower fares, driver ratings and the convenience of being able to see where one’s driver is located directly on the app. There’s no question that Uber has brought some improvements to the taxi industry, but it would be wrong to believe that that’s where Uber’s ambition ends.

The future of human society is urban. More than half of the world’s population now lives in urban areas — a number that’s expected to reach 66 percent by 2050. And while the number of mega-cities is growing, the majority of that urbanization is due to happen in the developing world. Uber’s service is best suited to urban environments, and the company recognizes that as these cities grow, the nature of transportation will change. Buses and subway systems can move people much more efficiently than individual vehicles, making them a threat to the company’s survival. Uber has no intention of operating alongside public transit; it intends to replace it.

The Expansion of Uber’s Transit Ambitions

Uber does not seem to have started with the ambitions it has today. The company started small in 2010, offering only black luxury cars on its service, but as its offerings grew, so too did its appetite. The lower-priced uberX, which allows people to offer rides in their own vehicles, was launched in 2012, directly taking on taxi companies, and it was followed in 2014 by uberPOOL, which further lowered prices by allowing drivers to make multiple stops to pick up other passengers along a given route — kind of like a bus.

Its food-delivery service, UberEATS (formerly UberFRESH), was launched at the same time as uberPOOL and quickly expanded across the globe. There’s also UberRUSH, a package-delivery service, and a number of experimental services being run in developing countries that have added water taxis and rickshaws to its app. In 2016, Uber even purchased Otto, a company working on the automation of transport trucks, showing its desire to move into yet another transportation sector.

This isn’t the company’s only investment in self-driving technology, however, and its move toward autonomous vehicles has been fraught with problems. Its self-driving vehicles have been seen running red lights and driving in bike lanes, but probably the biggest issue has been the ongoing Waymo lawsuit over trade secrets that Uber may have acquired from a former engineer the company hired from Waymo. So far, the evidence seems to be on Waymo’s side and could cost Uber more than $1 billion.

But the company has good reason to soldier on toward the autonomous future. Looking at Uber’s financials, transportation expert Hubert Horan identified that Uber’s users pay, on average, only 41 percent of the true cost of their ride—the rest being covered by venture capital — and the only prospect for the company to cut operating costs will be to reduce driver compensation — or eliminate them altogether. In 2014, former CEO Travis Kalanick admitted that his goal was to replace drivers with software to reduce the cost of the service, but recognizing drivers’ concerns, he later qualified his earlier statement to say it wouldn’t happen in the near term.

Uber is taking riders from public transit, which is reducing the quality of transit and could potentially lead to less investment because of lower ridership numbers, creating a downward spiral in Uber’s favor.

While replacing drivers would lower costs, it likely would not close the gap that Uber faces. At some point, the company will have to raise its prices, but it has to wait until the last possible moment so it can drive out as many competitors as possible before doing so, and this is where its conflict with public transit arises. As long as transit can provide a cheap, reliable alternative, Uber cannot significantly raise its prices. And that’s why transit is in Uber’s crosshairs.

Uber’s Effort to Replace Public Transit

UC Davis has released a working paper for what appears to be the largest study to date of the impact of ride hailing on urban transportation, and the results aren’t good. The researchers have found that instead of getting cars off the road, ride hailing is just getting people to cancel car-share memberships. Even worse, if there hadn’t been a ride-hailing option, “between 49 and 61 percent of trips either wouldn’t have been made at all or would have been accomplished via transit, bike or foot,” which means that Uber is increasing traffic congestion and emissions in major cities. Streetsblog USA puts the findings in an even starker context:

More-affluent people are opting for ride hailing because it’s faster and more reliable than transit. This creates a vicious cycle where additional ride-hailing trips cause more congestion, which slows down transit — a dynamic that has been documented in New York by analyst Bruce Schaller. People who can’t afford an Uber fare are left with even worse bus service.

Uber is taking riders from public transit, which is reducing the quality of transit and could potentially lead to less investment because of lower ridership numbers, creating a downward spiral in Uber’s favor. And the company hasn’t shied away from taking advantage of public transit’s woes.

It has already signed agreements with a number of transit agencies in major cities and suburban areas to subsidize Uber rides to transit hubs, and uberPOOL is increasingly resembling a private bus service with “suggested pickup” spots — similar to bus stops — for routes that run along the most popular transit routes. In New York City, Uber is even trying to replace the L train once it shuts down for repairs in 2019.

However, Western cities are not Uber’s only market. It wants to be where the growth is and thus is paying increasing attention to major cities in the developing world. Egypt is not only Uber’s largest market in Africa but one of the company’s fastest-growing markets in the world. As a result, Uber recently opened a $20 million service center in the country to support its operations across the continent, but there’s an even bigger investment that gives a good indication of Uber’s future ambitions.

In developing countries where cities are growing quickly and many governments don’t have the money to meet the transportation needs of its citizens, Uber sees an opportunity to get in early before high-quality systems can be established.

Egypt’s public transit is notoriously poor and has only been getting worse as the country’s budgetary woes have persisted, in part due to decreased tourism in the aftermath of the Arab Spring. Uber has decided to take advantage of the growing frustrations of average Egyptians with plans to launch its own bus service and expand its operations from Cairo, Alexandria and Mansoura to other major cities across the country.

The full details of the service have not yet been released, but there can be no denying that this could be Uber’s first step toward becoming the private alternative to public transit in cities around the world. The challenge is greater in major Western cities, but in developing countries where cities are growing quickly and many governments don’t have the money to meet the transportation needs of its citizens, Uber sees an opportunity to get in early before high-quality systems can be established.

It’s great that Egyptians will have better access to transit as a result of this investment, but there’s good reason to be concerned about a private company trying to monopolize the urban transportation of developing cities because local governments aren’t able to effectively provide it themselves. It also means that instead of making investments in subways, light rail and biking infrastructure, governments in these countries will be pushed to maintain and expand roads and highways just as Western cities are rapidly moving away from their dependence on personal vehicles.

Cities in developing countries will likely be larger and denser than most Western cities, which makes the need for public transit all the more necessary. But if Uber becomes the primary provider of transportation, it’s likely that the poor will be left out and that traffic congestion — already a major problem in these cities — will become unbearable. Uber’s bus service may be good for Egyptians in the short term, but if the government ignores the need for transit, the long-term impacts will be bad for Egyptian cities and even worse for their residents.