L ONDON CABBIES enjoy a good moan. But few can match the satirical indignation of a former ferry operator, John Taylor, who used to carry passengers on the Thames. As well as being a “waterman”, Taylor was a poet, writing in the 1620s just when horse-drawn Hackney carriages were making their debut on the streets of the capital. In “An Arrant Thief”, published in 1622, he described the carnage from “upstart Hell-cart-coaches” robbing his brethren of their fares. “Against the ground, we stand and knock our heels/Whilst all our profit runs away on wheels.”

Four centuries later, profits across the global taxi industry are again running away—but this time into thin air. Until recently, the fortunes of regulated cab companies drew the most attention. Uber and Lyft in America, Didi in China and other ride-hailing firms elsewhere have used sackloads of venture capital to drive down fares and flood the streets of big cities with cars, clobbering the earnings of licensed rivals. But now their own losses are in the spotlight. In a filing released in the run-up to its initial public offering, Uber says it has lost $7.9bn since 2009. Lyft, which listed last month, lost $2.9bn in seven years. Uber is seeking a valuation of up to $100bn but as yet it is unclear if it can make money. To understand why, it helps to look at the history of the taxi industry. When regulated, it is a cushy business. When not, it is cut-throat.

Start with Uber’s most oft-touted attributes. Its name has become synonymous with ride-hailing thanks to rapid expansion that its advocates put down to “first-mover advantage” and network effects, or the belief that it will become more valuable as more people use it. The company claims to have more than 65% of the ride-hailing market in the United States and Canada, Europe, Australia and New Zealand, and Latin America. But it sees itself as more than just a taxi company, with car ownership and public transport in its sights. The proposed valuation implies a huge market which Uber would need to all but monopolise.

Look through history, though, and taxi monopolies look anything but impregnable. That is because the ride-hailing business, which will remain Uber’s bread and butter for the foreseeable future, is local, not global. And, as long as competition is unregulated, entering local markets is relatively easy. Len Sherman of Columbia Business School draws a parallel between Uber’s business and that of unregulated taxis in New York in the 1930s, when Ford’s Model T emerged as a new, low-cost cab. During the Depression many jobless workers took to taxi-driving for a living, undercutting each other viciously. The streets were saturated with vehicles but the earnings of drivers and taxi companies evaporated. Customers benefited, but no one else did. Uber and Lyft are reprising that episode as they fight city by city for drivers and customers.

Uber’s name recognition may help. Historically, taxi firms have benefited from strong brands. London’s black taxis, or New York’s yellow ones, for instance, attract users despite high fares and relative scarcity. They are hallmarks of their cities. In an ideal world for Uber, brand awareness would mean customers went straight to its app rather than that of a rival, convincing more drivers to work for it because they can access a bigger market. This would produce the vaunted network effect for drivers and riders.

The trouble is, as competition increases, ride-hailing becomes a commodity business. Customers care little whether they ride with Uber or Lyft, as long as it gets them from A to B . That means neither firm can easily increase profits by raising fares, but may instead have to offer discounts. Likewise, the ride-hailing firms do not own their cars: their drivers do, and so have no reason to be loyal. That forces the firms to pile on incentives to stop drivers from deserting, kicking profits even further down the road.

Throughout taxi history, the answer to such a race to the bottom has been regulation. In 1635 the number of Hackney carriages in London was restricted to reduce congestion (Taylor must have breathed a sigh of relief). In 1937 the Haas Act introduced the medallion system in New York, putting strict curbs on the number of medallions and driving up their value. Recently the city’s regulators have moved to control ride-hailing, capping the number of vehicles and introducing a minimum wage for drivers. That could become a trend.

So much for the past. What about the future? Uber’s foray into Uber Eats, its food-delivery service, may be an even tougher business proposition than ride-hailing; it has to give restaurateurs a cut of each sale, as well as drivers. Its core measure of revenue at Uber Eats fell in the second half of 2018 compared with the first half. That was not encouraging. The firm is expanding into broader mobility services, such as scooters and electric bikes, and is building a platform that includes public transport, so customers can travel more seamlessly across a city. But again, competition will be intense: city governments will be loth to link access to their public-transport systems to a single platform, for safety, data-privacy and other reasons.

Uber’s long-term goal is autonomous vehicles ( AV s), which would reduce its need to share revenues with human drivers. On April 18th Toyota and other investors put $1bn into Uber’s AV division. On April 22nd Tesla unveiled plans to roll out robotaxis next year. That promise is subject to huge regulatory uncertainty, plus an Elon Musk bravado discount. But many other companies are keen to enter the fray. Expect fisticuffs.

Too Uber to fail

Uber will surely have a place in the future of transport. It may be able to increase rider and driver loyalty by replacing fares with monthly subscriptions. It may settle for dominating some cities, leaving others to rivals, provided that does not violate antitrust rules. History suggests that profits will be hard to come by. But at least its name should live on, just as Taylor’s hated Hackney “Hell-carts” do in London’s black cabs, 400 years later.