We're a world away from all hail Uber
After Uber's deal with China's Didi Chuxing, investors in the world's most highly valued private company are probably wondering if they should have put their money directly into Didi, the way Apple did earlier this year.
They should be asking similar questions about Uber's rivals in its other markets.
It's clear that Uber is not taking over the world. It faces similarly tough competition in other big Asian markets, such as India and Indonesia, as well as throughout Europe. The problems Uber faces are different in every country, and so is the competition. But the US giant's methods are the same everywhere: Arrive with a bang, start a price war (and usually a legal war with regulators), and burn money until competitors retreat.
This creates ridiculous situations like the one in India, where Uber claims to have 50pc of the ride-hailing market and its main rival, Ola, claims 75pc - and both companies are subsidising both drivers and passengers. Uber is probably the one exaggerating its market share: The deal with Didi, which gave Uber an 18pc economic interest in the Chinese company though it claimed to control more than 30pc of the market, suggests that the California startup inflated its success in China.
It's the norm for Uber to remain the underdog in big markets while it burns through tons of investor cash.
In Indonesia, local firm Gojek and Singapore-based Grab have most of the market. In Moscow, Russia's biggest taxi market, Israel-based Gett and local Yandex.Taxi together handle about 47pc of the rides, while Uber's share is no more than 15pc.
In Germany, MyTaxi has 40pc of the taxi market while Uber only offers services in two cities, Berlin and Munich, having abandoned Frankfurt, Hamburg and Dusseldorf last year. And some countries are intent on keeping Uber out altogether: Tightened regulation forced it to suspend operations in Hungary this month.
Trying to run taxi services throughout the world is a major operational challenge even when regulators are benign. A month ago, Uber launched in Kiev, where Ukraine's authorities saw its arrival as a welcome sign of westernisation. In typical style, it offered as many as five free rides to initial clients - but it was impossible to find a car with Uber's app.
Disappointed Kievans stopped trying. The Uber app slid from an overall third place in Apple's Ukrainian app store in early July to 89th on Monday, according to the AppAnnie website. Clients fell back on local services, such as Uklon, which are less technologically advanced than Uber's competitors in other countries.
Uber can probably prosper without dominating every big taxi market in the world. It's successful - and, it has said, profitable - in the US. In some markets, being second or third can still be lucrative. Uber is probably right to attempt global dominance, although a subtler approach such as partnerships with or stakes in local services might be a better strategy.
The investors that have backed its brash tactics, though, are probably not using their money in the most efficient way. In China, Uber burned through $2bn in two years trying to undermine Didi with predatory pricing.
Was it smarter to give that money to Uber (and ultimately to consumers in China), or to invest in Didi, which will now have a monopoly on ride-hailing in China and probably see profitability faster than Uber?
Apple did the latter, investing $1bn for an undisclosed stake that was probably about 5pc, given Didi's valuation at the time. Uber has only received 6pc of voting rights in exchange for its China business.
It's not just Apple that decided to back local ride-hailing companies rather than Uber. SoftBank, led by one of the world's savviest tech investors, Masayoshi Son, is behind India's Ola as well as Grab. Daimler, the German carmaker, owns MyTaxi.
The logic behind these bets is that the local companies have a better understanding of their countries, as Ola founder Bhavish Aggarwal or MyTaxi's Nic Mewes argue. Uber won't replace cars with boats when a flood hits one of the cities it serves, as Ola did in Chennai. Uber treats local regulators and industry incumbents with disdain, while MyTaxi tried to co-opt the local industry to its cause, which is the German way.
Uber's real competitive advantage, apart from a war chest full of other people's money, is that it works in a lot of places. That's ephemeral, though: Eventually, big local services will form even bigger alliances allowing them to pass travellers to each other across borders the way mobile telecommunications operators do. There are already the beginnings of such an alliance, which includes Didi, Ola, Grab and Lyft; if that combination suffers because of the Didi-Uber deal, there will be two such affiliations, one with and one without Uber.
Uber's backers understand its price wars are disruptive.
They pushed the company to cut its losses in China. That's probably not enough. It's time for investors to examine Uber's global strategy and decide whether swagger and predatory pricing are the way to go. No additional markets of any size are available to Uber without further bloodshed - and that's economically inefficient. (Bloomberg)