Ride hailing: present and future

If you live in a major urban center or have visited one, chances are you would have used a ride-hailing service.

Commuting via taxi has historically been an inefficient way of traveling, with significant mismatches between supply and demand. Taxis also enjoyed monopolies with their medallion and licensing system, especially in major cities like New York and London, constricting the supply and maintaining higher fare rates. The ride-hailing business aimed to disrupt the monopoly of licensed taxis and address the inefficiency through an on-demand service model.

What started in 2009 as a luxury car service in San Francisco has now mushroomed into a worldwide phenomenon, with more than a dozen companies, roughly $86 billion in revenues, and a footprint across thousands of cities.

According to a survey by Cox Automotive in 2019, around 55% of Gen Z agrees that transportation is necessary, but owning a car is not essential, supported by 45% millennials, 34% Gen X, and 28% boomers. With these kinds of sentiments for a tailwind, the industry is at a crossroads with many developing trends.

Major players

One cannot think of ride hailing without bringing Uber to mind. It was the earliest company in the market and continues to remain one of the top players. Lyft is another player in the US.  While Uber has the larger share, between the two of them, they cover most of the U.S market.

Uber had its IPO in 2019 and has a current valuation of $96 billion, and has branched out into 70 countries and over 900 cities. Lyft had an IPO earlier the same year and has a market cap of around $20 billion. 

Lyft mainly operates in taxi-hailing, while Uber has branched out into several affiliated businesses, including food delivery and on-demand logistics. Uber is also present in several other countries and is a significant player in the large Indian market. While passenger transportation remains the primary segment, delivery, especially food, is becoming increasingly crucial for Uber.               

Ride-hailing companies, including Uber, are concentrating their efforts on the Asia region. A combination of a high density of population and over-crowded public transportation services makes for a desirable market with enormous growth potential. It is also the region where competition is heavy, and price wars are prevalent. Uber had to bow out of the China market, ceding its business to Didi, in 2016. In India, it competes with Ola. Ola is backed by many prominent VCs including Softbank, incidentally, itself an early investor in Uber!

The Asian market has several other players besides Uber, Ola, and Didi. Gojek, in southeast Asia, based out of Indonesia, and Grab, based out of Singapore, are two major operators in this region.   

In Europe, there's Cabify and Gett, which are taking on Uber. Yandex, which IPO'd in the U.S in 2011, is a giant technology firm that caters to the Russian Federation.  

Africa and South America are also hunting grounds, with Uber competing there with Cabify, Beat, Axxis and Arro. 

These companies had some mind-boggling statistics to boast of.

Uber clocked 6.6 billion rides in 2019, while Didi and Gojek had 10 billion and 2.4 billion rides during that year, respectively.

Business models and addressable market

The underlying business model relies on the algorithms that connect drivers and riders with the App acting as the medium. The use of real-time location sharing and other GPS-driven systems enables seamless connectivity. The algorithms can also alter the fares based on how heavy the traffic is and on how much demand exists at a particular hour. Typically, drivers use their own vehicles, and the ride-hailing company takes a share of the revenues. The companies also provide the infrastructure and training to the drivers. Recently, firms like Uber have started offering leasing arrangements for drivers and assist in lowering automobile insurance premiums.

In densely populated Asian cities, motorcycle and scooter hailing are as attractive as cars. Gojek is the leader in this segment, with Grab and others close behind.

The addressable market for ride-hailing, valued at $113 billion in 2020, is expected to jump to $230 billion by 2026. With the addition of food delivery and other logistics businesses, the market is very lucrative.

In recent times, companies are also increasingly focusing on creating Super-apps. These Apps integrate ride-hailing with other delivery services and financial services such as payments and investments.

Ola, Gojek and Grab, all offer Super Apps.

Source: Readwrite.com

Yandex is also a Super App, also being the dominant search engine in the Russian region. While most ride-hailing companies have focused on general commuters, Gett and Cabify concentrate on the corporate travel market.

Food delivery is significantly becoming a key area of focus, especially in the wake of the covid pandemic. A snapshot of Uber’s recent income statement shows how food delivery, to a great level, offset the loss in the transportation business as people stayed home.

Source: Uber 

Similarly, on-demand document delivery and on-demand logistics services are becoming increasingly prevalent.

Stock market statistics

Many players in the industry are privately held at this point while some are planning their IPO’s. Uber, Lyft and Yandex, all are listed in the United States and Didi recently started trading in the U.S as well, raising $4 billion in its IPO. Here’s a snapshot:

Emerging trends and the road forward

New paradigms are being explored as ride-hailing companies look for the next breakthrough in their business plans. One key theme is the incorporation of electric vehicles into their fleet.

In India alone, Uber plans to have 3,000 electric vehicles as early as the end of 2021, with a target for transitioning its entire global fleet to all-electric cars by 2030. Didi, the Chinese company that just raised $4.0 billion in its U.S IPO, has an even more ambitious target of 10 million electric vehicles by 2028.

Gojek too plans to electrify its entire car and two-wheeler fleet by 2030.

Self-driving technology is another area where developments are happening at a rapid pace. Uber began testing self-driving cars in California and moved on to testing in Arizona and Texas. The Asian players are also keen on jumping into this bandwagon and have their own automation programs. Didi of China, which had its IPO in the U.S recently, has entered a partnership with Baidu to build a fleet of Robo-taxis which would ply the streets of China over the next few years.

The ride-hailing industry has transformed the transportation landscape in the short years they have been in operation. But these are still early years, and this trend will only accelerate and evolve in the coming years.