There’s some really astounding news out of New York, folks; there is some actual proof that Uber really makes money. New York’s Metropolitan Transportation Authority (MTA), the organization that runs the subway, commuter trains and buses in the Big Apple, is losing around $1 million a year because of the business networked transportation solutions like Uber and Lyft are taking from the city’s taxis.
The lost revenue is from a 50¢ surcharge the MTA places on all taxi fares in New York City, The New York Post reported. Since the charge is only imposed on vehicles with cab medallions, Uber, Lyft and Sidecar rides are exempt.
An organization called the Citizen Budget Commission estimated that the MTA makes around $87 million a year from the cab surcharge, down from $88 million a year in 2011. The Commission blamed the shortfall on Uber and other ride-sharing services.
The group also recommended that the MTA get a cut of the sales tax that the State of New York collects from networked transportation companies. It also suggested that the 50¢ surcharge be applied to all hire cars in the city.
New York mayor Bill de Blasio supports the Commission and told reporters that he wants Uber to pay more taxes. This looks like the next front in the seemingly endless war between Uber and government. It also does not sound like that much money for an organization like the MTA, which has a budget of around $32 billion a year.
Around Two Million Riders a Year
The $1 million in lost surcharge revenue indicates that there could be around two million networked transportation rides in New York a year. I arrived at this figure through simple math; at a rate of 50¢ a ride, you would need two million rides to generate $1 million a year.
Although Uber’s percentage of riders is not that great yet, there were around 175 million taxi trips in New York last year, according to the Taxicab Fact Book put out by the city. That means ride-sharing services have taken a little over 2% of the cab industry’s business, which puts Uber’s popularity claims in serious doubt.
It also allows us to make an extremely rough estimate of Uber’s business in the city. Since the average Uber trip costs around $13.36, that means the trips generated around $26.72 million in revenue, which is not bad. Uber and Lyft, which each take a cut of around 20% from drivers’ fares, earned around $5.344 million from that revenue.
Is Uber a Niche Player?
Obviously we cannot know how much Uber actually made because we do not know how many of those rides were booked through Uber. It does show us that Uber is a potential money maker, although it is nowhere near as popular as some people have claimed.
It should be noted here that the situation in New York is rather different from that in the average American city. New York is one of the few U.S. cities that has a serious taxi cab industry that competes aggressively for average people’s patronage. That makes things a lot tougher for Uber there. In most American communities, Uber’s competition is very limited.
The numbers indicate that Uber seems to be more of a niche player in the hire-car business rather than a major participant. It attracts a smaller volume of business, but it could be attracting affluent riders. Networked transportation solutions appear to be having a much harder time building market share even in a major cab-using area such as New York City.
One strong possibility is that Uber will never get more than a 5% market share because it offers a rather specialized service that only appeals to certain individuals. Another is that Uber has a much harder time competing with traditional cab companies than we have been told.
This means that the potential ridership for Uber could be far more limited than we were told. It certainly calls the $50 billion valuation into question. It also means that Uber’s real value could be as a platform to offer a wide variety of services, not as a hire-car solution. That appears to be why Uber is devoting more and more of its resources to developing new technologies.
Uber and Ford to Test Self-Driving Cars in Arizona
Uber and Ford Motor Company (NYSE: F) have apparently entered into an alliance to test self-driving cars and advanced mapping technology in Arizona. Fortune reported that Uber and the University of Arizona’s College of Optical Science will test Ford Fusions equipped with next generation mapping and autonomous driving technology in Tucson.
Fortune writer Kirsten Korosec thinks the vehicles will be self-driving because Arizona governor Doug Ducey has signed an executive order that will allow the testing and operation of autonomous cars in Arizona. The order makes sense because several companies, including Ford, have proving grounds for vehicles in Arizona.
The new alliance could take the place of one Uber had with Pennsylvania’s Carnegie Mellon University. Uber apparently took advantage of that deal to poach around 40 top robotics researchers from Carnegie Mellon for its self-driving car development effort.
Ford has also opened an office in Palo Alto, California, to coordinate its autonomous vehicle efforts. The automaker is also helping to finance a 32-acre autonomous car testing facility in Ann Arbor that will be operated by the University of Michigan.
An alliance between Ford and Uber makes a lot of sense because Uber has no manufacturing expertise, while Ford has no background in artificial intelligence or Big Data. I imagine other similar alliances between technology companies and automakers will soon be announced. A similar partnership could be developing between Apple Inc. (NASDAQ: AAPL) and Fiat Chrysler.
It looks like Uber is trying to develop other sources of income because its ride-sharing business is on very shaky legal ground. One has to wonder if Uber will simply become a software and social media company that focuses on transportation and dump networked transportation at some time.