Mobility Uber takes another go at Germany's tough ridesharing market

Competition is fierce in the world market for ridesharing, and Germany is a small but coveted prize. Will Uber's hubris allow a competitor to accelerate?
Quelle: dpa
Not what Uber ordered.
(Source: dpa)

When Uber first arrived in Germany in 2014, it followed its standard procedure at the time: Enter the market by storm and worry about getting permission later. The tactic that made it a ridesharing market leader in the US did not fly in Germany, where even the permits need permits.

This time around, Uber is trying a new tack: Following the rules. Rather than challenging the German taxi industry directly, Uber is working with licensed private car services that will act as subcontractors for Uber to manage drivers, cars and liability. It's a legal gray zone that would let the startup operate solely as a platform. And it's a last-ditch effort for Uber to retain its top spot in the world mobility market.

Competition has been getting tougher. Didi Chuxing of China and Grab of Singapore have essentially run Uber out of Russia, China and Southeast Asia. Lyft picked up more market share in the US and Canada after former CEO Travis Kalanick's bad behavior triggered a widespread Uber backlash last spring.

New York recently pushed pause on new ridesharing companies in the city, and London granted Uber a probationary 15-month license after a total ban was overturned. In the first half of 2018, Uber reported revenue of $5.3 billion (€4.6 billion) and losses of $1.6 billion; Japan's Softbank valued the company at $48 billion this January, $20 billion less than the previous valuation.

But just yesterday, Toyota announced it was investing $500 million in the company at a $72 billion valuation to further its exploration of autonomous ridesharing. In June, Toyota had invested $1 billion in rival Grab, which dominates the Southeast Asian ridesharing market.

Does Uber translate?

Germany has been one of the harder markets for Uber to crack. That has made it even more important, or it could be that Uber just wants the one it can't have. Right now, the startup's app lets users order licensed taxis in two German cities: Berlin and Munich. “Germany as a market for Uber is a market with an enormous promise that hasn’t been realized,” CEO Dara Khosrowshahi said at a Munich tech conference in June. “Our strategy on Germany is a total reset.”

That strategy is focused on working with the licensed car services and rolling out its Jump e-bikes this fall. "Uber isn't interested in the taxi market but the mobility market as a whole," said Christoph Weigler, Uber's Germany chief. It wants to be the Amazon of transportation, as Mr. Khosrowshahi put it.

In Germany, politicians have started acknowledging that regulation has not kept up with the digital revolution, and researchers are pushing for deregulation of passenger transportation. Germany's federal transportation ministry is currently considering passenger transport law reform. The ministry said the number of private cars rose by 10 percent in the past five years to 40,000; meanwhile, the number of taxis hovered around 50,000. Uber's success will largely depend on how much the passenger transport rules are liberalized.

At present, finding suitable subcontractors seems to be difficult for Uber as it attempts to enter a third city in Germany by the end of this year. It aims to have a presence in every major German city by 2020. Currently, Uber Pool is only allowed as an experiment; otherwise, carpool ridesharing is not permitted. And unlike taxis, chauffeured cars must return to their home base after delivering a client; those passengerless trips annoy Uber to no end.

"Germany isn't a fast mover," said Kersten Heineke, a partner with McKinsey in Frankfurt. The country's taxi industry is stronger and of higher quality than in the US and some other countries, so there wasn't as much of a need for disruption.

And Uber underestimated the amount of adaptation that would be required at the state and local level in Europe. "Ride-hailing is a city-by-city game," Mr. Heineke said. A national or global brand might have some advantage with name recognition when entering a new local market, but homegrown platforms can still keep a strong foothold by adhering to local custom. 

28 Ridesharing's biggest players-01 (1)

Global competition

Didi Chuxing is by far Uber's biggest competitor, operating in China, Hong Kong, Taiwan, Mexico, Australia, Japan and Brazil; Uber operates in 65 countries. But Didi reports serving up 7.4 billion rides in 2017 and Uber reports 4 billion. Without specific plans for Germany, "DiDi is open to collaborating with partners around the world to bring better services to local communities," a spokesperson told Handelsblatt. Those partnerships have sometimes taken the form of direct investment. Didi has invested money in ridesharing competitors Lyft, Grab, Ola, Careem and Taxify, and it bought out Uber's China business in 2016.

Thanks to picking up some Uber refugees last year, Lyft now claims to own 35 percent of the US ridesharing market. It only operates in the US and Canada but completed 376 million rides last year. Ola dominates the market in India, delivering 1 billion rides in 2017. It has now expanded to Australia and the United Kingdom. Is Germany on its radar? "Ola is always exploring new opportunities for business and this often includes assessing the potential of new cities," a spokesperson told Handelsblatt.

Home-grown ridesharing companies have had a big advantage in Southeast Asia, like Go-Jek of Indonesia and Grab of Singapore, which bought out Uber's regional business earlier this year. Are there no more worlds for Uber to conquer?

Auto companies on the move

Local competition for Uber could soon come from Germany's car companies themselves. Daimler has been collecting mobility startups in the past few years: MyTaxi, Beat, Chauffeur Prive, Hailo, Turo, Via and Clever Taxi all began as ride-hailing or carsharing startups but are now part of the Mercedes' maker's Mobility Services division. Its ridesharing operations have 16 million users and delivered 76 million rides in 2017. Daimler and BMW are attempting to merge their carsharing subsidiaries Car2Go and DriveNow, pending approval from antitrust agencies.

Carmakers in Germany see the writing on the wall when it comes to mobility. "Companies have understood they need to get into this game," Mr. Heineke said. "By 2030 a strong majority of inner-city mobility with cars will be autonomous and shared." Germany may move a bit more slowly than the US and China, but every German car company has started mobility projects, some more customer-facing than others. Toyota is buying into Uber and Grab; Volkswagen has its shared van service Moia. Google's autonomous Waymo project has just set up operations in China; while it's not a traditional car company, this isn't a traditional industry anyway.

Advisers at McKinsey believe what we're seeing now is just Ridesharing 1.0, the first stage towards the destination of autonomous mobility. Mr. Heineke predicts that five years from now, two to four major players will hold the majority of the global ridesharing market, and the first cities will have autonomous mobility. And once autonomous vehicles hit the road, the transport of people and goods is going to blend dramatically, he said, where we'll see more integration with infrastructure and public transportation.

Andreas Macho, Christian Ramthun and Christian Schlesiger of WirtschaftsWoche contributed to this report. Grace Dobush is an editor with Handelsblatt Global in Berlin. To contact the author: [email protected]