Uber's $1.2 billion payday
Ride-sharing service Uber Technologies just got an uber payday: a $1.2 billion investment round for a valuation of $17 billion. That puts the company into the elite realm of Internet startups. The size of the sum also raises the question of what the company might be planning to do. After all, that's a lot of cash for a transportation business that depends on others to supply the labor and vehicles.
The new valuation, which represents close to a quadrupling of valuation in less than a year, according to The Wall Street Journal, would leave Facebook (FB) as the only tech company that had raised money at a higher valuation. The $1.2 billion additional investment puts Uber's total at slightly more than $1.5 billion.
The new round of funding, led by Fidelity Investments, may give Uber the largest total pot of private investment money after Facebook's pre-IPO $2.4 billion. It's larger than Twitter's (TWTR) $1.2 billion and Groupon's (GRPN) $1.1 billion. Among Uber's competition, Lyft comes in a distant second at $332.5 million.
Uber claims to offer its users "better, faster, and cheaper" transportation than taxis in the 70 cities in which it claims to operate. The business model uses resource sharing. People sign up to be drivers for the company. Consumers use a smartphone app to book a ride at prices less than what local cabs charge, with fare-splitting among different passengers available. Uber takes an approximately 20 percent cut for enabling the transaction.
An interesting question is why Uber needs this level of capital. Here are a few possible answers.
One is it wants to bury its competitors in a wave of marketing and expansion to virtually corner the market.
A second reason might be the coming regulatory pushback against Uber. A number of states and municipalities have started to react badly to sharing-based companies because they often operate without obeying the same regulatory demands as established industries.
For example, such cities as New York and San Francisco have looked into curbing short-term rental company Airbnb from enabling users to rent rooms in their own apartments because the individuals don't pay the taxes and they operate without inspections or insurance requirements. The Virginia motor vehicle agency has sent a cease-and-desist letter to Uber and Lyft, ordering them to stop offering transportation services without the proper permits.
Third, it could be that Uber is preparing to replace its drivers with automation. After Google (GOOG) unveiled its driverless car prototype, Uber CEO Travis Kalanick said the reason his service "could be expensive is because you're not just paying for the car -- you're paying for the other dude in the car."
Kalanick said the time when drivers -- some of whom reportedly make more than $90,000 a year -- could be replaced was far off. But those who plan to make money through Uber might ask what that means for a tech company, when technologies and businesses can come and go in the blink of an eye.