The Issues Uber Must Address Before it IPOs

People love Uber's business model – and love to hate it.

Feb 10, 2014 at 12:35PM

The transportation industry is an exciting place these days, particularly if you have a smartphone. And nothing personifies the trend quite like the on-demand taxi app Uber, which was valued at a sky-high $3.5 billion back in August and continues to grow, spreading via urban interest across the United States and into international hubs (most infamously, France).

Along the way a dozen rivals have sprung up to offer competition, from LeCab and Allocab to SnapCar, Sidecar, Lyft, and a pile of other webspeak names, all offering a similar service: A taxi-calling app using location-based tech and digital maps to get you a ride exactly where and when you want it.

Waiting in the wings

Uber is likely to announce an IPO eventually, but for now the transportation company is waiting on the market , possibly to enter a few more cities, and probably to conduct a few more rounds of private funding. The Uber cabs have been supplemented by limousines and SUVs, so maybe the company also wants to add a few more models onto its lineup before venturing to deeper waters.

When the IPO does come, be ready. The services Uber and crowd offer are the perfect example of disruptive technology, an innovation that will sweep away all older services by making them irrelevant. Of course, the older taxi companies and unions don't like it, but the fight is ultimately a futile one.

Actions taken against Uber have looked more ridiculous than effective, such as the desperate "15-minute" French rule created in the face of Uber and LeCab, requiring drivers to wait 15 minutes between the time they are hailed and the time the passenger gets in the car. The law was so weird, impossible, and market-twisting that it lasted a total of one month  before it was suspended as the government admitted there are probably better ways to help out the old-fashioned taxi cab industry, even in highly regulated France.

Bumps in the road

The French fiasco does show the tenuous place that Uber and clones occupy in the current market. The on-demand services simply are not regulated or controlled like old services. Sure, they are more flexible, adaptable, and profitable, but they also lack the comfortable relationship with local governments and competitors that older, "yellow" cab companies have. And this, perhaps more than any other reason, is why Uber is hesitant to consider itself a public corporation.

The other issue is, of course, pricing – both in the driver's seat and out of it. Much has been made of Uber's surge pricing , a significant departure from classic pricing that charges more at busier times of day based on rush hour, weather, holidays, and other events. Uber is far from the first company to utilize surge pricing (the ski resort in my town has a surge model for passes that receives its share of complaints, too), but people are not used to these surge tactics in the transportation industry, and it's leading to some bad press.

On the other side, Uber has also fielded complaints concerning its new $10 charges required of all drivers for the privilege of using the smartphone data plan that comes with Uber phones. These kinds of growing pains should be expected in new technology, since Uber is still working to find cost-effective ways of implementing its data network. Driver liability, map errors, and again the lack of regulation are also signs of a market in its early childhood.

There's no question, Uber will be big, and there remains plenty of room for rivals to meet or exceed it. The nature of disruptive business indicates that old taxi services are on their way out and massive growth waits in the future. But where that growth will occur, and when the world will be ready for it, remain key questions. For now, the storm continues to build before breaking.

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