Uber’s path to world domination

Want to get a really great financing package on a new car? You might want to consider becoming an Uber driver.

That's the message the limo app company sent people on the outside looking in last week, when it announced a partnership with General Motors and Toyota that would factor the robust income a driver can make using the Uber platform into the interest rate on a car loan. Depending on the buyer's own credit rating, Uber says, the deal could lower their loan payments by a few hundred bucks a month. With credit loosening for car loans, it's the kind of thing that could make the difference between signing up to be a driver for a traditional cab company and striking out on one's own as an independent, vehicle-owning Uber contractor.

It's also a strong reminder of the returns to scale -- and the capital that makes that possible.


It's getting easier to buy a car. (Experian)

Uber, which launched in San Francisco in 2010, has expanded quickly through almost its entire lifespan. But it really went into hyperdrive over the past few months, after it received a $258 million investment from Google and TPG. That's helped it set up shop in a total of 60 cities, and continue building out its user base in the powerhouse markets of New York City, Boston, Philadelphia, Chicago, Dallas and San Francisco. When you're basically just an app that facilitates transactions between drivers and people who need rides, there's little friction to scaling up -- except having the right number of drivers equipped to do the job.

Now, with the ability to deliver potentially thousands of customers to GM and Toyota, it can effectively achieve the same level of market power as an established car rental company that negotiates discounts on bulk purchasing for their fleets. Even better, as Slate's Matt Yglesias points out, somebody else lays out the cash up front and takes on the bother of handling the assets.

In that one move, Uber gets a lot closer to negating the advantage of other ridesharing services, such as Lyft and Sidecar, that can grow with little capital investment by signing up drivers who already own cars. Meanwhile, it's also been cutting rates for its lower-cost UberX service in an Amazon-like strategy to gain market share even at some short-term marginal cost. And just recently, Uber also announced a partnership with Paypal that will allow it to expand more quickly into markets with lower credit card penetration. For the granddad of payment companies, it's about partnering with a market leader that offsets Paypal's own slightly stodgy, Web 2.0 reputation.

“It’s important to be where disruption occurs," Paypal president David Marcus told Bloomberg. "You want to partner with the companies creating an amazing consumer experience.”

Which doesn't mean that smaller competitors won't continue to exist, at least for those who like their rides with pink mustaches (and Lyft itself certainly recognizes the need for speedy growth). But the bigger Uber gets, the easier it's going to be for more people to join Uber, and the longer it's going to be able to sustain discounts aimed at forcing others to the margins. Having Uber go public -- which the tech press has been murmuring about for a year -- would only accelerate the process.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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