Time to worry about an Uber monopoly
The food delivery service market is big business and the competition to control the industry may be ramping up. More people than ever before are using apps to order food from restaurants directly to their homes; if one company can start to dominate then they will make an awful lot of money out of it.
Enter Uber. The company is most famous for its innovations in the transport industry, whether that is its taxi and ride-sharing services or the strides it is making in the world of driverless cars. The company also operates a food ordering and delivery platform called Uber Eats which has been growing steadily.
Now Uber is reportedly making moves to purchase Deliveroo, its main rival and the biggest player in the food delivery world for a price of £1.5bn. With the prospect of Amazon entering the market and JustEat’s recent acquisition of Hungry House, Uber has identified now as the time to make the biggest move of all in an attempt to win the market just as the war is beginning.
As reported by the Financial Times: “UK-based Deliveroo is one of Europe’s best-funded start-ups, raising $385m last year in a round that valued the company at US$2bn. It has ploughed millions of dollars into defending its market share and differentiating itself from rivals. This has included building industrial kitchens for restaurants to use as hubs for Deliveroo orders. The company is also hiring hundreds of new tech employees at its London headquarters to bolster its expansion plans.”
This fits perfectly Uber’s demonstrated business model in the taxi market. The firm openly aims to artificially destroy competition as early as possible through aggressive purchases, subsidised fares and massive investment into new technology. The theory behind this is that destroying competitors early on by burning through money at the beginning will leave the field open, making Uber the only big company in the sector. Once this is achieved Uber can cut all non-essential costs at the same time as increasing prices in the knowledge that customers have no other realistic options.
Uber has not met with complete success in the taxi and ridesharing business but it has arguably become the main player already, and if it can be the first firm to perfect driverless cars then it will surely go on to dominate in a way that means no one else can realistically catch up.
Viewed through this lens the prospective purchase of Deliveroo makes perfect sense and should be worrying consumers.
It is not a stretch to say that Deliveroo is a major player in the business thanks to its own aggressive expansion. If Uber can neutralise it with a big injection of cash then suddenly it will have a majority market share. This lays the groundworks for it to smother other smaller competitors and achieve total dominance. Once it does this then it can raise prices in the knowledge that people have no other option.
Furthermore, if Uber succeeds in fully developing its driverless cars then it will be in an even stronger position. Not only will it be able to operate without drivers – thereby cutting human resources costs to almost nothing – but it will be able to fold its Uber Eats business into the same system as the taxi business, also cutting overheads in the back office.
If Uber can achieve this combination of cutting costs and raising prices then its profit margins will become so enormous that it could become something close to an invincible corporation. It might sound hyperbolic if it wasn’t the publicly stated aim of the company to do away with both their drivers and all competition as quickly as possible. These are worrying times indeed for ordinary people who are potentially about to have big changes forced upon them.