Uber’s next act: taking on Amazon

In the years since its founding in 2009, Uber instigated a revolution in transportation, spread its disruptive business model into a range of sectors and became one of the world’s most valuable private tech companies. But the one thing it could not do was turn a consistent profit.

Then, seven months ago, the company — now listed — reported $1.1bn in annual operating profits, its first ever. This was something investors had long been clamouring for. Chief executive Dara Khosrowshahi called it an “inflection point” in Uber’s history: a company once beset by disputes with regulators and allegations of a toxic culture, even theft of trade secrets, had turned a corner. It was proof, Khosrowshahi announced, that Uber could “generate strong profitable growth at scale”.

The big question for Uber, 15 years on, is how to keep it up. Khosrowshahi, who took over in 2017, brought the company to operating profitability by homing in on its core business, cutting costs and offloading experiments including its driverless vehicles unit. But for Uber to keep growing, it will need to keep adding customers for its expanding roster of services.

Flights, trains, scooters, three-wheelers, even yachts are among the modes of transport users can book. Via its second customer app, Uber Eats, launched in 2015, shoppers can order everything from meals to groceries and late-night booze. And Uber’s business-focused arm, Uber Direct, is small but growing. Its couriers now transport goods on behalf of major brands including Sephora, Walmart, Apple and McDonald’s in the US, and supermarkets including Tesco in the UK.

Some backers hope that this growing roster of services might produce something akin to an “everything app” like China’s WeChat, which enables users to do everything from payments to messaging and gaming and more. Investors “have been searching for that type of super app in the west for a long time, which has mostly been portrayed as a Chinese accomplishment”, says early Uber investor Bill Gurley.

Khosrowshahi, who in 2019 proclaimed that he wanted Uber to be the “operating system for your everyday life”, tells the FT that is still very much the company’s goal. Uber, he says, should be the “default choice for the movement of people and things”. Yet rather than one “super app”, the company is “building three”, he says — Uber, Uber Eats and its Uber Driver platform for couriers and drivers.

But competition remains extremely fierce. Rivals including Lyft, Bolt and DoorDash are all pushing membership schemes in the battle for customers. And the emphasis on delivery also puts Uber in ever more direct competition with the ecommerce giant Amazon, which dominates retail and logistics.

The companies are “clearly all on a collision course”, says Youssef Squali, lead internet analyst at Truist Securities.

Khosrowshahi is bullish about the comparison. “Uber’s technology can allow retailers of all sizes to compete with Amazon,” he says. “While they are the global leader in ecommerce, we believe Uber can be the global leader in local commerce.” Amazon declined to comment.

But some have their doubts about the breadth and scale of the company’s ambitions. “Uber is trying to do a lot. Will that be dilutive to the brand or their ability to execute?” says one adviser to a competing gig-economy company.

Uber’s first year of annual operating profitability followed a ruthless push to drive down costs, which included axing a quarter of its staff during the pandemic and offloading non-core businesses.

Meanwhile, the number of people who use Uber’s services has been growing: from 45mn at the end of 2016, the number of active monthly users worldwide had more than tripled to over 150mn by the middle of 2024.

“They exited a lot of markets where they didn’t see a clear line of sight to becoming the number-one player,” says ClearBridge Investments analyst Naveen Jayasundaram. Rivals including Deliveroo, Just Eat Takeaway and Delivery Hero, meanwhile, are yet to report a full year of operating profitability as listed companies.

Now, Uber appears to be in more expansionist mood again. The company has rolled out new products, including discounted Uber membership for college students and creating dedicated accounts for teenagers where their journeys can be live-tracked by an adult. The company is also promoting cheaper ride-hailing products, such as its shared Uber Shuttle service, bookable in advance. In February, Uber said that it was aiming to expand even further in “huge new countries” including Argentina and Japan.

Partnerships have proliferated. Uber has recently signed deals with US online grocery delivery company Instacart, electric vehicle maker BYD and autonomous vehicle (AV) companies. Though it no longer wants to develop driverless vehicles itself, the company has ambitions to become the key platform for riders looking to travel in them, unveiling deals this year with the troubled driverless vehicle company Cruise and the self-driving software group Wayve. In September, it said autonomous ride-hailing would launch in early 2025 in the US cities of Austin and Atlanta with another partner, Waymo. 

Given that AVs have no drivers who need paying, Uber keenly hopes that they will prove profitable — but it’s a long-term gamble. The vehicles could be a “huge margin business at scale” for Uber, but this might be “15 years away”, says TD Cowen analyst John Blackledge. And the technology is likely to help rivals too.

The company is also eager to expand its delivery business. One fast-growing if lesser known service is its Uber Direct operation: delivering goods when shoppers order directly from retailers, rather than through the Uber app.

Merchants, meanwhile, are increasingly making use of opportunities to advertise on the app, which allows them to promote their restaurants and deals. This year, Uber’s advertising business reached an annual revenue run rate (an estimate of annual sales based on current levels) of more than $1bn, which “speaks to the execution of the company”, says Gurley. “It’s not easy to launch an ads business out of the blue.”

A major element of the strategy is Uber’s membership scheme, Uber One, which spans both delivery and mobility. Its 19mn members — who pay around $10 to get perks including free delivery and discounts on trips and deliveries — spend 3.4 times more than non-members each month. 

Uber has often talked about the power of its platform. This so-called “platform advantage” was “one of the key differentiators between Uber and single-product companies”, said analysts at Deutsche Bank in February. Greater use by consumers, the theory goes, should mean higher earnings potential for drivers and couriers, leading to more supply and lower prices, fuelling more demand, all helped by a broadening range of services. 

The platform means “we can acquire users at a lower cost and generate a higher lifetime value than our competitors,” and “bring new products to market more quickly”, says Khosrowshahi.

Despite some scepticism, Uber chief financial officer Prashanth Mahendra-Rajah said in February that there was strict “discipline” governing which new Uber product ideas got the green light.

There is still undeniably room for growth. Although Uber’s name is now ubiquitous enough to have become a verb in many countries, on average fewer than 10 per cent of over-18s in the US use its ride-hailing services each month. Although the company says it now supports more than 1mn trips per hour globally across delivery and mobility, use in other major markets is similarly low. It is still “very under-penetrated in both ride sharing and delivery”, says Jayasundaram.

The total value of the bookings on Uber’s platform rose 19 per cent year on year in the latest quarter, a slight slowdown from the previous three quarters and substantially lower than the pandemic-fuelled growth seen in 2021 and 2022, which at one stage reached as high as 114 per cent. In February, Uber said it expected growth in the value of bookings made on its platform to be in the “mid to high teens” over the next three years.

A nagging question is the cost of all this to workers. For years, campaigners have been pushing for higher pay and better conditions, and the way that drivers and couriers are treated and classified in some markets has been challenged by regulators and courts.

After the UK Supreme Court ruled in 2021 that Uber drivers were workers entitled to rights such as the minimum wage, the company agreed to reclassify them in one of its most significant concessions so far, but the drivers are still not classed as employees. In the US, California’s Supreme Court in July upheld a landmark ruling that allows the sector to treat workers as independent contractors. Similar debates have been taking place in countries including France, the Netherlands, Switzerland and New Zealand. 

Uber’s efforts to win drivers back after the pandemic helped to boost user demand, because more supply pushed down waiting times and prices. But now, in some places, “over-saturation is hammering every driver”, says consultant and driver Sergio Avedian. 

“Uber says there will be more demand with lower fees and you’ll make more money,” says Avedian. But “in Los Angeles right now, I can’t make more than $20-$21 per hour before expenses”. Uber says earners in California are guaranteed to make at least 120 per cent of the minimum wage while on trips, thanks to legislation upheld by the state’s Supreme Court.

Despite the UK’s legal changes, Gavin, an Uber driver with long Covid who is unable to work full-time, says that the proliferation of ride-hailing apps has hit drivers hard. “You have to work twice as hard for the amount you previously used to take . . . I’m very lucky if I cover the costs on my vehicle and have enough left over to eat at the end of the week.” Uber said drivers in the UK are guaranteed to earn at least the national living wage when on trips but the “vast majority of drivers can and do earn much more”.

Last year, Khosrowshahi said he wanted to expand Uber Direct from working with 3,500 brands to partnering with “every single local retailer”. As well as challenging immediate rivals — DoorDash runs an equivalent service, Drive — this puts Uber in closer competition with Amazon, the biggest operator in the western ecommerce space.

Though Uber Direct is likely a small fraction of Amazon’s size (the company does not disclose its Direct sales, but Amazon’s net sales dwarf total revenue at Uber), Khosrowshahi insists that the company has a path forward: Uber’s technology can let retailers such as “neighbourhood businesses”, who don’t have Amazon’s vast logistics network or delivery services, compete with the giant, he says.

Uber may not have Amazon’s global portfolio of warehouses and fulfilment centres, and its couriers are likely to be going from store to home in relatively urban areas rather than harder-to-access locations, but that enables it to stay asset-light. Analysts say it is well positioned to service consumer demand to receive everything from groceries and home essentials to clothing and electronics just hours after they order them. 

Amazon, which is pushing to increase the number of same- and next-day deliveries, has recently announced a range of new logistics services, including allowing third-party retailers to use its network to deliver goods even if they don’t sell on Amazon.

Yet industry experts have long pointed out that the delivery sector has thinner margins than ride-hailing. The UPS-owned crowdsourced delivery platform Roadie says that it is “a race to the bottom”; some deliveries, it adds, are loss-making.

Does all this add up to Uber becoming akin to a China-style super app, something that becomes consumers’ main portal for every aspect of their lives? Apps such as WeChat took advantage of the proliferation of smartphones and the fact that some poorer Asian consumers had not had access to regular banking services. In the west, meanwhile, there is a host of established apps for everything from chatting to navigation to finance. 

As you move away from perishable products, it’s just more a question of how many people really need it or want it quickly?

So far, Uber’s model is different — continuing to operate as three distinct apps (ride-hailing, delivery and the one used by drivers), each of which are expanding. “The western strategy is more of a family of apps,” said Khosrowshahi in 2021, citing the example of Google’s separate Gmail and Maps apps.

Despite the success of WeChat in China, other Asian super apps, including the Singapore-based Grab (in which Uber is an investor) and Indonesia’s GoTo have faced challenges. After an expansive period of growth sparked by the pandemic, last year Grab and GoTo were forced to cut jobs and non-core businesses as investors started demanding a route to profitability. One global investor told the FT last year that the super app model had not “matured enough yet to offer a sustainable future. It is still a choice between growth or profitability.” 

An Uber that was able to deliver products from thousands of big-name brands could plausibly direct some shoppers away from Amazon. But analysts question whether consumers will be willing to pay regularly to receive goods in a matter of hours — particularly in a chillier economic climate, and especially when Amazon Prime, which boasts more than 200mn members globally, offers rapid delivery for free (in some cases same-day). 

Nikhil Devnani, an analyst at Bernstein, wonders how big that audience actually is. “As you move away from perishable products, it’s just more a question of how many people really need it or want it quickly?” 

Much like Amazon, Uber hopes its scale and tech — mapping the best routes for couriers, for example — will allow it to keep costs down, even as more services are integrated into the platform. “Anything delivery-related, that’s ultimately what they’re going for,” says Owuraka Koney, a portfolio manager at Jennison Associates.

But while Uber already is a “super app” relative to other apps in the US, argues analyst Youssef Squali, if it truly wants to become more like WeChat, it will be a “long, long road before they get there”.

Data visualisation by Steven Bernard