Ride-hailing is Shaping Up for a Showdown in 2016

Ride-hailing is Shaping Up for a Showdown in 2016

There was perhaps no more spectacular a business story in 2015 than the meteoric rise and astronomical valuation of ride-hailing leader Uber. In our own Certify SpendSmart data we saw how over the course of the year Uber eclipsed taxis and gained significant ground on car rental as a percent of total national ground transportation expenses. Current trends also indicate Uber will continue its growth and dominance in the category throughout 2016.

Or will it?

A couple of interesting developments in the closing days of 2015 and the start of the New Year would suggest Uber’s dominance is not likely to go uncontested in the year ahead. First, Sidecar, a pioneer and once-promising contender in the space operating in ten U.S. cities, closed its doors forever on December 31. On one hand, Sidecar going out of business means reduced competition for Uber. However, it’s also a clear signal that the ride-haling category is maturing as an industry, and as a result competition is only going to become more focused and more intense.

Enter interesting development number two. Just last week General Motors announced it is investing $500 million in a strategic partnership with the number two ride-haling service, Lyft. The primary focus of the paring is to create a seamless network of autonomous/driverless taxis, which is largely seen as a direct response and challenge to similar (but separate) efforts from Uber, Google and Tesla Motors. According to Forbes, GM is currently the sixth largest car company in the world, and the new alliance with Lyft establishes the first substantial relationship between Silicon Valley’s app-driven technologies and Detroit’s automotive manufacturing machine.

In the race to create the driverless taxi, it can’t hurt to have one of the world’s oldest and largest car companies on your team. Also, aside from Tesla’s individual efforts, Lyft’s partnership with GM is a significant point of difference and potential advantage over the competition. But building autonomous taxis isn’t the only strategy GM and Lyft are planning to take market share from Uber.

While driverless cars may be the ultimate goal, today’s ride-sharing industry needs drivers in order to be successful. To that end, GM and Lyft also announced they will create a number of short-term car rental hubs across the U.S. that will allow people who do not own a car to pick one up and in that moment become an income-earning driver it for Lyft. In theory, this would create an entirely new and untapped source of would-be drivers for Lyft, allowing the company to grow its base of operations and expand into cities and demographics where car ownership presents a barrier to driver recruitment. Pretty smart.

So, the stage is set, and 2016 will no doubt be a pivotal year in the ride-sharing industry. And while much has been made of Uber’s staggering valuation, which at $62 billion is about $10b more than GM and Lyft combined, victory in the ride-sharing space won’t be determined by VC investment alone.

Game on.