The risks and rewards for the ride-sharing market in 2014

1Executive Summary

We are a few years now into the rise of the share economy as an accepted startup business model that can reap returns for investors. This market is perhaps most exemplified by Airbnb and its recent $10 billion valuation. As the sharing of everything from commercial real estate to household goods increases, enabled by mobile apps and online platforms, a broader opportunity has arisen in traditional cleantech to increase resource efficiency.

Cleantech investing has seen the passing of major investments in next generation technologies like solar and battery technology that will move us toward clean power. Those types of investment carry science risk, and while their payoffs can be massive due to proprietary IP, commercialization has proven difficult, particularly in the face of major science risk. The share economy, on the other hand, offers an opening for investors to make incremental differences in the movement toward choosing access rather than ownership.

One area that has remained vulnerable to disruption and transformation is the transportation sector. There are a few macro trends driving the disruption:

  1. After six decades of Americans driving more miles every year, that number is beginning to decline.
  2. There’s accumulating evidence that young people who are frequent internet users have lower rates of owning driver’s licenses. In 2011 the percentage of 16- to 24-year-olds with driver’s licenses hit a new low of 67 percent, down from its high in the early 1980’s of well over 80 percent.
  3. The re-urbanization of many major cities is fueling increased public transit ridership as some of the trends of suburbanization are being reversed.
  4. Market research suggests Millennials have a greater brand attachment to a smartphone than to an automobile.

These trends, aided by the proliferation of cloud computing and smartphones with location-based capabilities, create a situation where the transportation sector is ripe for innovation. And we’ve seen examples of that already with car-sharing, including both centralized models like Zipcar and peer-to-peer models like RelayRides and Getaround.

But the possibility of leveraging the existing stock of automobiles for ride services opens up the possibility of a world with greater transportation options and a further disincentive to drive one’s own car. The long-term efficiency payoff would be if a world of better public transit, ride sharing, and car sharing make it more possible to live without car ownership. There’s evidence of an incremental impact in this direction in studies of Zipcar owners.

And while just a few years ago, finding capital for ride-sharing startups might have been difficult due to concerns over social trust and regulatory and insurance challenges, the environment has shifted considerably in the last 12 months. Lyft announced it had raised a $250 million round this year, bringing its total raise to $333 million at a valuation of over $700 million. Sidecar announced an additional $10 million raise recently atop the $10 million it had already brought it. Much has been reported about Uber’s $3.5 billion valuation as leaked documents suggest it did roughly $200 million in revenue last year (Uber’s ride sharing service Uberx likely was only a small part of that), and the company itself raised over $250 million last year.

From car sharing to ride sharing, significant investments are betting on the transformation of how we get around. Smartphones have enabled the quick visualization of diverse transportation options and those companies that can deliver efficiency and value to consumers will have a strong chance at succeeding in this new market.

Thumbnail image courtesy of 3dan3/Thinkstock.

Relevant Analyst
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Adam Lesser

Cleantech Curator Gigaom Research

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