Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

A single question may come to mind when you read that Uber will soon sport a $62.5 billion valuation: Are they insane? Fair enough. We’ll let that crazy number sink in. Now onto an essential question for Uber and the investors who are betting billions of dollars on the company: Does the market for rides with semi-professional strangers have spillover benefits from country to country, like a social network?

Companies That Are Smaller Than Uber
Source: Bloomberg

Some types of businesses -- grocery stores, for example -- seem to be inherently local or regional. But it turns out that the Internet has conveyed advantages to companies with Earth-spanning tentacles, because personal and professional connections don’t necessarily stop at borders. 

Not so long ago different social networks ruled in different countries. A onetime Google social network called Orkut was big in Brazil. Indonesia was hot on Friendster well after most people moved on from that early-2000s flash-in-the-pan social network. Now Facebook is tops in most places. LinkedIn set up outside the U.S. from the get-go. 

Uber’s future relies on the market for on-demand rides having such a global network effect. It is banking on an advantage of having a single company with a deep pool of drivers and riders just about everywhere in the world.

Rarefied Air
Uber's rapidly climbing valuation is predicated in part on the company's ambitious global expansion plans.
Source: Bloomberg News

What is clear is that Uber will soon have collected more than $12 billion from selling stock and debt to finance its global expansion in the belief that the benefits of being in as many cities and countries as possible is worth the incredible costs and headaches, like angry French taxi drivers setting cars on fire and fights with rule makers everywhere. “We always need more lawyers,” Austin Geidt, the executive overseeing Uber’s expansion in new markets, said at a Fortune tech conference last summer.

Uber executives have described a playbook they have honed to allow the company to parachute into new markets and start service with a machine-like consistency. They say much of this process -- hiring drivers, pitching the service to riders, dealing with regulations and setting up payment systems-- is the same from Little Rock to Lagos.

Uber’s competitors view it differently. Four of Uber’s rivals, including Lyft in the U.S. and China’s Didi Kuaidi, announced on Thursday an expanded international alliance that creates a de facto global network without the costs and headaches of Uber’s do-it-yourself approach. The partnership means customers who already use Lyft in Manhattan can fly to Beijing, Mumbai or Singapore and open the Lyft app when they land to order a ride from a local driver. We'll see whether globe trotters actually will use this.

It’s also unclear whether these Uber competitors aren't going abroad on their own because they believe this is the smarter approach or if they simply don’t have the uber-cash needed to absorb the expense and regulatory body blows of global expansion.

Some technology investors -- that is, ones who haven’t backed Uber -- believe the taxi-like market is less global and more local. “The Uber network is much more naturally local to a city,” Reid Hoffman, a LinkedIn founder and startup investor, said in an interview last month with Emily Chang of Bloomberg TV. 

Uber’s ambition -- or arrogance -- to plow ahead globally despite the hurdles makes it the all-or-nothing company: If the company is right that it can establish beachheads in as many places in the world as possible, then Uber is on track to be the next huge global juggernaut. Given the scads of money the company has collected to expand, Uber will fall hard if the benefits of being everywhere at once don’t pan out. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net