Uber is telling the world it's just like Amazon: Here's why the similarities are only skin-deep
- As Uber prepares to go public, the company and its backers are encouraging investors to think of it as a next-generation Amazon.
- The comparison is meant to imply that Uber has similar potential to grow and extend its service to new markets.
- The companies do have several similarities, including their large size and ambition.
- But they also have vast differences, which makes the comparison flawed at base and potentially harmful for Uber.
- Visit Business Insider's homepage for more stories.
On the eve of Uber's initial public offering, a new refrain is coming from the company and certain quarters of Wall Street.
Those considering an investment shouldn't imagine the company as just a money-losing app-based taxi service, the argument goes, but as the next Amazon.
The comparison, which has been touted by CEO Dara Khosrowshahi and was the center of a New York Times piece last weekend, is a flattering one for Uber. In the past 20 years, Amazon has gone from shaky dot-com startup to one of the most valuable, dynamic, and powerful companies in the world. If Uber's executives can convince would-be shareholders it has similar promise, it may be able to get them to give it a pass on its perpetual lack of profits and boost its IPO.
"If you look at what [CEO Jeff] Bezos and Amazon did, it's one of the most transformational tech and consumer names over the last 50 years," said Dan Ives, a financial analyst who covers the tech industry for Wedbush. He continued: "Amazon's the gold standard."
The line seems to have worked. Uber has already found more than enough demand among investors for its IPO.
There are some similarities between Uber and Amazon
Amazon started off as an online bookseller and built out technological and logistical systems to underpin that business. It was later able to take those underpinnings and use them to support other businesses — first by selling CDs and other kinds of products itself, then by assisting other retailers in selling goods online, and later by offering access to all kind of companies to its computing and logistical resources.
Uber has similar potential, Khosrowshahi has said. It's already using the technology platform it built for its taxi service for the food-delivery service Uber Eats and for Uber Freight, which pairs truckers with loads of cargo. And the platform could be used for much more. Indeed, Uber is arguably one of the few tech companies to come along since Amazon that can make the case that they could one day be as big as the e-commerce giant, Ives said.
But that convenient comparison ignores important differences
Lots of companies — including many that were contemporaries of Amazon — have big ambitions. Few realize them. And almost none realize them to the extent that Amazon has.
Amazon and Uber are vastly different companies that cater to different customer needs and have had very different corporate lives. Amazon was only three years old when it went public. Uber has already been around for a decade.
Khosrowshahi and Uber's backers are comparing the ride-hailing company to arguably the most successful company to come out of the 1990s dot-com era, said Kenneth Broad, a portfolio manager with Jackson Square Partners, a San Francisco investment firm.
He described the "probability of replication" as being "not likely."
Business Insider took a close look at the two tech giants to untangle the similarities and the differences. There's evidence on both sides — a lot comes down to how much weight you place on different factors.
Here's how Uber and Amazon are alike — and how they differ:
With a market capitalization of $941 billion, Amazon is the third-most-valuable public company in the world, after Apple and Microsoft. It had 647,500 employees at the end of last year, giving it one of the largest workforces in the world. And its $233 billion in sales made it one of the largest global companies by revenue.
Uber is much smaller than Amazon, but it's still sizable, and among tech startups it's a behemoth. Its $79 billion valuation as of its last funding round made it the most valuable of the so-called unicorns by far. It's also one of the biggest, with 22,263 employees worldwide.
Uber is well known for being the most valuable tech "unicorn" — the term for a private company with a valuation of $1 billion or more. At its last private funding round, it was valued at nearly $79 billion.
But the company's prominence involves more than just its valuation. The company pioneered the app-based taxi-service industry, which has become a big business globally and helped reshape local transportation markets around the world. It has also helped jump-start and become a standard-bearer for the gig economy, in which tech companies essentially rely on armies of freelancers rather than full-time employees to deliver their services.
Though it was much smaller, Amazon symbolically became every bit as important as Uber. Even as dot-coms exploded everywhere, Amazon both stood above the pack and became a symbol of the era. It pioneered e-commerce both through its website and by backing other dot-coms targeting other retail markets, including grocery delivery and drug stores.
Uber has drawn backing from some of the biggest tech startup investors, most notably SoftBank's enormous Vision Fund. But it's also gotten funding from some of the most prominent traditional venture-capital funds, including Sequoia Capital, Benchmark Capital, Menlo Ventures, and Kleiner Perkins. As it's gotten bigger, it's also drawn investments from other tech firms, including Google, Baidu, and Microsoft, and from nontraditional startup investors, including Goldman Sachs.
For its part, Amazon too had the backing of Kleiner Perkins, which was the most prominent and prestigious VC firm of its era.
When it launched, Amazon dubbed itself Earth's Biggest Bookstore. It positioned itself and was seen by the public and investors as a rival to the big book retail chains of the time, Borders and Barnes & Noble.
Similarly, Uber's initial focus was on its app-based ride-hailing service, which at launch allowed consumers to request a ride in a so-called black car, or luxury vehicle. The company's original name was even UberCab, though it later changed it to distance itself from the traditional taxi industry.
For nearly a year after it launched, Uber was available only in San Francisco.
Amazon served the entire United States when it launched, but it didn't branch outside the country for more than three years.
Two years after launching its service, Uber debuted Uber X, which expanded the service beyond luxury vehicles. The next year, following the lead of Lyft and SideCar, Uber opened its service to nonprofessionals driving their own cars. The next year, 2014, it launched UberPool, its carpooling service, and began testing a food-delivery service that it eventually named UberEats. Three years later, the company launched Uber Freight for the trucking industry.
Uber's moves to diversify its business are reminiscent of Amazon's. The e-commerce giant started selling CDs about three years after launching its bookstore then continually expanded its retail offerings, branching out into videos, electronics, home-improvement products, toys, and eventually clothes and shoes. Early on, it opened its site and service to third parties, helping small and large businesses alike sell online. The company launched Amazon Web Services, its cloud-computing arm, in 2006, some 10 years after its public-market debut.
Uber started offering its service in New York less than a year after its San Francisco debut. Chicago soon followed. The company went international later in 2011, when it started offering service in Paris. Three years later, the company's service was available in 100 cities.
Amazon likewise showed early on that it had global ambitions. It launched sites targeted the UK and German markets in 1998, three years after debuting its US site. Two years later, it opened sites serving France and Japan. And two years after that, it launched a site serving Canada. The company now has online stores serving 16 countries.
Uber posted a profit last year but only because it sold off some of its businesses. It's never generated a profit from its operations and has needed repeated influxes of cash to keep its business running.
Amazon similarly struggled with red ink. The company reported losses for years, even after becoming a public company.
Amazon invested heavily in building out data centers, warehouses, and logistical infrastructure to support its e-commerce business. But it soon realized it could use those resources not just for its operations but also to support other companies.
Today, Amazon Web Services, the cloud-computing operation that spun out of its data-center investment, provides half of its profits. And customers spend more on buying products offered by the third-party merchants selling through Amazon's site than they do on products sold by the company directly.
Uber enthusiasts think the company has similar potential. Already it's using the systems it originally built to pair individual riders and drivers to support its food-delivery service and Uber Freight, which matches truckers and carrier services with companies needing items hauled. It's also been working on autonomous vehicles, which could one day allow it to offer a robo-taxi service.
At the turn of the century, amid the dot-com bust, many wondered whether Amazon would ever become profitable or whether it would be the next company to die. Since then, its stock price has risen some 2,700% as the company has seen its revenue — and profits — surge.
Uber enthusiasts think the company is one of the few that have the potential to do the same thing.
"Obviously, there are great growth names that have come along in the last five to 10 years," Ives of Wedbush said, adding that in terms of a platform play "that starts to have the blueprints of the Amazon model, Uber is the first one."
Amazon is at base a retailer and retail service provider that gets much of its revenue by selling products directly to consumers. To support its business, it has hundreds of thousands of employees who work in its warehouses and physical stores.
Uber is largely a transportation provider that operates a marketplace, pairing up drivers and riders. Unlike Amazon, it doesn't employ the people who are primarily responsible for offering its service to consumers.
From the start, Amazon could offer its core service to Americans regardless of where they lived. It was able to serve customers in rural markets as well as urban ones. And its service was equally relevant to both, if not more so to rural customers who faced more limited choices of brick-and-mortar stores.
But Uber is largely an urban phenomenon. Rural and even suburban consumers generally rely on their own vehicles to get around. It's not clear that Uber will ever find much of a market for its core ride-hailing service or even its food-delivery service outside dense urban areas.
"What's their business plan there?" asked Scott Rothbort, a longtime tech investor who is president of LakeView Asset Management. He said the idea that a town of a few thousand people that's separated from the nearest town by 30 or 40 miles would suddenly be ordering UberEats "doesn't make sense to me."
Amazon began trading on the public markets less than two years after it launched its website. Immediately before its IPO, it was valued at just $60 million. In 1996, its last full year before going public, it had a mere $16 million in revenue and posted a loss of $6 million. Its free cash flow — the cash generated or used up in operations less the amount it invested in property and equipment — was in the red to the tune of just $3 million.
Uber, by contrast, is going public almost nine years after it debuted its service. Last year, it had $11.3 billion in sales and a $3 billion operating loss. Its free cash flow was a negative $2 billion.
Uber has been operating now for nearly nine years. Despite that, it's still racking up huge operating losses and burning through ample amounts of cash. Last year, the company lost $3 billion on its operations and managed to post a net profit only because it divested some of its money-losing overseas operations.
Amazon reached a similar point in its life cycle in 2004. But by then it was comfortably profitable and cash-flow positive. It started generating positive free cash flow in 2002 and started to post a profit according to standard accounting principles in 2003. In that year, Amazon generated $346 million in free cash flow.
The dot-com bust of the early 2000s wiped out scads of e-commerce, internet, and tech companies, including several that Amazon invested in. While Amazon was never seriously in danger of going out of business, its big losses and the carnage in the sector spooked investors and worried analysts. To appease them, the company cut its costs and investments and made a concerted effort to start generating cash and profits.
Uber, by contrast, was born after the Great Recession and has never had to adjust to an economic downturn. It's also never had to worry about tightening credit or investment markets. It's always found ready cash to fund its losses.
The dot-com downturn "stress-tested Amazon, and it came through," said Daniel Morgan, a portfolio manager and longtime tech investor at Synovus Trust. "But these unicorn companies aren't really stress-tested."
During the dot-com boom, Amazon faced numerous competitors in e-commerce that threatened to limit its potential markets. Many sold their products at a loss, making it tough for Amazon to operate profitably.
But the recession of the early 2000s killed off or hobbled many of these rivals, including companies such as Webvan, Pets.com, and eToys. That gave Amazon the ability to enter and exploit other markets — and to operate on a more sustainable basis. Though it still faced formidable challengers in Walmart and eBay, neither focused as closely on online retailing as Amazon did, giving it room to cement its lead.
By 2004, when Amazon was the same age Uber is now, it was consistently profitable and clearly the dominant player in the online retail market.
Uber is the leading player in the ride-hailing market in the United States and other countries. But it still faces plenty of competition, most notably in the US from Lyft, which just had a public offering of its own. Both companies seek to lure riders with discounts and drivers with extra pay. Such incentives have weighed on their financial results — and most likely will continue to do so.
Amazon has helped kill off numerous bookstores. Its broader retail operations have hurt brick-and-mortar stores of many different kinds. Its cloud-computing business has helped overturn the idea that companies need to operate their own data centers. It now has its eyes on healthcare, it just launched its own freight service, it already delivers much of its own products to customers, and it may eventually get into banking.
Uber has branched out into trucking services and food delivery. It's not clear, though, whether there are other obvious markets to which it can apply its technology or service.
Investors haven't yet identified "how many structurally disadvantaged businesses can Uber disrupt," said Tony Ursillo, a hedge fund investor who's studied the tech industry for years.
Amazon has been led by its founder, Jeff Bezos, from day one.
Uber CEO Dara Khosrowshahi is a professional operator who was brought in to lead the company after a controversial period under its cofounder Travis Kalanick.
That's not a knock against Khosrowshahi. He's an incredibly talented manager with an impressive track record leading businesses. But founders and professional operators have different styles, priorities, and motivations. And if you're thinking of Uber as another Amazon, you'd be remiss not to take the person in the driver's seat into account.
Few companies have ever succeeded the way Amazon has in the past 20 years. The company benefitted from host of factors that all came together, including great management, lucky breaks, and good timing.
Whatever potential Uber may have, the likelihood that it will match Amazon's success is slim at best.
"It's like comparing LeBron James to a great high-school player," Wedbush's Ives said. He continued: "There's only one Amazon."
And as flattering as the comparison may be for Uber and as beneficial as it might be for its IPO, it could ultimately prove harmful if it doesn't live up to that potential, he said.
The comparison "sets them up to fail," Ives said.
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