Uber Should Become the Amazon of Routing

(Bloomberg Businessweek) -- More than a decade ago, Amazon.com Inc. started letting other businesses rent its computer horsepower by the hour and store digital files on Amazon’s computing infrastructure. This side hustle is now one of the most important innovations of the internet age—and a highly lucrative one. Amazon Web Services, or AWS, may not be as widely known as Amazon’s online shopping mall. But it has become essential plumbing for the technology industry, and it’s a key ingredient in Amazon’s appeal to investors.

That brings us to Uber Technologies Inc. Amazon began AWS partly because it needed flexible computer resources for its digital mall and figured other companies had similar needs. Uber has spent a decade honing technology for its own needs. Could that be the seed for its own AWS?

Uber software quickly matches people who want a ride with drivers nearby, calculates prices that can motivate drivers to hit the road, and plots efficient routes. These are tasks many companies now build for themselves, whether it’s Airbnb Inc. connecting homeowners with people looking for lodging or Instacart matching couriers with people asking them to do the weekly grocery shopping. Uber could make versions of its mapping, routing, matching, and fraud detection and payments technology available for sale to those companies and many others.

This isn’t purely a pie-in-the-sky idea. Thuan Pham, Uber’s chief technology officer, said at a tech conference in early July that the company imagines one day offering its technology to other businesses, comparing this to Uber’s twist on AWS. “We don’t see why we can’t ultimately offer that to other people,” he told attendees. But he also stressed that Uber doesn’t plan to pursue this idea anytime soon.

Copying AWS isn’t a trivial task, and it might be unwise. Part of Uber’s advantage is its technology foundation, and it could undermine the company if it sold its secret formula to others. Plus, AWS had the advantage of just about every business in the world requiring computing resources, whereas there’s naturally a smaller pool of customers for supply-demand matching and routing software. Still, it’s easy to imagine a half-measure that could be feasible. Might transit agencies be willing to buy Uber’s mapping and dispatch technology?

One area where selling Uber software to other companies could help is in the finance department. Software tends to generate profits—lots of profits. Amazon Web Services reports a profit (excluding some items) of about 29¢ for each dollar of revenue. Uber doesn’t have lots of profits. On the same basis, it had a loss of 30¢ for each dollar of revenue in the last 12 months.

Companies that sell technology to other companies are also among the most beloved investments for stock buyers. Meanwhile, Uber’s shares have dipped below the stock price in the company’s May initial public offering, and as of mid-July are lower still than Uber’s private stock sales in late 2015.
 
Ovide is a tech columnist for Bloomberg Opinion.

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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