Competition Between Auto Startups Heats Up

While car service app Uber is the most valuable startup ever with an $18 billion valuation, British competitor Hailo has revealed that it is giving up in the U.S., stating that marketing costs would make profitability impossible.

With Uber, Lyft, Sidecar and countless others, the market is saturated with competition, but not everyone in the industry is ready to throw in the towel. Israeli-based competitor Gett announced Wednesday that it will pay its drivers double what Uber does, in order to get drivers to participate in its service.

The startup claims it has seen 3,000% growth in demand New York City since it launched $10 flat fares last month and plans to ramp up its hiring.

“We are constantly adding more and more drivers to catch up to that massive demand,” Ron Srebro, CEO of Gett USA, said. The startup is trying to send the message that they are better for drivers.

“Right now Uber and Lyft have the edge because of deep pockets,” Mark Cuban, who invests in Breeze, a startup that leases cars to Uber and Lyft drivers, said. “Both will do well if they can figure out how to place nice with regulators.”

The car services have been fighting unions and regulators in dozens of cities and countries, as governments try to determine whether the startups are unfairly damaging the taxi industry.

“Regulators are the wild card,” Cuban said. “Neither really knows where their next battle is coming from.”

Uber has been taking direct aim at the taxi industry, marketing itself as cheaper than cabs in many cities. The startup cut prices in New York City by 20% in July, saying that the length of the promotion was contingent on demand.

Unlike services like Gett which offer flat rates, Uber prices are strongly linked to supply and demand. During peak hours or other instances of high demand, the company introduces “surge pricing,” meaning that fares can rise significantly.

In addition to taking shots at the taxi industry, some of the startups have been accused of hampering each other. Both Uber and Lyft have accused each other of ordering and canceling rides on the competing service, in order to create inefficiencies.

Venture capitalists are betting heavily that several of these auto startups will prevail. Uber raised $1.2 billion earlier this year Lyft raised $250 million. Gett is in the middle of completing a round of about $150 million.