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Virginia Slams the Brakes on Uber

New legislation is only a small stumbling block for Uber


News recently broke about Uber being banned in Virginia (along with rival service, Lyft). It’s the latest in a long line of bans, lawsuits and protests — not just in the U.S., but across the world. However, Uber — which is the leading mobile car-booking service — seems unfazed by headlines about the Uber Virginia ban.

In fact, many big-time investors, such as TPG Capital, Google (GOOG) Ventures, Benchmark Capital, Goldman Sachs (GS) and even Amazon’s (AMZN) Jeff Bezos aren’t fazed either. Uber just raised an impressive $1.2 billion round that valued Uber at $17 billion. So for now, the bet is that an eventual Uber IPO would be off the charts.

But first, let’s get some background on the company: Founded in 2009, Uber saw a huge opportunity to disrupt the traditional taxi cab industry. To this end, the company developed a sophisticated mobile app allowing users to select a nearby driver, on a real-time map. There was also a photo of a driver and background information.

To make the process even more convenient, a user did not have to shell out any cash for the ride. Instead, the cost was automatically deducted from his or her credit card, which was provided at the time of registration.

No doubt, Uber has gotten traction quickly, becoming a big threat to the taxi-cab market. Besides the Uber Virginia situation, there are also bans and lawsuits in places like Chicago, Seattle, Austin, Houston, Miami and even San Francisco.

But for the most part, the Uber Virginia approach is reminiscent to what happened when Napster burst on the scene in the late 1990s. The initial response from the recording industry was to launch a massive legal assault. There were even lawsuits against music listeners. But of course, the approach turned out to be useless. Let’s face it, the recording industry failed to realize that consumers are in charge — and they always like to see improvements.

So with the taxi cab industry, it could be headed down the same bleak road. True, the legalistic approach may provide a temporary block. But it is pretty tough to put a stop to the march of new technologies. As the saying goes: Innovate or die.

So yes, Uber Virginia just may be mostly an interestingly headline, but not much of a factor. After all, Uber continues to push hard with innovation. At the recent Code Conference, CEO Travis Kalanick hinted that the company may eventually use Google driverless cars. Naturally, this only added to the overall anger from the tax cab industry.

But there seems little doubt that the end-game for Uber is to essentially kill off the taxi cab business. With its massive funding, it will have the resources to fight protracted legal battles. However, there is also the intense competition from other operators like Lyft, LeCab, Sidecar and Hailo. These companies are all driving down the prices for rides, which will further squeeze the taxi cab industry. But so far, it seems the only response to all this is to try to stop innovation — not embrace it.

So, with all this going on, might we also see an Uber IPO? Probably not any time soon. The company will have enough money in the bank to pursue its business plan, and an offering would probably only be a distraction.

But over the next few years, an Uber IPO will probably be necessary. Keep in mind that the company wants to expand into new markets, by taking on the home delivery market that is dominated by FedEx (FDX) and UPS (UPS). All in all, this will require huge amounts of capital — and will probably bring even more legal hassles.

Here’s more about my take on Uber:

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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