Is Uber Local Advertising’s Duopoly Killer?

The most cited challenger to advertising’s Facebook-Google duopoly is easily Amazon. And rightly so: its ad business reached $10 billion last year and $3.6 billion in Q3. eMarketer predicts it will reach 10 percent of U.S. digital ad revenues by 2020, versus Google and Facebook’s combined 60 percent.

But when zeroing in on local advertising and commerce — Street Fight’s hallmark — as opposed to driving eCommerce, another challenger may loom: Uber. In fact, we have a longstanding prediction that it will blitz local advertising by strategically building from the Trojan Horse that is “in-ride mode.”

This theory is based on the fact that Uber has your captive attention during rides, given in-app utilities like mapping and ETA. Furthermore, it knows where you’re going (think destination-based promotions). In the aggregate, it has lots of behavioral data for a richer mosaic of audience-targeting gold.

Since we wrote about this last December and made a few predictions about Uber’s entrance to the local advertising fold, the company is showing signs that it’s about to do just that. TechCrunch reported evidence last week that Uber will soon roll out in-app advertising, starting with Uber Eats.

But like our recent correct call on Amazon’s RaaS ambitions, our point isn’t to pat ourselves on the back. It’s now time to recalibrate our analysis with the benefit of new market info and to double down on that prediction. Specifically, we’re predicting Uber will launch in-app location-based advertising in 2020.

More specifically, we believe this will entail an advertising program that solicits additional spend from existing Uber Eats partners and applies a programmatic (potentially bid-based) ad engine for targeted placement in the Uber app during rides. It will extend to other local business verticals in the future.

Besides the evidence from TechCrunch that puts our previous prediction on track, there are macro signals if we follow the money. For example, advertising would be a revenue diversification play, which Uber needs at this stage of growth — especially given the risks and volatility of its other business lines.

Advertising can improve Uber’s margins and make its overall business more scalable, which is something it also really needs at this stage. As you probably know, it’s still unprofitable as it reinvests in capturing market share in hundreds of local markets — the name of the game in marketplace businesses.

But the path to profitability is also about economies of scale through adjacent products. That’s behind Uber Eats, where more services engender demand-side density to cluster fulfillment in cost-efficient ways. That means bundling orders (rides, eats, grocery, etc.) for variable revenue against fixed cost.

That’s essentially the definition of scalability and is the direction in which Uber continues to move with additional revenue streams that build on the core rides infrastructure. This leads Uber toward what I like to call “City OS,” which has interlocking and economies-of-scale-boosting components that prop one another up.

Back to advertising, it enters the picture by utilizing behavioral data from Rides, Eats, and the expanding services bundle. As mentioned, it can achieve sophisticated ad targeting and attribution while monetizing captive audiences through all those eyeballs gazing down at the Uber app during rides.

It can also reinforce its value to local restaurant advertisers by providing business intelligence. Using the same data that fuels its ad targeting and attribution, it can provide insights back to restaurants to do things like optimize menus or strategically launch cloud kitchens in underserved delivery zones.

All of this ties back to unit economics and the drive to boost profitability by adding additional revenue streams against existing/fixed costs. In fact, advertising would have margin advantages over many of its other products that require splitting revenues with drivers, restaurants, etc. Uber ads would be all gravy.

One of the best indicators of tech giants’ future moves is to look at their motivations and “follow the money.” All of the above aligns with those factors and what we know today. Signs point to an Uber ad business. This isn’t just where it’s pointing today; it’s where Uber has to go.