Uber's First-Mover Advantage Complicates Competitors' API Strategies

Patricio Robles
Aug. 22 2014, 03:37PM EDT

In the ultracompetitive and ultralucrative on-demand transportation market, Uber has turned to an API to drive more business.

Less than a week after officially unveiling its API, Uber, which investors have reportedly valued at $17 billion, has already inked deals to integrate its service into applications from a number of prominent companies and services, including OpenTable, Starbucks, United Airlines and TripAdvisor. According to The Wall Street Journal, Uber is compensating some of these partners financially for the business their integrations drum up. Smaller developers who partner with Uber as affiliates are being offered compensation in the form of credits for Uber rides.

But that's not all. As observed by TechCrunch, Uber's publicly posted terms forbid developers from integrating competitive services into their apps:

You may not use the Uber API in any manner that is competitive to Uber or the Uber Services, including in connection with any application, website, or other product or service that also includes, features, endorses, or otherwise supports in any way a third party that provides services competitive to Uber’s products and services, as determined in our sole discretion.

In other words, developers who want to make it easy for users of their apps to summon a ride must guarantee Uber that they'll promote its service exclusively.

A Significant Blow to the Competition?

Uber has established itself as a fiercely competitive company, and its API terms demonstrate that.

Uber's competitors, which include Lyft, Sidecar and Flywheel, have not yet released APIs of their own. By requiring that developers use its API exclusively, Uber may be able to strike a significant pre-emptive blow to its competitors' API strategies. After all, the on-demand transportation space is one of the hottest, and it represents an attractive, potentially lucrative market for developers. By seizing first-mover advantage, Uber will almost certainly achieve a good deal of traction with its API in a short period. By further requiring developers who want to play ball with it to agree to exclusivity, Uber is forcing developers to choose sides at a time when Uber is their only available option.

Of course, developers have been burned in the past, and some may be wary of Uber's exclusivity requirement. Will Uber's offering remain compelling? Once Uber has enough developers locked in, what will prevent it from changing terms? These are all questions savvy developers will ask.

Those questions might keep some developers from taking up the Uber API, but that doesn't mean that Uber's competitors can breathe a sigh of relief. In fact, it's hard to come up with realistic scenarios under which companies like Lyft will have an easy time responding to Uber's API. Should they launch APIs of their own, they will likely need to be incredibly aggressive in playing catch-up. Even if it turns out that Uber's relationships with its most prominent partners are not exclusive, competitors may be forced to sweeten their offers by providing higher revenue-share percentages. In some cases, up-front cash incentives may even be needed to lure developers, especially those who have already invested time and money integrating with Uber.

Ironically, the competitive nature of the market could prove to be a good thing for developers but not the on-demand transportation companies themselves. Pricing has been a major weapon for these businesses in disrupting the taxi industry, but if expanding their footprints through API integrations and affiliate payments comes at a significant cost, Uber, Lyft and others could find that their APIs are a double-edged sword.

Patricio Robles Follow me on Google+

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