NEW YORK — For six months now, almost all the news about Uber has been bad. Even before then, the ride-hailing company's combative executive team displayed a remarkable facility for generating negative headlines, but since former Uber engineer Susan Fowler went public in February about seemingly systemic sexual-harassment problems at the company, it's just been one disaster after the other. Ugly lawsuit over allegedly stealing autonomous-car secrets from Google parent Alphabet? Check! Revelations of a concerted effort to evade regulators around the world? Check! Embarrassing video of co-founder and Chief Executive Officer Travis Kalanick rudely berating a diver? Check! Board member resigning after complaining during an all-hands employee meeting on combating sexism that women talk too much? Check!

Even the forced departure of Kalanick in June doesn't seem to have settled things down much, with the company's board struggling to agree on a replacement and Kalanick — who remains a major shareholder — reportedly haunting the search with chatter about “Steve Jobs-ing it” by eventually returning to power. [In an attempt to dodge complaints of sexism, Uber tried to find a female CEO, but eventually narrowed the list down to three male executives.]

If you think turmoil like this would be bad for the company's business, you're right. Uber's market share in its head-to-head U.S. battle with kinder, gentler rival Lyft fell to 75.3% in June from 78.8% in February and 90% two years ago, USA Today reported last month based on data from TXN Solutions, a consumer research firm.

This does not mean Uber's business is shrinking, though. The company reported that revenue rose 18% in the first quarter of this year, to $3.4 billion, and has told investors that bookings were up more than 10% in the second quarter. Lyft is growing even faster, but Uber's competition with Lyft is not a zero-sum game — at least not yet.

Once you've got a critical mass of customers and providers signed up, it can be pretty hard to unseat you.

For one thing, both companies are still taking market share from taxis. So summed up, Uber's market share is flat, not falling. Throw in rental cars, and Uber's share of all business-travel spending on ground transportation is still rising, to 55% in the second quarter from 53% in the first. That's just among business travelers, but it seems reasonable to extrapolate that a similar dynamic is playing out among non-travelers choosing to leave their cars at home (or dispense with them entirely) and taking an Uber or a Lyft instead.

In short, despite shooting itself in the foot again and again and again, Uber continues to hold a pretty commanding share of what is still a growing market. That's partly because of the kind of business it is: a platform that connects customers with providers. Once you've got a critical mass of both signed up, it can be pretty hard to unseat you. Such two-sided markets existed before the internet (credit card companies, for example), but in the online era, they seem to be the default business form. Online platforms such as Airbnb and Uber, Andrew McAfee and Erik Brynjolfsson of the Massachusetts Institute of Technology write in their new book Machine, Platform, Crowd, "represent the richest combination we've yet seen of the economics of bits and the economics of atoms. As they scale, these platforms handle huge volumes of information — about members and their choices and activities, the availability and pricing of goods and services, payments and problems, and so on. All of this information approaches the ideals of free, perfect, and instant. It's very cheap to store, process, and transmit, and it's getting cheaper. This means that all relevant and useful information can be everywhere on the platform, all the time. It also means that the demand-side economies of scale — the network effects, in other words — can eventually grow much faster than costs."

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Taxi drivers protesting against Uber in Rio de Janeiro, Brazil Photo: Rodrigo Chad/ZUMA

That all sounds like good news for Uber. So why is it that the company lost $708 million in the first quarter?

One theory popular among the most skeptical observers is that the potential market for ride hailing actually isn't all that big, and Uber and Lyft have been continuing to grow only by offering unsustainably low fares. Eventually their venture capital riches will run out, they'll have to stop subsidizing fares, and their growth will shift into reverse. There's surely something to this worry — and to concerns that Uber and Lyft will eventually be forced to take on their independent-contractor drivers as employees or at least spend more on benefits for them. Focus on these issues too much, though, and you risk missing that Uber and Lyft really do provide a useful service that wasn't being provided nearly as well before they came along. As Ben Thompson put it in a somewhat different context in his Stratechery newsletter in April: "The most important reason why Uber (and Lyft) has overcome regulatory challenges most of the time is that the company has positive externalities: not only is the service “good” for passengers (who get a liquid transportation option) and drivers (who get a job), it benefits people who don’t use the service. There are fewer drunk drivers, fewer parked cars, restaurants and bars get more business, underserved neighborhoods become accessible, travelers have better experiences, etc."

I don't think Uber is in a death spiral.

Another worry is that the switching costs between Uber and Lyft are quite low: Once customers have installed both apps on their phones, it's no hassle at all to toggle between them for the best service or the best deal. For drivers, it's more complicated, but there are now apps that can manage the process. If switching is easy, it follows that profit margins will always be under pressure. On the other hand, getting to the point where it can offer a plausible switching option to Uber across much of the U.S. has cost Lyft hundreds of millions of dollars. That's a pretty significant barrier to entry.

So Uber and Lyft provide a service that is worth something. Some company (or maybe more than one) should eventually be able to turn a profit by providing it. Despite all its recent troubles, Uber still seems to have the best shot at becoming that company. Of course, Kalanick talked investors into giving Uber a $69 billion valuation based on a wildly ambitious vision that included a presence in every major global market, brand extensions such as UberEats — a meal-delivery service — and Uber's very own self-driving cars. It has ratcheted back those global ambitions over the past year by getting out of China and Russia, and there's probably more retrenchment to come. I don't think Uber is in a death spiral. I do think some of its investors will be sorely disappointed.


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