I'm not sure how Uber, Lyft, etc are any different than Southwest, American, etc. Cab companies (which I hate) and airlines saw this years ago and promoted regulations to protect their fees (and, thereby, wages). Airlines lost those regulations under Reagan.
To wit, I had dinner with a few friends in SF and it was raining when we left: "I'll call an Uber and we can share. ewww... 250% surge pricing or $90. Lemme check Lyft. Sweet, Lyft is about $50. Our Lyft will be here in 3 minutes." There was zero friction switching from Uber to Lyft.
Winning in this market seems to require a Level 4+ autonomous car [1] monopoly. Level 4+ autonomous cars are not going to be here anytime soon and Uber's not going to have a monopoly. So it's going to continue to be a gnarly pricewar, made worse by Level 3 (in which the "driver"/pilot is a student doing his homework for $5/hour, taking over driving once or twice per hour).
Not sure I agree so much with the body of TFA but I certainly agree with its conclusion.
[1] http://www.techrepublic.com/article/autonomous-driving-level...
The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry, they'll open up the biggest transport market ever created (the intentionally-inefficient American built environment). They're taking all this VC money and expanding so aggressively not because they like the scale, but rather because that's the only way to compete with private car ownership.
Just because they're very good at supplying an unlicensed minicab service (apparently subsidised by VC money in many areas) doesn't mean they can (i) run a minicab business at a profit so much more efficiently than every other minicab business in history that the average American decides they can sell off their four-wheeled status symbol and commute in a surge-priced Uber or (ii) compete with the manufacturers in supplying self driving cars on demand, whilst likely operating at a huge disadvantage in vehicle acquisition and maintenance costs
...which is exactly what cabs are. In major cities cabs exist because it's cheaper and easier to hire a cab than to drive yourself. That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.
"They lose money on every ride, and they have no way to ever turn that around (outside of a monopoly on driverless cars which they won't have), because any time they gain money on a ride, they'll attract indistinguishable competition."
Your response is: "Yes, they'll lose money on every ride, but they'll make it up with volume."
Say all cars are autonomous and on-demand. You need a car. Uber costs $20. Lyft costs $15. Who do you go with? What happens to overall pricing over time?
It has never been easy (or cheap) to privately own a car in Singapore but the situation right now is exactly like you mentioned in your comment.
However I'm also a resident of the US and I don't think it's gonna happen over there anytime soon.
Monopolization doesn't seem to be happening really in the business Uber is competing in and it seems as likely that any of the half a dozen other players in self driving car business will succeed as Uber.
And others will see the opportunity and jump in to compete on a market Uber spent all it's money to create. And there will be very little Uber can do to stop them.
Perhaps, Uber may be able to be a few percent more efficient if they have more cars around and more data to use for predictions. The question is can uber be materially cheaper with it's data in the long term?
Car makers have falling commodity prices (when they're indeed falling) and rising automation working in their favor. What does Uber have working in its favor?
It seems that scenarios with rising car ownership costs involve mainly cost of parking or general low ridership pattern. Those specific scenarios are associated with dense urban environments, which also have a competitive vector of public transportation, frequently already subsidized by the taxpayer.
I will admit though that Uber has a very attractive offering in LA, with $5 UberPOOL downtown to West side or a UberX ride cheaper for 3-4 people than the cost of metro/bus. Don't know whether LA market is profitable for them or subsidized.
Seems to me that the manufacturers will always be able to undercut on price once cars are fully self-driving, eliminating the value of the driver network.
It's close to competing with my own car. I'm in West LA and use Uber daily, but only use my own car once or twice a week.
Actually it was under Carter -- he pushed for it, spurred by Alfred Kahn whom he appointed to the CAB: https://en.wikipedia.org/wiki/Airline_Deregulation_Act
Carter was also the one who chose Volker to head the fed and squeeze inflation (to kill stagflation). This cost Carter the election because it also squeezed the economy...but ignited a recovery that Reagan got credit for.
Not really relevant to the main discussion, but I think it is important to make sure readers are exposed to accurate (though perhaps overly detailed) historical information.
According to [1] and [2], talk of US airline deregulation began during the Nixon administration, and picked up speed in the Ford administration. In 1975 the US Senate began pushing towards airline deregulation, under the leadership of Sen. Ted Kennedy (not the first politician who comes to mind when you think of reducing government regulation).
The Airline Deregulation Act was signed into law by Jimmy Carter in 1978, who already in 1977 had appointed a well-known proponent of deregulation, the economist Alfred E. Kahn, to head the Civil Aeronautics Board (the government agency in charge of regulating airline routes and prices).
The Civil Aeronautics Board indeed lingered on until the Reagan administration abolished it in 1985, but the 1978 Airline Deregulation Act is when it effectively lost control.
[1] https://en.wikipedia.org/wiki/Airline_Deregulation_Act
[2] https://en.wikipedia.org/wiki/Airline_deregulation#Introduct...
That is clearly not true. See, for example: http://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx
If I'm flying from NYC to DAL, I'm flying the cheapest carrier (with a slight nod to Frequent Flyer programs).
It's true that many people bargain hunt, but the people that don't (primarily business people who need to fly on short notice and on fixed schedules) subsidize lower fares for those who do.
At the moment, it is the investors who are subsidizing lower fares at Uber and Lyft, to the tune of billions of dollars per year. You're right about the autonomous cars. At this rate, Uber will run out of money before autonomous cars can save it. And even if they do, Uber will be a low margin business.
That is clearly not true. See, for example: [Industry publication]
To be fair, while it definitely isn't clearly not true, my statement certainly is not clearly true... ;) Some non-industry pubs backing my not-clearly-true statement:
http://faculty.haas.berkeley.edu/borenste/download/AERPP11Ai...
http://www.investopedia.com/stock-analysis/031714/why-airlin...
Uber may time their IPO just before they start having growth problems. That seems to have a high probability.
The contrarian side of me thinks that the more negative people become about a tech company the more likely it is to succeed (assuming a real product and not elaborate fraud.) Markets become far more favorable when all of your competitors believe what you are doing is a joke. The paradox being, perhaps the more people become convinced Uber will fail, the more likely it is they can pull this off.
It definitely is not as clear cut as starting an airline -- and it is a dynamic game. Is Uber/Lyft the starting point for calling a car or is it Android/iOS ; or is it Google Maps/Apple Maps ; or may be it is Siri/Alexa/etc.
I've suggested in other posts a ride sharing company may be able to get exclusivity contracts for a large metro area. This would be a step towards a lock in/monopoly. Earlier gen self driving vehicles may actually even need this.
Whatever behaviors Uber has created, I think they are going to survive in some form for a long time. Whether Uber goes belly up may be more about how carefully they hedged their financial risks.
Also, while the 2001 recession meant that the airline industry lost more money then they had made in profit from the Wright Brothers up to that point, since then they have become net positive again, which seems to have been largely from mergers reducing capacity and so driving down supply.
A hypothesis is that low-cost airlines often fly to lesser-known airports further away from popular cities and extensive hub operations; airports which have a difficult time attracting orthodox airlines for these reasons. Therefore, such secondary airports compete against each other to attract carriers, because without a commercial carrier the utility of the airport greatly diminishes for the residents of the immediate area, who may demand to redirect government funds to other expenses.
But if an area can retain its airport with commercial service, multiple fringe benefits result: local businesses will be patronized by air travellers even if just to get to the major city of their choice, and the area's profile will be raised on a national level which may make it more attractive to businesses and discretionary residents.
Therefore, we can assume that some amount of government subsidy finds its way into the pocket of low-cost airlines that choose to serve a particular airport. I posit that local governments face similar pressures with regard to improving accessibility to metropolitan points-of-interest and a large-network provider like Uber may be able to offer a solution at a price the government is willing to pay. This has already happened in New Jersey [1], and I expect to see more of this in the future.
[1] http://www.theverge.com/2016/10/3/13147680/uber-new-jersey-f...
I propose that Uber's long-term business model is to win lucrative government contracts and absorb subsidies, by operating a transportation network big and elastic enough to meet criteria and provide the requisite level-of-service.
It's essentially a purpose-made PPP (public-private partnership) company, the transportation equivalent to Skanska, Fluor, Strabag (if you're familiar with large-scale infrastructure projects), or, an automobile-based version of school transportation contractors, charter services, and the like. This is irrespective of whether they have human- or self-driving vehicles.
Under Carter.
It was actually Jimmy Carter that signed the Airline Deregulation Act, this was in 1978. 3 years before Reagan took office. The transition was complete by the end of the Reagan's first year in office in 1981.
I'm not trying to nit pick but for some reason Reagan always gets credit for this.
Wait, what? How can that be possible? Wouldn't the airlines cease to exist if they never generated profits?
Let's assume that some small number of airlines continually make small profits (or at least break even). That creates a non-negative balance.
However, let's assume that a number of other airlines are frequently being established and receiving capital investment, before ultimately failing and declaring bankruptcy.
If the losses those airlines represent outweigh the positive balance from our successes, then the industry loses money, despite some players continuing to exist.
To take it further: if you assume people keep making capital investments with capital drawn from other industries, it's possible that the industry continues to exist even whilst no company generates profits in the long term.
In most countries when you go bankrupt, you go out of business. In the US you usually go into Chapter 11. This lets you default on some of your debt, renegotiate contracts, and then come out of bankruptcy stronger than before.
The problem with this is shown with airlines. They would all make a profit if they could just lose some of them. Unfortunately whenever that looks like it might happen, the loser goes into Chapter 11, enjoys a competitive advantage, recovers, and comes out of it stronger. Then someone else goes bankrupt.
That's not zero friction.
Zero friction would be if you routed the directions under "Public Transit" in Google Maps and scrolled to the bottom where you can see both Lyft and Uber pricing (and clickable links) next to each other.
I might be unreasonably optimistic about self-driving cars, but it is important to note that the rollout will accelerate itself. The more SDCs on the road, the safer they'll be, and the more data they'll gather. On the legislation side, my sense is that once one company bears the brunt of the legal pushback, the rest will have a relatively easy time.
Not that BI has a crystal ball, but their prediction seems at least somewhat reasonable. [1]
[1] http://www.businessinsider.com/report-10-million-self-drivin...
That's not exactly true. Southwest, for example, has had only a single unprofitable quarter since being a public company. They have never had an unprofitable year.
American has had stretches of bad times, leading to bankruptcy, in the past. But, more recently, are making money. $7.6 billion in profit for 2015, $4.2 billion in 2014, and so forth.
The point of those regulations were to ensure universal service and stability of service. It was an outgrowth of passenger rail regulatory frameworks, which emerged after the abuses inflicted by the railroads in the 20th century.
The absence of regulation has been good & bad. Prices are cheaper, but the service levels are horrific and the airline businesses aren't very sustainable.
Uber / Lyft could be profitable as duopolies though. As in the case of Pepsi and Coke, both can happily carve out their niche and don't rock the boat too much.
I don't think you meant to say that Uber won't be a success. You probably meant that you feel it's over valued. Uber is a success. People love it. They pay surge prices for it. I do it all the time. It MAY be over valued but it is already a success. wake up.
Riding a cab has gone from slightly dangerous and more often than not displeasing experience, to having a private driver that knows exactly where I want to go and how to get there. Besides, not having to use cash is a great plus as well.
So there you go, maybe not in the US, but in many countries where the taxi industry totally sucked, Uber has already succeeded big time.
I've to agree with you on the other points however, traditional cab companies have shitty drivers who would mostly refuse to take you to your destination. Grab car drivers are usually rude (relatively) and unpleasant to deal with. I seriously wonder why this is so, in an island as small as ours and with both companies marketing to the same pool of potential drivers.
That said, the past few times I've landed in an airport and need a ride to my hotel, I didn't bother with Uber or Grab (in Thailand and various US states), because it was just so much more convenient to walk to the curb where the taxi mafia was congregated, tell them my hotel, and be on the way.
That said, the Uber was reasonably cheap, quick and friendly, so their service seems to have improved there.
Your statement depends on what people define as 'success'. Is Uber a product people love? Yes. So, by a product measure it's a success. Is it currently or will it be in the future a profitable business (without VC money subsidies)? We don't know, so therefore people have differing opinions on whether it will be a successful business.
People also loved products like Napster and The Pirate Bay, but does it mean they were a success? I'd say that they're not successful businesses, but were successful products that many people used.
> their drivers suck
haha.
a lot of people use uber here. I think they've got a better hold on the market than grab.
if only the uber drivers will stop driving by gps because their mapping software is always wrong.
For most of the Indians, cars rides are expensive. But I wouldn't mind if the Autos operate the same way Uber for cars work. Ola is already offering Auto rides in the same manner.
Even though I own a car, I don't enjoy driving because of traffic conditions and use Uber and Ola just because I don't feel like driving on a particular day.
I desperately hope that the Uber model succeeds in India, going back to what it was before is too painful to think about.
Cars here require a certificate of entitlement that cost around $100k and only last for 10 years if im not mistaken. So if he continued taking 300 rides every year for 10 years it would still be half as expensive.
I have been sold to the Idea that Investors are killing any Internet "Business" by advising Founders against simple & straight-forward business plans. They constantly ask founders not to monetize earlier and wait until founders have no choice but to trash out the company/app to advertisers. The End Result is that founders get more and more scared of asking their customers for money.
If It was upto me, I would take 1000 paying customers over 100k free customers any day. Also this would mean free customers(subsidized customers in Uber's case) not hogging company's valueable resources and company could better serve lower number of paying customers.
Edit: I don't really know how to spell "customer".
And there you have it, the core of the Silicon Valley concept, the ideal startup, the business model of VCs.
1. Create a new product.
2a. Create a new market; have first mover advantage
or 2b. Use Predatory Pricing or Anticompetitive actions to gain advantage
3. Establish monopoly
4. Cash out big.
5. Use money to fund new business ventures, see 1.
Very few people other than those pesky customers, seem to care if a business is actually making money on its own these days.
EDIT: typo ("irrelevant" -> "relevant")
There's so much in our world we could do if we only demanded profit, rather than 20+% profit YoY from every corner of our existence.
If Uber has a (simplified) split cost per drive consisting of vehicle (+maintenance) and/or fuel & driver. If subsidised part is generally covering the driver part. When you replace driver with autonomous vehicle and you remove subsidies, you're left with a sustainable (presumably) model on a certain margin that is already rolling. Rolling in a sense that it is already an established business - people know it and use it. You've used subsidies (well, investors cash) to build a business.
Of course, this relies on a presumption they will build a sustainable model on replacing drivers with autonomous vehicles. It also presumes they will not venture into other, (potentially) more profitable business like logistics.
One thing is certain. They are positioning themselves for a great catch which relies on few key components working in the (near) future.
I think real hazard for Uber is regulation (autonomous vehicles for example) and market regulations (see taxi debates in Europe).
I personally think that Uber is not an ethical company (I do live in Europe). They are exploiting tax and legal loopholes to profit off of both drivers and countries, simply because regulation for a taxi company that would be set up like Uber is does not exist yet and most countries take their time to regulate.
When Uber is put up to the same scrutiny as taxi companies are (to ensure their drivers are up to the same standard), they refuse to compete and instead of paying the same tax everyone else does and abiding by the same regulations everyone else does, they just leave the market.
Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.
Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.
I have to agree with this. Uber is its own biggest enemy. Market regulation comes along with it. This is the real danger for them, for now. At least here in Europe.
I don't really understand this mentality. You don't want to let them exploit the situation by profiting off of making things better for consumers?
I don't necessarily agree with the above, but I think it's what he was trying to communicate in the piece. I think that network effects will provide a huge advantage for Uber. The larger your market share, the more predictable your demand and the more optimized your service can be. Uber is more like Adsense for Content than like cabs. They are doing a lot of intention matching/prediction in real time and that is very hard to compete against without scale.
Uber is not a bet on who can build the most profitable taxi company now -- it's a bet on a brand in an industry that will rapidly commoditize. Given that literally everything else Uber does has been replicated by at least one team at every hackathon I've been to in the last decade, there is very little sustained advantage from technology.
The auto industry is at a crossroads: you have new upstarts like Tesla that are very obviously planning to convert to a transit-as-a-service model. The "old" auto industry (basically everyone that makes cars and is not Tesla) is still struggling to adapt to a more "continuous development" model like Tesla. Tesla's engineering process is far simpler -- an electric car replaces the complex internal combustion drivetrain (an engine block that requires separate air, water, oil and gasoline systems, plus the transmission) with a far simpler electric engine.
The electric system in a Tesla is actually far simpler than your average car: the sensor package in a modern internal combustion engine is an incredibly complex piece of engineering. This gives them a huge cost advantage over existing automakers -- if Tesla is providing transit as a service directly to customers AND making/maintaining the vehicles themselves, that displaces a lot of revenue (auto sales/maintenance to companies like Uber).
I think Uber will eventually merge with an auto manufacturer (and likely keep the Uber branding since it's likely to be the most valuable part of the company). They already have realized that Tesla is their biggest competition; and I think that the autonomous driving deal with Ford is simply testing the waters for a future acquisition.
15 years from now, most people will likely have 3 or 4 choices of how to get somewhere by car: Uber, Tesla, Lyft and likely a mix of local / regional companies. Brand value is powerful; and I guarantee you that at the end of this, the Uber brand will be worth more than what they've put into it.
Uber is only having a cash bonfire right now to keep the drivers happy so they don't make it a terrible experience for the customers. But rest assured as soon as they are allowed to, Uber will replace the drivers, lower the price and capture some percentage of what they used to have to pay drivers for themselves. That's when Uber goes from a brand investment to a cash cow.
Living in an area covered by both Lyft and Uber (and probably with many/most drivers working both), I will pretty much exclusively use Lyft - and I pay more for it as well, as I've tipped the drivers on every one of my rare trips. In the long term I expect their prices to rise to the point where it's more comparable to taxi services, but they still have some advantages there at least to my mind.
Imagine if instead of becoming an uber driver, you retrofit your car with an Uber Automated Car Taxi Converter(c), "guaranteed to put your car to work for you!"
No way; see my comments above about the differences in car design. Combining electric vehicles and autonomous driving is a HUGE combination that trades mechanical complexity (difficult to diagnose, time intensive, permanent fixes are extremely costly) for software complexity (less deterministic but can easily be patched). This greatly reduces both the initial cost and the maintenance costs of electric vehicles (really, the only thing you have to swap out are the tires). Reduction in fleet maintenance costs alone is huge. My theory is that the Tesla Model S only costs as much as it does because they're using it as a premium option to fund R&D of the self-driving auto platform. I'd bet if we saw the total marginal cost for a Model S it would be SIGNIFICANTLY lower than a comparable internal combustion / hybrid automobile.
Your current car is also designed at least partially for driver comfort. If you no longer need a driver, then you no longer need a steering wheel, or control of any kind really... and you can offer a completely different transportation experience. Do you even need a windshield? What happens to the interior of the auto as VR/AR gain popularity?
But I'm pretty sure whatever the future of the car is, your current auto won't be along for the ride. I'm not even sure that individual auto ownership will make sense anymore -- companies with large fleets will almost certainly be able to offer various levels of guaranteed pickup times. If you're wealthy and want your own car, you would just pay more for a "dedicated" car instead of a "shared" one.
I very much doubt Uber's brand will be a significant asset in 10 years. I cannot see any reason why the economics of self-driving cabs would be any different to airlines.
Cars are much less dangerous. In a failure scenario, a car can easily be designed with a simple mechanical failsafe to disable the vehicle and wait for help. The lower cost of failure in an automobile entirely changes the business model: it allows you to apply modern product design processes (agile design, rapid feedback, tight integration of R&D and operations, etc.) because any individual failure of the product isn't going to cause headlines.
Anyway, that's the difference: a catastrophic failure in an airplane is $200-500 million in financial losses ($150-300 million for the airframe, and the bad press/settlement from killing ~200 people). A catastrophic failure in a car is the loss of a $60,000 vehicle and maybe death payouts of under $1 million. The only way we'll be able to ethically apply these design principles to flight is drones / UAVs -- which is exactly why they will quickly come to dominate air freight once someone figures out a viable model.
Anyway, due to all of this, automated taxi companies won't be taking on nearly the level of risk that an airline does. IMO there's also more room for differentiation for "specialty" taxis: let's say you and a group of coworkers need to go to another office an hour and a half away. Why not rent a "meeting" car with Internet access, whiteboards and tables so you can knock out a meeting or two on the way? Or are you hungry on the way somewhere? Order a food car and have your meal waiting for you when it picks you up. Are you tight on cash? Order a 10-passenger bus that will pick you up on the way. Because the risk and cost are lower, there will be a lot more variability in cost and thus in business model.
IMO Uber's brand value is in owning the customer billing relationship -- that is ENORMOUS in the consumer product world. They've reduced transactional friction to almost nothing (THAT is Uber's true brand value -- even if consumers don't consciously realize it), so it's going to be very hard to displace them.
A lot of people think if their Uber/Lyft ride is cheaper than their traditional taxi because it's subsidized. The lower fare for the most part is due to extreme efficiency difference between a taxi company and Uber/Lyft.
1. Uber/Lyft don't own the cars. They are leveraging car owners capital
2. Uber/Lyft drivers are more efficient because they don't have to roam around the city to find a passenger and they get notifications for when to work. The system scales up and down on demand. No taxi company that owns cars can do this.
3. Uber and Lyft are more convenient for the passenger and it makes people to use them more. I can definitely see myself and people around me to use Uber/Lyft way more than taxi since they came along.
Uber and similar companies are purring cash into this growth because at the end of the day they can make a profit because they are more efficient. And no, it's not easy to make a clone. The network effect is huge!
For all you know they did five other trips like yours but with three passengers and your "subsidy" was paid by them; and in exchange uber got a happy passenger and driver which will continue to support their business in the future.
https://www.bloomberg.com/news/articles/2016-08-25/uber-lose...
Many of their losses were due to the turf war in china, which is now over. They have a 20% stake in Didi now, which will almost certainly recover their losses.
In Singapore they tried out the model to own cars because car ownership is pretty low here in general ~10%. They bought cars at a massive scale. This model seems to be working for them and they have expanded this model to other countries. Check out Lion Car Rentals. 100% Uber owned.
For now. Network effect requires connecting two populations: drivers-passengers (Uber, Lyft). Sellers-buyers (eBay, Amazon Marketplace). Etc.
As soon as self driving cars arrive, the Uber/Lyft network effect evaporates. Anyone with capital will be able to field a fleet of self driving taxis.
Old taxi cab companies can't compete because they have to drive much farther on average for each pickup
So a competitor could just focus on Dallas to start out, raising enough capital to hire enough initial drivers for acceptable wait times in Dallas only. Once Dallas was successful, they could then go on to other cities.
This is unlike a website such as Ebay, which truly becomes stronger and stronger due to national and international network effects, not just local ones. If a user selling the beanie babies you want is in Atlanta, having them shipped to Dallas is hardly more difficult than having them shipped within Dallas itself. So that Atlanta user has increased the utility of Ebay to you.
Uber built its network city by city and a competitor could do likewise.
Because I'd be willing to make a bet (say 1k) for Uber, depending on the terms.
I'd also make a bet for Lyft, depending on the terms.
Bloomberg says Uber is losing $800 million per quarter.[2] Unless they can find a bigger sucker than the Kingdom of Saudi Arabia, they run out of money in 2018.
[1] https://www.crunchbase.com/organization/uber/funding-rounds [2] https://www.bloomberg.com/news/articles/2016-12-20/uber-s-lo...
>In this regard Uber is pretty different from other fast growing startups.
>Economies of scale won’t help, since Uber has a high fixed cost per unit associated with their service - the drivers - that won’t become significantly cheaper as the service grows.
>Network effects are mostly irrelevant for Uber’s business. Yes, they need a large supply of drivers to make the service viable, but this isn’t an advantage of Uber compared to regular cabs which have sufficient availability in most cities. I also don’t see a potential network effect in Uber’s global availability. Most users take rides in their home city and they would happily switch to a local competitor with lower prices, even if that means they would need to use a different service when they are traveling.
Also, Tesla will continue to generate losses until they hit full scale and stop growing, at which point they will have the economies of scale that they need to deliver profits. Amazon's "profits" or "losses" are miniscule in comparison to revenue, because they are reinvesting so much. Uber has huge losses because they are taking a loss on each ride; which would be fine if they would get something out of that growth. Amazon gets better distribution, better deals with manufacturers, and other economies of scale. What efficiency gains does Uber get as it grows? Uber pool? Is that going to be a big profit source in the future?
So now, their only way to grow is to race to the bottom on price and undercut their competitors. And the only way to do that is to light billions of VC dollars on fire in the form of subsidized trips. That money isn't being invested in R&D or any form of innovation, just bridging the price gap between what the ride should cost (because of driver + vehicle costs) and what they are charging (which is a stupid low price most of the time).
The longshot they're taking on innovating by transitioning to self driving cars is downright reckless considering nearly all experts agree we're at a MINIMUM 5 years off from anything feasible in the real world, more likely 10+ years.
So they're going to have to raise their prices, or continue raising funds at an absurd rate (mind you, they've already raised $13,000,000,000 damn dollars). And they'll have to continue to light that VC money on fire in subsidized rides, rather than innovating on their product, because there's not really any other way to innovate on these rides.
As for the subsidies, I can't even understand why they are lowering their prices so aggressively anymore. It feels like each time I get into an Uber it's slightly cheaper. I was happy paying $25 for an uber to the airport rather than $30 for a cab, but now it's something like $14, which is great for my wallet, but I really don't even need it that cheap. It's bizarre.
Ehhhh....I disagree because I have a less than stellar UX every time I use it. However, my situation is more or less an edge case. I rely on Uber to take me from the train station to work every morning. The train station is right by FLL. It's even called the Fort Lauderdale AIRPORT Station at Dania Beach. I have to call the drivers and tell them I'm at the train station and not the airport every time, and sometimes, they'll cancel or just go to the airport anyway. The GPS will place me at the airport sometimes too for extra fun. I've reported this several times to Uber, and it's still not fixed. It's also important to note a self driving car would make my situation worse (no one to contact when/if the app gets it wrong).
I would switch to Lyft, but after having a driver flat out refuse a fare, and leave me stranded in Miami, I'm not so keen on that idea.
You were happy paying $25, but they wanted more costumers, even the ones who just want to pay 15.
Why? Currently some cab companies have shitty apps, others have none. Your chances of getting a cab in a suburb of an unfamiliar city is zero. Uber can fix that.
-NYC has ~13,605 licensed taxicabs.
-The average annual net income for a NYC taxi (in 2015, probably a bit lower now) was $58,555.
-$58,555 * 13,605 = $796,640,775
This figure is for taxis only, in one (big) city. It leads me to think that $70 billion is not an absurd number, globally.
edit: sources: https://www.yellowcabnyctaxi.com/blog/new-york-city-taxi-rev...
I think they're also trying direct Uber-like scheme but I'm not sure about that.
Uber has more data about traffic patterns in every major city they operate in, than any other entity, including the cities themselves. Uber can use that data as leverage in so many ways.
They have an API, they are a logistics platform in a sense. Uber's endgame will be allowing people to plug into that platform for a price.
If they can manage to become the defacto cab platform for all major US cities alone, they are close to being worth their current valuation as is. Expand this all over the globe.
Do not forget they have a 20% stake in Didi as well now, which will more than make up for their 2 billion loss while trying to capture the chinese market.
I imagine Google has approximately two to three orders of magnitude more data from cellphones and maps usage. Pull open your Uber app, zoom out until you see, say, 20 Uber drivers. They make a point here, a point there. The Android phones in cars would just make lines on your display. So does Apple, probably, or whoever gets the Apple Maps data.
I think Google won't be all that interested in packing that up and making it available... but then again, if Uber's worth 68 billion on the back of that data they may well change their mind.
Easier said than done.
The author of this blog post admits that he hasn't run any numbers, and his conclusions make that obvious. I've run the numbers, and I make part of my living as an Uber driver (it's not busy enough in my city to do this full-time). Uber doesn't worry about my expenses because it's not their job to worry about my expenses. Their job is to run their servers and make an app that customers want to use, and they've been doing a great job at that IMO. My job is to worry about my expenses, and yes, I've accounted for fuel, maintenance, and depreciation of my vehicle, and I am making enough profit to make it worth doing.
As for self-driving cars, Travis has publicly stated that Uber does not intend to own and maintain them, they are going to look to their former drivers to do that. I doubt Uber is planning on having a monopoly for self-driving cars, they just want to be in on a part of the action, but their main focus will probably always be the software of their core app.
Uber has created more jobs faster than any company in history, and this is something our economy sorely needs. They literally let everyone who passes a background check on their platform. That means no discrimination can even take place at the company level, which I think is something very very cool, especially since I have a serious health condition that has riddled my resume with holes. (Discrimination can still take place from riders however, as the ratings are what determine whether a driver stays as a driver or not.) Also, since I am my own boss, I can rest when I need to, which is essential for coping with my condition.
You assume though that the network they've built up isn't valuable when you talk about self-driving vehicles. I agree the car tech will be commoditised and to my mind Uber owning their own fleet isn't the best option. It'd be very capital intensive and not a great use of cash.
I liken the switch to self driving cars to the same market as buy-to-let home rentals. If you've got the money why not buy a one (or more) of them, send them out and rent them through Uber/Lyft etc. and keep the money rolling in around the clock. Uber takes a smaller cut but also doesn't incur anything like as much risk.
In the last city I lived pretty much all cab drivers were also Uber (black) drivers (or maybe it was the other way around). Regardless, pricing was very similar and often cheaper going with the regulated taxi rate.
Sometimes. I like not handling credit cards and cash. They're faster and more available in areas where taxi services are not great.
On the other hand, I had an Uber-X driver just today drive right past a clearly marked airport terminal entrance because his GPS didn't direct him there and "he hadn't been out to the airport in a while." It's unlikely that would happen with a cab.
Part 1: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
Part 2: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 3: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 4: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 5: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 6: http://www.nakedcapitalism.com/2017/01/can-uber-ever-deliver...
It is possible that some future Uber innovation will make them profitable, but their current operation is smoke and mirrors.
Like I said 8 years ago[2]: "Facebook made ~$200mm in 2008. It's pretty clear they could profit on those revenues, and instead are choosing to invest in further growth (with outside capital)."
[1] https://skift.com/2016/12/21/uber-isnt-profitable-in-the-u-s... [2] https://news.ycombinator.com/item?id=427212
> After turning a slight profit in the in the first quarter of this year, Uber lost $100 million in the U.S. in the second quarter. The loss increased in the third quarter, the person said.
That's not exactly a ringing endorsement of their U.S. business.
When self driving fleets can be deployed for ride sharing, a new startup, one without the hundred of millions / billions in losses that Uber will have accumulated, will come on the scene.
How can Uber, a company with massive losses to recover from, compete with a new, nimble and well-funded startup that doesn't have those legacy losses weighing down their ability to raise capital and pay back investors?
I was in Southeast Asia recently and it's insane how cheap Uber is. It almost doesn't make sense to take any other form of transportation. I imagine once the competition dies, they'll have complete control over the market.
* Uber seems to do a much better job of serving non-wealthy & minority neighborhoods. I can't find an online source, but distinctly remember a local NPR report that claimed over 2MM Uber rides originated or concluded in an underserved neighborhood, vs. about 200,000 taxi rides.
* Anecdotally, Uber's superior experience is changing behavior. Despite having a thriving taxi industry, hailing a taxi is very unpredictable. If it's cold, raining, a busy night, too early, too late, or rush hour, you may be waiting a long time even in a well-served neighborhood. Uber practically guarantees a ride, meaning that I and my friends are far more likely to venture out. Overall demand for transport seems to have increased.
* Similarly, the reliability of ride sharing services permits many people to avoid car ownership all together. Zip + Uber/Lyft is a very compelling and affordable alternative to car payments, fuel, rented parking and insurance.
Uber seems to do a much better job of serving non-wealthy & minority neighborhoods
Cab drivers are obligated by the terms of their licensing to take you, once you've hailed them. An Uber driver can just ignore you.
He didn't really support that well though. If everybody uses UberPool because the economy of scale tied to the network size is unbeatable, that's a lot of riders. It doesn't seem impossible on its face that owning the future replacement for public transport for like half the world wouldn't justify a high valuation.
> The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
I hear rumors that IBM is not successful anymore. Also same of GE and GM.
Instead they should leverage their existing community, i.e. users being located next to each other. Similarly to UberPool where ride-sharing is the only way for Uber/Lyft/etc to work, grouping users for food delivery with variable rewards based on location (i.e. discounts) is the way to go.
More here: https://medium.com/@pwellens/how-a-single-feature-could-fina...
> Let’s assume that we will see fully autonomous vehicles that can navigate city traffic in the near future [...] If this technology becomes available, I doubt that Uber will have a monopoly on self-driving car technology.[...]I think it’s safe to say that many companies will have access to self-driving car technology.[...]In this scenario I don’t see how Uber can generate reasonable profits
In the ideal 'future' society, everyone will have a self-driving car they can order to pick them up wherever they are. This would drive Uber out of business. However there will be a whole taxi industry for performing this service when someone is outside of their own city.
I believe the taxis of the future will be there to assist someone in one of two scenarios:
1.) Someone in their own city who doesn't own a self driving car
2.) Someone who is in a city different than their own
I still think there will be plenty of business in the above scenarios - and Uber is positioning itself to be the industry leader/titan. It's definitely a huge gamble since predicting the future is impossible at worst, and extremely hard at best; but we'll see if Uber can stay afloat long enough to reach it.
Edit: damn you, android keyboard!
Uber has a huge chance of taking over public transportation and making it more effective. That's what I think they're gunning for...to privatize public transportation. How else will you get around town?
Yes the drivers are subsidized but the prices fluctuate based on supply throughout the day. On friday night in the city you can find uber prices surpass taxi drivers. The future of Uber has too many variables to have a strong stance on it's "success".
Unit economics doesn't work—this is Uber's broken moat. In the cities where it works, there are cheaper competitors and Uber struggle to become a significant player. In my city (Kyiv, Ukraine) Uber was introduced a year ago. I used it only while it offered promotional price. Now every other local ride service is cheaper than Uber and has mobile app—sometimes even better than Uber's. Yes, Uber made these services to improve, but now they are all better that Uber in terms of prices of rides, especially in surge periods.
Uber with this model could survive only with:
1/ Autonomous cars to cut costs on drivers and
2/ Controlling the whole driverless platform in every city.
And this is not happening since to control significant portion of driverless cars one need to control the whole driverless tech stack. It will be pretty hard to aggregate in one service different co's driverless tech with different specifics. That's what Tesla does.
I guess later when driverless will become growing en mass, Tesla will start own ride service, and letting own car for the a ride service will be opportunity to reimburse car purchase. It is then that Tesla will start licensing driverless tech to other manufacturers, including sensors configuration and centralised trained AI cloud with driving skills on different roads, and give opportunity to join Tesla's own ride on demand network. It will be a car selling point: "buy a car with Tesla driverless tech and let it for rides via Tesla's network to cover payments for your car".
So, it's rather hard for Uber to use advantages of driverless unless Uber builds own full stack and is the first on the roads with it + starts licensing it to car manufacturers for their cars to join Uber network.
In these comments (and other HN threads) I see the same pro-Uber arguments again and again so I will try my best to address them as I think they are misguided.
> Uber is doing all this in anticipation of self-driving cars, which will change the economics of the whole operation.
The first and most obvious issue here is runway. True self-driving cars that won't need a human in the driver's seat are probably 5 years away. Can Uber lose 1-2B a year until then?
The second problem is that Uber won't have a monopoly on self driving car tech. Google and others will get there around the same time. How will this be a competitive advantage to Uber and not to Lyft or some yet-to-come competitor?
> Uber is building network effects that will protect it from competitors.
Uber's network effect, if it has one, is at odds with the self-driving car strategy. Right now Uber has the shortest ride waits because it has the most drivers. If a driver is a robot, a well-capitalized competitor can just buy a huge fleet and take over any local market.
So you can't have both the network effect and the self-driving fleet. And without both, Uber is likely not worth anywhere near 70B.
> Taxis are just step 1. Uber is building a platform to bring anything or anyone from A to B.
A software platform for logistics would never be worth 70B. Period.
In Uber's meager attempts to generalize their own platform, such as Uber Eats, they have not done very well.
If total knowledge about driving patterns and navigation is the real money-maker, Google will have a big advantage with Maps/Waze data. In fact, most Uber drivers are using Maps or Waze to drive anyway.
> Uber's customer experience is so good I stopped using Taxis.
Uber's current dominance can be explained by one thing: price. Analysis has shown that every Uber ride is subsidized by about 50%, even in mature markets. If Uber suddenly doubled all prices they'd lose customers in droves.
As for driver quality, any long-time Uber user can tell you this has gone down to be about the same as a cab (slightly better, but not reliably better). The average uber driver is just some guy doing whatever the GPS tells him to do. It's low-wage work and Uber is pushing the wages down all the time, there's no way you're going to keep high driver quality indefinitely.
Let's play out the monopoly scenario. Let's also assume that non-autonomous vehicles are banned. I can't imagine any future scenario where that's not true. So we have roads full of Uber vehicles and no other vehicles. The government will choose to get out of the road building and maintenance business. Uber will gladly step in and take on a 100 year lease on the entire road infrastructure. They'll build their own autonomous recharging stations. They'll build the robots that maintain the roads. They'll build the robots that build the robots. Now Uber has really lived up to its name.
So contemplate what an autonomous mobility monopoly would do for Uber's valuation.
If investment dries up before they get profitable, I think they're screwed.
I grew up in Australia where every city is served by a small number of taxi companies and central dispatch works great. In every US city I've lived or visited (except NYC) the fragmentation of taxi companies and driver behavior -- most DC cab drivers would refuse to accept credit cards even after it became illegal not to ("my machine she is broken") -- makes taxis worse in every dimension than Uber, and frequently too unreliable to use for things like trips to airports. (In Sydney, I would take a taxi to the airport, in any US city you'd book a van.)
It's not just price -- fragmentation makes dispatch hopeless because the individual companies have too few taxis in their pool and don't hand off bookings to each other efficiently, and local regulations are a nightmare, e.g. in the Washington DC metro area it's painful to get taxis from Arlington (VA) to downtown (DC) and vice versa (Arlington is literally only not downtown DC because Virginia asked for its corner of DC back, we're talking 2 mile rides), and you need to guess which taxi company to use because dispatch is also fragmented and broken. When Uber and Lyft appeared we simply stopped using taxis cold. (Our favorite DC Uber driver was a limo driver who simply used Uber to make money in down-time, and he was clearly not confused about tax and costs.)
I think the idea that privately owned self-driving cars will compete with Uber is wrongheaded but doesn't damage the argument. Any dispatch service that achieves critical mass -- public or private -- can leverage self-driving cars to compete with Uber. I think self-driving cars will vastly reduce car ownership, and pools of automatic taxis will replace them, reduce congestion, and allow lots of car-dedicated space in cities to be reclaimed. I'd argue this threatens Uber's ride-sharing business as much as anything else.
I agree that Uber is almost a victim of its valuation -- it could be incredibly valuable as a virtual integrated vehicle dispatch -- tracking driver and customer quality, vehicle location and capability, and matching vehicles to needs and collecting fares, but by trying to own everything and be valued accordingly it may risk implosion when it fails to deliver.
My own self driving car is unlikely to be cheaper to buy than my manually driven car. But the self driving Uber will be significantly cheaper to run than one with a driver.
I can't wait til I no longer need my own car. Uber, and competitors, are the future.
Also, describing self driving cars in city traffic as "unlikely" really misses the point that self driving cars are driving in city traffic right now and have been doing that for years. They are too expensive to be commercially viable, but that's definitely going to change in the near future.
I wonder how road building and maintenance will change? Will the decision to build or scrap a road be decided by a negotiation between the dominant stakeholders, instead of public procurement?
I've never been to a city where there were a sufficient number of cabs except for Manhattan specifically in NYC and London. Every other US city, the taxi situation is bleak to unusable.
The self-driving cars and consistent platform could seal the deal against the small players entering.
That's not to say their valuation is correct, or anything. :)
The fundamental problem with what Benjamin pointed out with the lack of benefits with network effects, only applies when you are thinking about moving people and only thinking about 1 singular network. Sure, you and I may only want to go from point A to B within my city.
I think the real value for Uber is when they have this huge network of constant activity between most points within any city/country, the value proposition to carry cargo goes through the roof.
Imagine being able to send a document (or a package) anywhere else within the city in 20 minutes.
Amazon is experimenting with Drones for quick delivery, but just imagine being able to purchase something on Amazon, Walmart, Target, and get it within 30 minutes from an Uber driver.
Their network effect looks different than most others, say Facebook, because the real value is a network effect of networks. i.e. they have highly concentrated networks within cities, and they have a high concentration of city-networks within states, and outward.
The clear value proposition there is one can easily move a package from your house through your network within your city, to another network in an adjacent city, and on and on to say the next state.
Right now, sure you can ship something 'overnight' via FedEx relatively long distances within the US but technically it's not REALLY overnight. Technically, you have to reach the FedEx store before some cut off time (say 12 noon), so that package can then be taken to their sorting facility and make it out on the flight that night.
Imagine if there is the a real-time network where at any moment any package can be placed on the network and be on the most efficient route to the destination immediately. That's obviously the holy grail, but no longer do you have packages sitting in sorting facilities and waiting on bulky planes to take off.
They may not have these plans, but I have no inside knowledge and that's one clear advantage I can see of having a network where something is always being delivered between almost any 2 points within the network.
I assume that all of these investors are not dumb and neither is Kalanick and his team, so I suspect there is a much larger logistics play than we can imagine.
Just like Tesla isn't just a car company, but is also both a commercial power (Southern California Edison) & oil company (Exxon) plus maybe an autonomous delivery fleet all in one, I assume Uber is something similar we just can't see it yet.