The commercial airline industry has lost money over the whole of its existence. If I'm flying from NYC to DAL, I'm flying the cheapest carrier (with a slight nod to Frequent Flyer programs).
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.
TFA and a lot of commenters here don't seem to understand that Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers. That's their dream. They even admit this in public. [0]
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.
I can believe that's their goal: I see little reason to believe they'll succeed in it, beyond making the market a bit bigger than the current taxi/minicab market.
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
I just signed up for the 4 weeks of flat rate uber pool in NY. $89 and you can use Uber Pool as much as you want for free between 6am and 8pm inside Manhattan.
Previously I would spend $117 in a monthly metrocard.
I know several friends in San Francisco that got rid of their cars for Uber. They spend about $500/month on Uber. Owning a car in SF is more expensive than that: monthly parking, insurance, parking where your destination is, gas, etc.
at the very least their drivers will still own cars.. if buying a car is all of a sudden not normal, then it would cost A LOT to become an Uber driver.
Car ownership is already not necessary. Both Uber and Lyft offer a car "rental" or leasing program where you will be given a car to use for the job for a fee which will be waived or reduced if you drive enough and do enough business with the car. They profit off of this or at least recoup money if you fail to hold up your end of the contract or in certain cases, you pay for the mileage you drive outside of work hours. This drastically reduces the capital necessary to start driving for these companies.
either way this drives up cost because it raises the amount a driver must make a month. obviously we dont have concrete numbers but if people are switching to uber only they probably would want to save a lot every month versus owning a car.
Can't say I speak for everyone but I mostly walk to get to places and drive when I have to. I live close enough to an ALDI to get most of my groceries by walking and I can walk to work too.
Owning a car means always needing a parking space, going out to get gas, paying for insurance, inspections, etc, having to be capable of driving (because when I'm sauced on a Saturday night I really want to get greasy food, but I can't drive soooo...).
If an autonomous car-share program cost about as much as the car payments and gas alone for the the amount we would use it, we would sell our car in a heartbeat. A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.
The thing is that this is really only true for people in dense urban environments. For instance, parking is not an issue in suburbia. There are use cases, like getting from your home to the train station, but it's not nearly as universal as it is for people who can currently get by with no car at all.
I think you're being too kind to the parent. This is true for a very small subset / archetype of people. The majority of the country has much different situations and desires than just walking to ALDI.
Had to lookup ALDI on youtube.
Their logo looked familiar to Hofer brand, then I found the wiki explanation. Aldi Süd operates as Hofer in Austria and Slovenia.[1]
They're a different branch of the family that owns Trader Joe's. In the US they're a super-discount food store--think in terms of a strategy for a limited inventory of canned goods and things in that vein intended to undercut Walmart.
I agree - car ownership is expensive. So we get by mostly on our bikes. Reasons we still have a car:
- Moving big things
- Shopping for big things
- Camping
- Driving out for the weekend to visit family 1.5 hours out of town
- Baby in baby seat
None of these things can easily be targeted by Uber. I rarely use taxis and uber, and my friend's that do, use it as replacement for public transport and not their car.
> A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.
Isn't that exactly what makes it a status symbol? Keeping up with the Joneses, and all -- it's one thing to not play the game, but that doesn't mean a lot of people don't, and this seems to just be agreeing with what makes it a status symbol.
Most American cities are sufficiently un-dense that things like "always having to look for parking" aren't big deals. Laws ensure places have enough spaces (these policies are very pedestrian-unfriendly, but such places are more car-friendly than the dense coastal cities). Traffic is slower at rush hour but a non-issue any other time in these places.
The average car these days lasts 10+ years. Perpetually renting cars is going to be seen as disadvantage for a lot of people who take out ~5 year loans and then can keep the cars for quite a while after finishing off their payments. Anecdotally I'd wager that people buy new cars more for the status, or for the change of having something new, than to replace something that just doesn't work anymore, nowdays.
> > A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.
> Isn't that exactly what makes it a status symbol?
To be an effective status symbol, something has to be of higher status, but not too high a status. Gold chains are just gauche, despite how valuable they are. So too, once upon a time, having a cell phone.
I think the tricky part there is social context. There are social groups where gold chains are absolutely status symbols. You'd be hard-pressed to find an NFL receiver without one, for instance.
Conversely, there are groups where being able to afford _not_ to own a car is a status symbol. Think "I live in a neighborhood where everything is walkable", or "I just throw money at Uber because it's easier and I can afford it".
Anything is a potential status symbol, if a group subconsciously agrees that it is. If your group doesn't value humility then too-high-status isn't really a thing.
New cars and executive cars and ludicrously thirsty sporty models sell well enough and secondhand Korean superminis badly enough to suggest manufacturers don't have too much to fear from people switching to alternative modes of car use on the ground of price. (I'm sure you could find a cheaper-to-run vehicle if you really wanted to too)
And for commuters that need a car to get them to work at 8-9am and home around 5-6pm, the chance of a car sharing scheme working out cheaper than ownership is minimal, whether the cars drive themselves or not.
What about when your commute, without any concern for parking, is 10 minutes, max? I doubt it would be that expensive. Besides, I would only opt for transport if the weather was shitty or I was tired (which is the current case today).
> What about when your commute, without any concern for parking, is 10 minutes, max? I doubt it would be that expensive
If you want a car at the precise time everybody else happens to be commuting and commuters are the principal users of on-demand car services, it doesn't really matter whether your commute is shorter than some of the others. It's one extra car needed to be available every day at the time when all the other cars happen to be in use and (like most of the rest of the cars in the commuter pool) it'll spend the rest of the day sat in a parking spot, costing little in mileage but plenty in depreciation.
Of course if commuters needing to be around for the start of a normal work day aren't the principal user of the service, then cars can be used more efficiently throughout the day, but then they're not "competing with private car ownership" to any significant degree.
For edge cases like you whose car use consists of occasional ten minute drives, it might already be cheaper to just take taxis/Ubers
I'd think self driving cars would kill busses. I'd much rather nap / work / watch TV / do hobbies in my car (where I'd keep stuff for doing all that), then in a bus.
If the car is electric, it isn't so bad on the environment, and it can park itself in a no humans allowed garage (so little chance for breakins). As for rush hour, I'd hope swarm scheduling lowers congestion substantially (though this and making longer commutes tolerable really just means I'll live further from work).
Lol, that is highly unrealistic. Where is this magical secure garage going to come from? Underground parking costs $40k per spot to build, above ground is similar. Add in the cost of security and the long term costs of parking are extremely high. The parking minimums in most places force parking to be heavily subsidized, which isn't a sustainable model when it comes to long term matienece of suburban areas, unless we can heavily increase taxes to pay (5x to 6x) for road, water, sewer, and all other maintenance needed.
> high bandwidth vehicles will do the bulk of the work, and seamlessly trade off to "last mile" self driving small vehicles.
Still doesn't solve the problem - just moves it. If everyone in my office complex needs a ride to the bus around 5pm, and everyone at the other end of the bus line needs a ride home at 5:42pm when the bus arrives in SuburbTown, there will still be unmanageable shortages of self driving small vehicles - unless you own your own.
You can fit 4 people in a self driving car pretty easily. Most people currently drive by themselves because it's too difficult to arrange on-demand carpools on your way to/from work.
Space on the road is the limiting factor in this scenario, not number of vehicles. What would the point be of making another vehicle available, if traffic is bumper to bumper all the way?
> In a self driving world, peak traffic will be served by buses
Huh? If suburban Americans aren't opting to share rides into work now and don't have or want bus services now, particularly not connecting bus services, what difference is non-human drivers going to make?
>what difference is non-human drivers going to make?
That's really the key point. Not that roboTaxis are on the near horizon but, if you believe they'll change everything when they arrive, you basically need to point to all the cases that today are almost (but not quite) enabled by Ubers driven by minimum wage drivers.
Do Zipcar and Uber make a difference on the margins? Sure. I know people in fairly dense non-NYC urban area that probably would still have ended up with a car 10 years ago who can get by without one today. But there's a big difference between change at the margins and fundamental shifts.
This is a good point, but it doesn't change the prognosis. Uber will run out of runway long before that vision can be realized. And even if by some miracle it doesn't, it will find itself in a low-margin commodity business. Unless it can muscle its way into a monopoly, it can't win. Which explains the company's aggressiveness and anti-competitive nature.
Amazon is in a low margin commodity business with massive amounts of competition, but they're still massive and becoming even bigger because they do what everyone else can do just that little bit better that there's no real reason to switch away.
Amazon actually didn't have much competition at a key point in it's growth, i.e. just after the dot com crash. Amazon survived, many did not and Amazon then had a few years to cement their dominance in the online shopping space.
Amazon is also very different from Uber in that it a) went public earlier and b) didn't need huge outside cash injections like Uber and c) Wasn't making a huge gross loss on sales like people claim Uber is.
I believe Uber has already lost more money than Amazon has in it's entire existence!
Brick and mortar stores were (and still are) extremely weak competition. That's why Amazon utterly crushed many of them and continues to do so. Not just small mom and pops either. Borders, which at one point was one of the largest bookstore chains in the nation, shuttered its doors because it didn't switch to an online model fast enough. Barnes and Noble at some point was in deep trouble as well.
If you look into the indicators that fall into the Retail and Services sales category, there are extremely big ticket items and high-volume items that aren't sold in high volume or at all due to regulation.
All auto sales, gas purchases, alcohol & tobacco, heavy industrial equipment (commercial farm equipment, etc) are included in that category.
Online sales only being 10% of that still probably looks massively outsized if you're drilling down to B&M clothing & electronics purchases. I haven't made a B&M retail purchase any more times than I can count on one hand since 2004.
> (Amazon) didn't need huge outside cash injections like Uber
Amazon and Uber are very different companies, but this wildly oversimplifies the financing of Amazon. Amazon has taken on many billions of dollars in debt over the years in order to operate. If you add it all up, Amazon has taken (in very different terms) about as much money as Uber.
Also a good point. Low margin doesn't have to mean unsuccessful. But it's taken 20 years for Amazon to get where it is. Uber's valuation seems pretty premature. Amazon lost money for years because it was building infrastructure. Uber is losing money because it is subsidizing its sales. Amazon may have been low margin, but I don't know that they ever took investor money and gave it directly to customers in the form of price subsidies.
Zappos is an Amazon subsidiary even if it does operate quasi-independently (and quirkily from a management perspective). It looks a lot more like Amazon though with generally far less emphasis on building out infrastructure. Ultimately it's sort of a niche because of the nature of selling shoes online.
AWS makes almost no money compared to their core business, it's around 10%, maybe a little bit more. The profit from AWS, however, is something like 50% of Amazon's total profit. That said, it's not hard to occupy a huge percentage of profits from Amazon since they purposefully run almost every other facet of the business at razor thin margins.
3.2 billion of revenue in one quarter [1] is is nothing to scoff at. However the more important point is without the profit from AWS, Amazon would still be posting huge deficits [2] and would probably face much higher shareholder pressure to produce.
I always understood "make money" as referring to profit, not revenue. A business with $1 trillion in revenue and $1 trillion in expenses makes no money.
Maybe there can be profit to be made from this business too with a bit of _delay_ in between receiving and giving. I'm trying here just to imagine this company.
I think it will work because of the scale.
I'm thinking:
I take dolar bills from one person, I keep them 10 days and then I give them to another one. And I repeat this for 1 trillion dollar value.
Even if the profit in 10 days is 0.1% then you will have 1 million dollar remaining to you. What I am trying to say is that it seems to be a value in being so big, because of how big numbers math works but also because people are impressed by it (think going to a bank asking for money)
This is how Amazon benefits from free cash flow in their retail business. With payment days of >90 days to their suppliers but almost immediate payment from their customers they get 90 days to reinvest that money at a profit before paying it back. Essentially an interest free loan from their suppliers.
> almost immediate payment from their customers
Isn't there a gap between customer making the credit card payment and the bank transferring the actual money into Amazon's account?
Probably. And they also won't always sell an item as soon as they receive it, which eats into free cash flow. But generally speaking, they get paid for goods by customers before they need to pay the supplier, which creates free cash flow.
As a long time Prime user I've recently considered dropping my prime subscription. I need to spend a lot of money (even more than I already do) to make the P&P work and the film offering is getting worse and worse.
Since Amazon seems to have shifted to generate profit instead of subsidizing prices, it went downhill (at least in Berlin). Amazon Logistics is a huge pain (several lost packages, Saturday and 8pm delivery to business) and the prices of most goods at Amazon is mediocre.
As a very good and Amazon customer for a very long time, I've reached the point to jump to something else should it materialize.
While I haven't experienced this sort of thing very often in the US, whenever it does happen Amazon has either sent another package, refunded the cost of the order, and/or offered a free month of Prime. And it usually only takes 5-10 minutes in an online chat with customer service to figure out. There are definitely plenty of meh things about Amazon, but customer service is certainly not one of them.
YMMV, I'm not happy if paying for Prime and 50% of packages get lost, I call, and get them some days later than expected or get them later as expected and payed for next day delivery in the first time.
Amazon got kicked by Zalando for Fashion at least in Germany and despite heavy investments and promotions for fashion can't compete with Zalando.
If someone starts an electronics site on the same professional, data drive, aggressive level as Zalando, I'm sure Amazon is in trouble here in Germany.
It's a business with natural network effects. The service that has the most cars on the road has the most liquidity to clear the market, and will have the shortest wait times. People pay for rides in both time and money, and you can be "cheaper" by getting a car to show up faster.
Network effects don't accumulate to a natural monopoly in this case. Yes you need a fleet large enough to get to a sweet price / waiting time optimum, but each new car in your fleet has a diminishing marginal effect.
You could say exactly the same for airlines: there's network effect. Each new plane allows your to fly more rotations, have more frequent lines, open new routes... The reality is that most people take decisions based on price.
We know most people are pretty bad at valuing their time, and even so, waiting a minute more for a cheaper service is something people will do for sure. As long as you're below an acceptable waiting time for your car, you can compete on price.
I'm curious about how Uber will avoid being a commodity just like airlines are.
Each new car in your fleet has diminishing marginal effect to a passenger, and has negative effect for the other drivers. And you need to compete for both drivers and passengers.
This is why Uber and Lyft end up in driver subsidy cost wars.
Interestingly, the negative effect part is wrong for carpools, but that is not Uber's primary business (I'm assuming carpool drivers would rather be passengers)
That inflection point happens after you have a _lot_ of cars on the road, much more any new entrant will commit. It's equivalent to saying the power company gets diminishing returns from additional supply after they've built enough capacity to meet current demand. No one but the natural monopoly actually gets to that point.
That's a possibility. I'm not sure it's true. Both Uber and Lyft have good waiting times right now. The hypothesis that they will replace privately owned cars supposes that the market will grow immensely.
Waiting time is a function of: number of cars, size of the city, number of customers (to ignore congestion for now...) To have a good start as a new entrant, it's just a property of the size of the city. Then, you need to grow your fleet with your number of customers to keep waiting time constant. That number of cars to start with, the barrier to entry, is a tiny portion of what you need to add to keep up with demand.
If you don't have to compete with drivers, with autonomous cars, it's not that hard to meet and start a price war.
Again, I don't see how Uber will avoid being squeezed out of their margins the way airlines are. It's not cheap to start an airline, yet many people have done it. And all you need is 3 competitors to drive prices, and margins, down.
The problem is that in this case, Uber doesn't own the car network. It's trivially easy for a driver to shift between networks, or even work for multiple networks simultaneously. Uber not only has to talk a rider into giving them the fare, they also have to talk the driver into taking that fare. There's just nothing special about Uber for either party unless Uber can be the one that performs that matchmaking service at the lowest possible transaction cost. Welcome to Uber's low-margin world.
>Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car
...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.
> That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.
yes, it tells us that human cab drivers are prohibitively expensive. robot drivers don't need to paid by the hour though. the real disruption to your car isn't a ride-hailing app on your phone. it's robot driven cars. ride hailing apps are necessary piece of predecessor infrastructure for that transportation model. it's the beginning of it, not the end.
In my opinion self driving cars are a shiny object to distract VC's from Uber's massive operating losses. When they start making money with self-driving cars on a large scale then I'll take notice.
Uber won't even be necessary. If it becomes cheaper to "rent" the service of the car (i.e. Uber/Lyft with autonomous vehicles), then car manufacturers can just cut out the middle-man. Uber/Lyft would serve no purpose anymore unless they somehow make it cheaper (which would be practically impossible).
The landscape of the future is car manufacturers offering their own "Uber" like service and that service replacing the traditional ownership model. That doesn't mean Uber doesn't have a place before then though. Like good little capitalists, the VC's will cash out and make a ton of money while the real innovation and lasting impact happens elsewhere. So, yeah, Uber should blow up when self-driving cars become a thing but they'll eventually fade away. Unfortunately, that won't be for a long time.
EDIT: Oh, and yeah, people are also going to still be buying a shitload still anyway.
wait 5-10 years? there aren't any self-driving cars in commercial use right now. VC investors often have long term timelines (depends on the fund and it's objectives). It's not exactly a distraction tactic to say "our timeline projects out for a decade and we expect to be operating in the red until the technology and politics aligns and comes to fruition, at which point we make infinite money forever."
Yes but most funds are marketed as repaying in 10 years and, even if some take longer, the VC presumably does not want that (since it, presumably, prejudices their chances of raising their next fund).
Expect an even bigger fund raise where they hope some other idiots, with even deeper pockets, will keep picking up the tab.
Removing the driver reduces the price significantly, so the business model of cars on demand is probably viable outside of dense areas with self driving cars.
That being said, for Uber to win the self driving car race they have to beat Google, Apple, Tesla, Didi and the automotive incumbents as Sarah Lacy has been pointing out for at least 12 months.
What does Uber have that would not be feasible for any of those companies to build?
Uber doesn't lock in customers or create any switching pain whatsoever so their current customer base doesn't given them much of an advantage. Their software is slick and robust but it's not so technically advanced that a competitor couldn't create their own ride-calling and dispatch system (as evidenced by Lyft).
The article and your parent poster are basically saying:
"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."
I believe the argument, though, is that transportation is a commodity product and, therefore, pricing is a race to the bottom.
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?
What I seem to never hear people mentioning is that it's nice to have your own car.
I have my car all set up how I like it, with a nice aftermarket stereo and amp and hundreds of gigabytes of mp3s because music is important to me, the seat is exactly set up how I like it, etc etc. I specifically bought a car that I actually enjoy driving.
I have an umbrella in the car in case it rains, and a jumper in there if it is cold outside, so I don't have to carry those things with me all the time.
Also, I know that there was no smelly/dirty/messy person in the car before me. Public transport is a yucky experience overall so why would a super cheap Uber end up being any different?
I will personally pay a premium for that comfort and convenience, and I can't be the only one, can I? How much cheaper can an Uber be compared to owning my own car?
I guess it all depends on how much the premium is...
I live in Singapore and this is already happening here. In Singapore to own a car you've to get a certificate of ownership that can cost around $70-$100k and you've to bid for this. Ever since Uber began to get popular here we've had rental companies (who only rent if you become an Uber driver, essentially partners of Uber) try to undermine the bidding system by artificially boosting prices.
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.
Singapore is doing it because the alternative would be to use much more of their tiny island for car-related infrastructure. The total cost of that infrastructure would be much higher than what the sum of the COE's[1] would cost.
Are you sure Singapore is artificially inflating the cost, or that where you live isn't artificially subsidizing the cost of car ownership?
Warren Buffett's famous lesson is that in a competitive commodity business, any cost savings will get passed on to the consumer and investing in such a business is value destroying in the long term.
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.
I think that market is smaller than you may think. There are lots of factors that will drive people to own their own self-driving cars rather than rely exclusively on Uber/Lyft/Tesla Mobility, etc.
In addition to what others have mentioned, there's also the mobile storage locker aspect. When traveling for example, there are any number of occasions when I will end up renting a car rather than using other transportation because it means I don't have to always be carrying with me all my stuff for a whole set of activities.
It happens at home as well. I don't need to bring a bag for evening activities into work because I can just leave it in my car. And I don't need to bring my computer bag to an evening activity for the same reason.
Sure, all this stuff can be worked around when it has to be but there a lot of advantages to having a mobile vehicle you don't have to empty every time you arrive at a destination.
That's definitely a habit you've formed, that you can grow out of. Given no choice, you'd quickly figure out optimized way to do the same things without a personal car.
Given proper public transportation, I did. Not owning a car is not only a lot cheaper, it's also quite liberating:
- I don't fear I'll wreck it, or worse, I'll badly injure someone in a car accident
- I don't have to drive and be angry about other people on the road, like a lot of drivers
- I'm not owned by my car, that requires maintenance and cost beyond just running it.
- Not fighting for parking spots!
Cleaning is one factor I think. If you have a pet or kids you don't want to risk destroying someone elses car, but you know your own car will slowly look worse.
Yeah, that's one big one. It's really anyone with a dependent that has equipment needs (car seats, hockey gear, etc.)
"But, but, you can rent a car with a car seat!"
That response ignores the fact that there are 4 different major categories of car seats, most kids need a specific one at different times of their lives, and if you have multiple kids you need the specific combination of seats. And of course, car seat installation is hard and takes time, even with LATCH, and I wouldn't trust a random Uber driver just handed a seat to install it properly.
So buy one car for the 10 years in your life where you have kids that need cars seats and then rent for the other 50 years of your adult life. It wouldn't need to cover literally every use case in the world to have a major impact on the economy.
> they'll open up the biggest transport market ever created
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?
I agree that Uber is trying to replace private car ownership, and I expect ride-sharing services like Uber/Lyft to succeed at this. But given those assumptions, is there any reason to expect them to be massively profitable? The current market seems to involve Uber & Lyft (& other competitors in different locations) competing on price, do you expect that to stop?
Presumably the (publicly) unacknowledged plan is to severely wound private car ownership and then collude with Lyft to fix prices, similar to how it worked with Didi in China [0].
There will likely be some regulatory capture on the side to discourage other competitors.
> The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry
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.
Is there a reason to believe that Uber will be able to beat a Toyotas On Demand service that Toyota will inevitably launch?
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.
Considering Toyota's publicized software problems with relatively simple embedded systems, I wouldn't be surprised if they are culturally unable to field a competitive on-demand driving service at all.
>culturally unable to field a competitive on-demand driving service
Or, they could easily decide that that's not their business model. Being a car manufacturer is different from being a fleet operator is different from being a finance company is different from (for that matter) being a car sales and service organization.
A company may decide to do one or more of those connected things and they frequently do in ways that are more direct or less direct. Culture's part of it. But it's also about focusing on capital requirements, core competency, etc.
if they succeed at this, then no one will own a car. therefore to become a driver one would have to buy one instead of already having one. This makes it not worth it to drive.
I’ll imagine that scenario when I can imagine the day car interiors are manufactured out of one seamless, waterproof plastic that can be hosed-out in between rides, but are still more comfortable than a commuter subway or bus.
Uber is going to make a market for but car manufacturers are going to eat its lunch. When Ai becomes good enough which I think will in the next 5 years they will flood the market with their own cars and taxi services.
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.
It's fascinating how many things that started under Carter people misremember and attribute solely to Reagan. We really do reform our memories to conform to simple stories
Carter's decision to do this reminds me of Johnson's comment about "losing the south for a generation" with the civil rights act.
Despite the stereotype, typically the economy sucks under republicans and is repaired by democrat (Eisenhower is an exception, and Roosevelt took a while to figure out what to do, but I did say "generally"). Remember the concern under Clinton that the national debt might be retired and what a disaster that would be?
Since I'm in the realm of gross generalizations it's often under Democrats that wars have ramped up: well, Roosevelt again, Kennedy and Johnson Vietnam, and, yes, Obama on the secret side) while republicans can close them off: Nixon (Viet nam & the cold war with China, Reagan/Bush sr Cold War with Russia. But this link is even more tenuous.
perhaps but if you look at per capita growth over the past hundred plus years in the US, aside from the great depression, you see pretty uniform growth no matter which party is in office. Also, the Clinton debt thing is overblown (my opinion) all that happened was a shift from public to private borrowing and I don't see what positive effect that had, temporary though it was. The whole Clinton miracle was a combination of coming out of a recession into an investment bubble.
Indeed, I was making a gross generalization to point out the inanity of the stereotype "Republicans strong on defense and good for business". Thanks for looking up the statistics.
> Also, the Clinton debt thing is overblown (my opinion)
Well I think it's creditable that there was a willingness not to increase the debt simply because it was easier to service (different under Reagan and Bush jr). Though it's congress that borrows, not the executive, right?
Really? I was alive at the time and the hostage crisis remains indelibly linked to Carter in my mind (aside from the belief of many on the left that Reagan cut some kind of deal with Iran to hold the hostages until after he won).
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.
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]
A clarification: I meant that if you would show a net loss if you summed the net income of each airline in the industry since inception.
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:
OK... Using that approach I would assume that software has also lost money over the entirety of its existence. Perhaps not completely "untrue", but a silly way of looking at it and not what anyone would assume you were talking about.
Why would you assume that software-as-a-whole has lost money? The industry is full of un-subsidized, non-cyclical, high profit companies... Microsoft, Apple, Google, Oracle, Autodesk, IBM, EMC, CA Technologies, Saleforce.com, etc.
Not sure why it's a silly way of looking at an industry's long term performance. It shows that, while occasional profits are made, the industry is prone to brutal, un-differentiated price competition...
So you're saying you believe the Delta CEO when he says "Industry May Never Again Lose Money"? [1] Considering the above, I'd be skeptical they're experiencing more than temporary, cyclical profitability.
How much VC money has been pumped into failed business?
It's all rather irrelevant. I don't know if software has actually been a net loss, but I know that looking at failed airlines and extrapolating out to the successful ones is silly.
Maybe so, since it would include a lot of government-owned and government-controlled airlines whose fares were subsidized by tax money in the interest of the public good. In that sense, they're a bit like Uber, which is subsidized by its investors in the interest of...well, attracting even more investors and keeping the whole pyramid scheme going.
Even if you leave out the government-owned and government-controlled airlines, there have been a lot of massive bankruptcies associated with the airlines even if you just limit the field to the US. Indeed, large bankruptcies were almost the norm. Even relatively recently, the statement that commercial aviation had posted net losses through its entire history was indisputably true. It may or may not be true given recent consolidation and considerable profitability.
I doubt the same "never made money" statements could be made about most industries.
I'm not sure why a Level 3 needs to be a person in the vehicle?
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.
"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." - This is an extremely good and often overlooked point. With Apple, Google, and Amazon now offering AI-powered smart-home devices (i.e., Google Home, Alexa) as well as mobile assistants like Siri and Android Assistant, they will increasingly own the first point of contact for a user when they need to hail a car. You could hail a ride without even having to open the Uber App at all, meaning that from a consumer perspective the relationship has shifted upstream to the phone OS or connected device, and Uber now becomes the behind-the-scenes middle-layer that runs the dispatch logistics. Right now, Google/Apple/Amazon operate under the guise that they are "integrating" with Uber's services, but when Google and Apple roll out their own autonomous vehicles (which they already are working on) and Amazon starts rolling out autonomous logistics (i.e., trucks and drones) then they will own both the upstream point of contact, as well as the downstream supply of cars/trucks/drones. When they have built the user behavior of people ordering directly from a phone OS or in-home device, what's to prevent them from connecting directly to their self-owned fleet and cutting out the middle layer (Uber) completely? While everyone is focused on Lyft...Uber's real competitor is one or all of the above situations. Piggy-backing off Uber in the connected home / OS integrations is as classic of an example of a trojan horse maneuver as I have ever seen.
Uber is not even the middle layer here. The middle layer is an as-yet nonexistent aggregator that will search all of the services (Uber, Lyft, Google, Amazon, whoever) to get you the best price for your ride at that moment.
The Airline Deregulation Act of 1978 (to disestablish the CAB) was passed during the Carter administration, not Reagan.
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.
Let's forget about aviation flag carriers and the 'orthodox' legacy US airlines for a moment. How do 'low-cost' airlines make any money, especially in Europe where they advertise fares for paltry amounts? Even with charging extra for bags, food, early boarding, decent seating, etc., does the money they make per passenger cover fuel costs and landing fees alone or is profitable in any sense of the word? What are the business incentives in entering this market, then?
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.
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.
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.
Not saying this is the case here, but the answer is by bankruptcy and continual capital investments.
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.
> 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.
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.
A corollary of this is that whilst meta-search engines didn't take very much of the pie for themselves, the fiercer price-competition they imposed did take a much bigger chunk out of airlines' margins, and particularly the margins of travel agents reselling airline tickets.
Just as they have, interestingly, in the airline industry. Most people go to kayak, hipmunk, skyscanner, monondo, etc. The existence of meta search engines are a hint that the service is a commodity and margins will be slim.
I don't think Uber necessarily needs a monopoly to win, if Lyft wants to compete on price it's free to due so, but if Uber has thin margins as it is, undercutting them is just a shortcut to death.
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]
Uh... Airline deregulation came to pass under Carter, not Reagan. Yes, that breaks some of the left/right stereotypes that drive modern political discourse... But what can I say? It was a more pragmatic time.
>>The commercial airline industry has lost money over the whole of its existence...I'm not sure how Uber, Lyft, etc are any different than Southwest, American, etc
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.
Airline is a classic case of an industry that has too much competition. All these airlines cause inefficient routing, and they're continuously forced to cut prices to compete. This results in bad margins and bad service. Literally no body wins.
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.
Here's a table of Uber's funding rounds.[1] What's keeping Uber going is Saudi Arabia's sovereign-wealth fund, which put in $3.5 billion last summer. They also took on $1.15 billion in debt last year. That's real debt at 5% interest, not some convertible deal.
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.
Thanks for this. Knew they took on debt but didn't know the arrangement. My biggest concern about them is if they run out of runnway. People think money chases after these deals, but there's only so many companies able to do billion dollar rounds. People that are looking for 10x returns will be looking elsewhere.
JP Morgan Chase and Deutsche (not exactly the model for integrity) have recently opted not to work with Uber because of its lack of disclosure.[0] Besides, take another look at that table above: not a confidence-inspiring list.
There's also several links to sites that already have the financial data from Uber. Either you believe that those leaked financial data is real, or you believe they are fake.
If you believe the numbers and the scope of the loss, are you saying that they would have that data and allow that data to leak, but they wouldn't provide it to JP Morgan or DB?
There's financial data out there, but Uber won't provide official financial data to banks for their customers to scrutinize. That makes it hard to assume that everything is both on-the-level and healthy.
Edit: Anyway, what I believe is irrelevant. I don't have the option to invest (aside from getting a job there) or short.
In my opinion, giving large scale subsidies to customers seems like a business anti-pattern, and is surely gonna kill a lot of startups in near future.
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".
Amen! VC's favor this approach because this is the only strategy that requires their scale of money. If you just go out and make a useful product and sell it to people you may do very well... but there isn't room for the kind of huge returns VC's need. Through massive subsidies the VC's are trying to buy monopolies in entire markets... and it may be that transportation is such a large market that no amount of private capital can deter competition indefinitely.
I think a lot of investors and founders try to replicate the model that worked for Paypal. By accepting a high customer acquisition cost (in the form of literally giving away money) at the start you can scale up phenomenally quickly. It's a proven model. The problem is that it's hard to know if you can still attract new customers without that artificial appeal, so actually stopping is a huge risk. Your growth figures could collapse. Uber have managed to amass such a ridiculous warchest of cash that they won't need to stop for a really long time. And I suppose that's the point - if they can get to profit even with the subsidies before they run out of money they won't ever have to stop giving away money to new customers.
The same way that free mobile games make most of their money from 1‰ of the 'whales'.
Nom mobile games. Let's say team fortress 2 or other games subsidized to make game free for all. When a small portion are buying crates and skins.
Uber could do same with black car. Delivery services. Etc.. And then offer discount /free for the (multiple independent ride share or other) to those that want to be cheaper.
Investors, early stage in particular, are optimizing for exits, not profitability. I know that's not what's on their mind when they're advising (I assume the best of intentions), and they do provide the best of what they have, but if that's what gets rewarded, that's what'll get optimized for, and there's nothing the "Good ones" can do about it if they want to be/remain successful.
Very few people other than those pesky customers, seem to care if a business is actually making money on its own these days.
Bing might be 90% as good as google, but when people are trying to search for something they are just going to use google. I really started to realize how useful Uber was when i was traveling internationally I just pulled out my phone and a car came. I didn't have to worry about what the rate was going to be. It might have even been above what a taxi might charge, but at least I knew what the cost was going to be. It just kind of works.
I'm not sure how usefulness-when-traveling-internationally is relevant when the vast majority of the market for Uber, Lyft, etc will never board a plane more than a handful of times in their lives...
I touched on this point in the post. If there's a significantly cheaper local competitor, most people will be happy to use that service when they're home. Then they'll use Uber (or some other globally operating competitor) while they travel.
Hockey sticks come from low friction. Subscription models are just plain tougher -- people have to put in a credit card and pay real money for the service. You just don't get exponential increases in that type of a situation (cue counter-example).
The business models that lead to hockey sticks are anything where the initial use is free to the user. Essentially, how Google, Facebook, and Twitter all started. They can use advertising to monetize that growth, and eventually ancillary paid services (Google Drive storage for example).
I live in Singapore and Uber is a little cheaper than the excellent cab services which operated here even before Uber. There is a big competitor to Uber here called Grab. I switched to Uber because their service is good, drivers are gracious and cars are nice and they give me good offers. Last year I took 300 Uber rides, never once taking the usual Comfort Delgro Cab because their drivers suck. If prices were the same, I would pick an Uber over the traditional cab over 90% of the time due to nicer drivers and service consistency across geographies. The rest of the 10% is when I urgently just need to hail a cab.
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.
They created a product that people love. I live in Mexico City and my experience is similar to the one described in Singapore plus the fact that, so far, nobody has ever been kidnapped while hailing an Uber.
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 live in Mexico City and my experience is similar to the one described in Singapore
same in brazil. my parents never took cabs and now they are using uber for everything (since they are getting older and don't want to drive everywhere).
They could double the price of a taxi ride and most people would still use Uber. So, I don't know if they are losing money in Mexico, but even if they are they could turn it around today.
First off, Amazon never lost a billion dollars in a single year.
More importantly, Amazon could have been profitable for much of the time. Amazon was losing money because they were taking the profits from they successful ventures and pouring it into new ventures.
With Uber, what change do they make right now to switch to a very profitable company? Amazon had that option, Uber does not.
Amazon's position in the market is so weird that Matt Levine calls it a charity for the American consumer sponsored by the stock market. But it's at least clear how Amazon could generate money long-term; if it wasn't, nobody would invest in it.
It's customers are fucking g happy. What's the end game you're talking about? Have you invested into them? As a customer I LOVE them. As a student, I studied them in HBX.
In 2015, Amazon made $596,000,000 on revenues of $107,006,000,000, or a profit margin of 0.6%. In 2012 and 2014, it lost money. How long should investors wait to see a real profit? Should they expect revenue growth to continue indefinitely?
I have lived in both the states and in Singapore (current). I've taken approximately the same amount of Ubers as you but it's also because its prohibitively expensive to own a car here. For the benefit of others: it can cost upwards of $100k to own a car, and that's for a cheap ass car and you've a maximum tenure of 10 years on that.
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.
If my business is standing on the street corner handing people Saudi gold, people will love me. For a while. That doesn't make me a successful business.
I lived a short while in Chiang Mai Thailand. At the time Uber was just getting started and Grab was WAY better than Uber. I really wanted to like Uber there, but after about 5 times of the drivers 1. not finding me (yes, even with GPS), 2. not showing up at all after a long time waiting, or 3. not knowing where they were going.. I gave up. It seemed that they lacked training and that they were mostly trying to get the bonus that Uber was offering in the introductory period. Grab was much more established and worked really well.
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.
I was in Chiang Mai for most of December and I wonder how Uber can be successful there. The songthaews and tuktuks are so cheap that I almost always took those. The only time I took Uber was to go to the airport, since I carefully planned my money so that I wouldn't have any cash left over and Uber would charge my credit card and all the other options would require a variable amount of cash.
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.
I live in India and Uber / Ola (Uber's domestic competitor) are a godsend! In India we have Autos(https://en.wikipedia.org/wiki/Auto_rickshaw) And the drivers were (are?) ill mannered, demand exorbitant fairs. But Uber changed that. Since the drivers know that the ratings matter, they are nicer. Yes, one in a while you still get a negative experience, but as a whole. it's whole lot better.
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.
I haven't taken that much taxi in SG but never had a bad driver. Always polite, speak excellent English and knows where to go. Unlike in MY. They are however often very hard to find. So many taxis but whenever I seem to want one they are all occupied.
But the OP is arguing that it is unsustainable because of subsidies. If I created a business where I give you $100 a day for being a nice person, you would think it's great. But that will not be a successful business most likely.
300 rides x average of approx. $15 per ride = $4500.
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 don't understand his point. Maybe I'm dense (today, ha).
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).
The Uber we know right now will probably transition into the self-driving car-based company for freight, passenger transport and ride sharing. It'll be a bit unsettling to see what'll happen to the drivers they're using right now.
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.
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.
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.
>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 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 do believe that I as a consumer am entitled to receiving good customer service for the money I pay for. I do understand that sometimes people can have bad days and I don't mind that, consistently horrible service and a bad system irritates me and I think it's not fair, but it is kind of a one-sided world view, and I personally don't permit that to myself.
On the long run this is a financial equation, it might be more comfortable for consumers at the moment to hail a cab with their phones and use their credit cards to pay, receive better service, et cetera, but let's take into account the long term price paid by them. Letting foreign companies exploit both tax and regulatory laws to take as much money out of the country as possible before getting shot down is not a good strategy on the long term. Start-ups can get away with it, because at the end of the day the only thing that matters is that they seem "exciting" and "booming".
The same way we aren't especially happy with the people who got exposed in the Panama Papers, or Donald Trump publicly admitting that he doesn't care and will abuse the system, we kind of have to draw a line. If we all decide to do the same, because laws and taxes are not convenient to our short term goals or let other entities do it, it's just gonna backfire at the consumer on the long term, when infrastructure and lives depend on a government having money. Let us not even mention the whole international tax situation, it being as problematic as it is. (Just look at what's going on with Ireland)
In the UK uber is set up like a local Minicab firm, drivers and cars are licensed. It's still by far the best form to take as I can just get one from my phone, not worry about paying, or receipts, are exactly where the taxi is before it arrives, and get an itemised bill at the end of the month to claim on expenses.
The author's not making the point that there is no margin, but rather that with self-driving cars it'll be a quick race to the bottom against competitors, thus eroding whatever margins Uber is left with after replacing human drivers.
Question is, who are competitors with same scope as them? I don't know any. They are already in position to just switch over. Others would have to build their network first. It's a running start that depends on them playing their cards right.
> Question is, who are competitors with same scope as them? I don't know any.
Presumably traditional car manufacturers (GM, Ford, Toyota, BMW, etc.), upstart car manufacturers (Tesla), and even other large tech conglomerates (Google, Baidu, etc.).
> They are already in position to just switch over. Others would have to build their network first. It's a running start that depends on them playing their cards right.
Uber won't have a monopoly in self-driving tech. Their running start will get eroded (some would argue quickly) by new challengers (probably regional upstarts rather than a global competitor) that have easy access to self-driving tech (think car manufacturers).
Also, Uber's network is mostly on the software and human (drivers) side of things. If self-driving tech becomes a reality, they'll have to quickly pivot to purchasing and maintaining a large fleet of cars. That's not an easy task at scale and not something that Uber necessarily has an advantage over others.
Why aren't car manufacturers already in logistics business? Or are they? I'm trying to find sources. I see VW has its own logistics group, but only for their own use.
In the US at least (I haven't ever bothered to look at how branded car dealers exist outside the US), they already have a network of physical locations where they can ship anything and service anything they sell. There are also the rental agencies and the people that manage fleets of private vehicles that work directly with the local dealers on behest of the global organization- Uber doesn't have this and would have to build it. Right now they are pushing that part of the logistics of their organization on their drivers since it is their own personal vehicle.
This is something you can see Tesla having to do the hard way in comparison with their coast to coast supercharger network. There was no physical infrastructure to support their product so they had to build it, and established car dealers already have it which is part of why Tesla overcoming that was such a challenge. If I have a US make car in the US and I am in a moderately populated area I can make a reasonable assumption I can get to a dealer in an hour or two wherever I may be, and Uber would have to overcome that.
Any larger car company is a competitor at the same scale. And you don't even need a competitor of the same scale: It's enough if every city has a local competitor.
What is scope for Uber-likes? What is network? They're simply leveraging a brand - it is almost no moat versus a competitor, especially if they have a structural advantage.
An example advantage would be an autonomous car manufacturer entering the market - they can simply blow Uber out of the water on cost alone.
No moat? Do you think brand recognition is worthless or I'm missing something? They have a large user base (I presume) already. I'm not sure one could build one from scratch just like that. It would need a big player to enter the game.
As far as war chest goes, Uber basically has no competition. As far as their routing and vehicle management algorithms go, there already exist companies with more sophisticated routing systems than Uber. Uber's routing algorithm is basically nearest neighbor search at a massive scale - which is perfect for the on-demand nature of their business; the companies that I'm referring to can support on-demand routing as well as scheduling rides days and weeks in advance.
More knowledge of future rides -> better optimization -> better margins.
Once self-driving cars finally come around, it's going to come down to fleet size and routing optimization, and while Uber can win in the first category, there's no guarantee they can win in the second category.
> As far as war chest goes, Uber basically has no competition.
Google has more money coming in half year than Uber has ever raised, and it's from profits.
The major car companies also have billions of dollars of revenue and collectively they hold hundreds of billions, possibly trillions, of dollars of fully depreciated assets.
You're right about the cash available, but how much is Google (and its investors) willing to lose to compete with Uber? Are Google's investors willing to put up with another [vastly more expensive] Google Plus?
Because when I say war chest, I mean Uber is willing to lose it all. Rides are Uber's only revenue source, whereas Google has never made a cent in that industry.
Google's investors don't have a choice. Brin and Page have voting control.
In any case, it's hypothetical. Uber's unit economics are made of losses and there is no structural moat around their business. They'll run out of money and that will be that.
Is Uber really willing to lose it all? Investors have put money in it expecting 10x return. Google can just right it off as their moonshot project while Uber as as a company goes poof and burns
I think building a network is very much in the bailiwick of auto manufacturers or anyone with capital to purchase the cars and built a simple app with a marketing campaign.
He argues that self-driving cars will likely be commoditized so that they will not have a competitive advantage there. Combine that will low switching cost for users and their debt will be more of a competitive disadvantage than their network effects.
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's current problem is they have run out of things to innovate on. They've pretty much nailed the UX in their app, and all they're left with is cars taking people from Point A to Point B. What is left to improve on there?
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.
> They've pretty much nailed the UX in their app ...
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.
I wonder how much of those issues are Google Map's "fault"? (genuinely curious). I have the same issue where every damn time the uber tries to pick me up in the alley behind my apartment, not the street, for no good reason.
The network effects are pretty obvious actually: as the number of people on the platform increases, the amount of time a driver has to drive to pick you up becomes increasingly shorter, thus enabling the drivers to spend more of their time with a passenger in their car (which is when they are earning money). If drivers are making more money, Uber can pay them less (reduce the subsidy).
Old taxi cab companies can't compete because they have to drive much farther on average for each pickup
Uber built its network city by city and a competitor could do likewise. As others have pointed out, most rides are local - if you live in Dallas, TX, you probably require rides mostly in Dallas, TX. If a hypothetically better (in some way) competitor came along that only served Dallas, you might be interested in trying it out.
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.
Yet there is a minimum viable issue to contend with. The average car will have an average value of dollars to go a unit distance and it cannot go lower than that very simply. The US Highway Safety board has computed this number for decades. Today it stands at ~$0.52/mile driven. This takes into account many many factors like gas prices, car maintenance, driving style, etc. Uber must pay drivers, on average, something more than 52 cents per mile. Yes, they may pay much less than that, but then you have to monkey about with driver mentality, average automobile efficiencies, road conditions, etc. Those are very difficult problems to tackle and are mostly outside of the 'wheelhouse' of Uber as a software company.
Yes, but it's easy to calculate out the results for everyone (drivers, Uber) if vehicles are x% more utilized, and at no point does it become sustainable for anyone - let alone profitable. As the Naked Capitalism article points out the only way this works is if Uber finds ways to reduce the fixed costs involved in their service, which taxis around the world have thus far been unable to do and Uber shows no evidence of achieving.
But if Uber is banking on autonomous vehicles none of this matters, because once there are autonomous vehicles providing sufficiently supply is purely a capital problem, and capital problems are relatively easy to solve if there are sufficient profits to be made. And if there aren't sufficient profits to be made, then Uber isn't a very attractive business.
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!
Uber is fueled heavily by subsidies. I took an Uber pool to work, set price of $25. I was the only one picked up, but due to traffic it took ~1hr. The total price that the driver saw was ~60. Someone paid that driver the $35, and it wasn't me, it was Uber (venture capital). That is purely subsidizing and artificially lowering prices.
Underfilled pooling is not a great example though-- filling in load shortfall on pooling is a very efficient way to spend money, because you need to build the load, uber needs to only profit on average, and even if there was no subsidy at all there would occasionally be underfilled cars.
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.
Uber only uses subsidies when trying to break into new markets to expand. If they stopped expanding, they would become profitable rather quickly.
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.
>> Uber only uses subsidies when trying to break into new markets to expand. If they stopped expanding, they would become profitable rather quickly.
Are you sure that's true? That sounds like the marketing speak that Travis K. spouts, but I wouldn't be surprised if that weren't the whole truth. Like any other "startup", you can claim to be profitable pretty easily -- you just have to find a hand-wavy way to qualify that ("if you exclude debt and operating expenses we're net margin profitable!").
> 1. Uber/Lyft don't own the cars. They are leveraging car owners capital
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.
I think Uber's business model relies on self-driving cars. They're paying subsidies now to build a brand -- the name "Uber" has become synonymous with "pull out your cell phone and call for a ride" -- that will be very valuable once self-driving taxis become a commodity (which will happen shortly after their introduction).
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.
So I do this for a living... and I'd estimate the value of Uber's brand at $20-30 billion right now and growing. Brand perception among mainstream consumers is extremely positive and they're aggressively expanding globally. Think about how many times you've heard someone say "Hey, who wants to call the Uber?" That's brand value right there. They are essentially price inelastic given how many tiers of service they offer.
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.
The problem with Uber paying subsidies now to build a brand is that for people paying attention to them their actions independent of the drivers are building even more of one.
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.
Agreed, and the author even sets us up for this - again and again he mentions how the largest sink is the drivers, the largest cost is the drivers, the biggest blocker is the drivers. Remove the drivers from the equation and things suddenly become a lot simpler.
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!"
> 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.
After having two nightmare drivers this week where I actually had to end the ride early and get out of the car, I can't wait for self-driving cars, and whatever service that rolls out self-driving cars first is going to get all of my business.
Yeah; that's ultimately why Uber treats driver quality as a short term problem and they don't do a lot more pre-employment checks... it's a problem they'll fix by removing the drivers entirely; so better to sweep it under the rug and by the time they get in trouble, it will be too late...
Self-driving cars will remove Uber's one significant competitive advantage: The network effects of having lots of drivers.
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.
The airline industry is much harder to differentiate because it is so capital intensive. Airplanes are super expensive because failure is so catastrophic -- thus they are built with multiple levels of redundancy (and production / maintenance costs increase exponentially with the complexity). Elon Musk has spoken about this exact situation in relation to SpaceX: basically NASA builds $5 billion rockets with a 1% failure rate, and SpaceX builds $30 million rockets with a 5% failure rate -- but the idea is that because SpaceX's solution is so much cheaper, they will have more launches and thus will have more failures.
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.
Warren Buffett summed up businesses like this quite well[0]:
> 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've been an Uber driver for 2-years in a metro-area of about 1-million people. The first year was rough, as Uber aggressively lowered rates and royally screwed me over income-wise. But now, I'm making more than ever thanks to the service scaling.
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.
Uber does not create jobs. Drivers are freelancers and not employees. It's not job with all covered insurance, benefits, days out etc. Uber is exactly like Upwork for freelance programmers and designers.
How do you define a successful business? Is it solely based on return to investors? How long does it need to be in business to be successful? How does Uber define success?
I hear rumors that IBM is not successful anymore. Also same of GE and GM.
The potential for autonomous point-to-point freight shipping should pay off sooner than it's consumer business, allowing it to reduce it's investment requirements. Debatable on the timelines though.
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.
Normal logistics providers have their own fleets and have to deal with the depreciation and maintenance costs. Uber shifts all those costs onto their drivers.
Car depreciation is a hard thing to get a real handle on so I bet a lot of drivers aren't really thinking about exactly how much each mile is costing them in the long run.
Why theorize about "economies of scale won't help"? We know the answer is "yes they will" -- Uber's US operations were profitable in 1Q16[1] and that included many non-scaled markets.
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)."
> 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.
The author forgot another significant problem Uber faces.
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?
What OP, and everyone in this thread don't seem to understand is that Uber has waaaay more up it's sleeve than a mere taxi app.
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.
"Uber has more data about traffic patterns in every major city they operate in, than any other entity, including the cities themselves."
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.
Good point, but to play devil's advocate the same general things were said about Twitter and other tech startups. Their main product doesn't have long term profitability, but just think of all that data they have! Surely they must be able to get tons of value out of that right?
Investors are giving Uber a near infinite bankroll so it's hard to say that they'll be allowed to fail.
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.
The problem is that the moment Uber is in a position to exploit its newfound monopoly, new competition springs up. Without regulatory constraints, transportation on public infrastructure just isn't a natural monopoly business.
Interesting thoughts. I wrote along this line about UberEats and what is wrong with their current model. They believe they can win the battle thanks to subsidized unit economics. However this is simply not sustainable. The same conclusion is valid for all on-demand delivery startups.
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.
I agree with this, however I don't agree with the author's take on the self driving car part. He says:
> 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.
Possibility: seeing all this, Uber looks hard at what they do have and simply becomes contract cab dispatcher for all cabs everywhere, smartly choosing which cab to call to the scene of the caller using their algorithms. And lets existing can companies so the actual driving.
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.
That's what Yandex.Taxi (and also Gett) are doing in Russia, contracting cab dispatchers. This way, they hail you a real cab (that, for example, can drive in bus lanes) with your app.
I think they're also trying direct Uber-like scheme but I'm not sure about that.
Tl;dr: Uber is using rule 1 of Monopoly 101: Subsidize your customers until you drive your competitors out of business. However, it does not appear they have a competitive advantage to prevent new competitors.
Two possible ways Uber may expand the market, based on what I've seen in Chicago:
* 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 will be successful, but the problem is right now there is no barrier to entry in the market. They're pushing Lyft to spend more on marketing in order to get shares.
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?
It's an interesting topic but the financials are too black-box for us outsiders to form a strong opinion.
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".
Uber is basically a walking dead company. At least with this business model it just can not justify the valuation. Hence, it just can not go public and needs to continue raising more money to keep its market share.
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.
The arguments against Uber here are well-stated and have been posted elsewhere (see Naked Capitalism's excellent 6-part series)
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.
Finally someone is saying it loudly. I've tried to make this point in the past to no avail. If Lyft can hold out they may survive over the long-term, but the strategies that allow Uber to be dominant will also prevent it from being profitable while maintaining market share.
A large assumption I keep on seeing is because Uber will lead with self driving cars people will just stop purchasing cars and use just self driving ride sharing. I think that a portion of people will but many will still buy their own self driving cars for multiple reasons. Time saved, comfort and control of passenger experiences, and cash generating vehicle that can be plugged into self driving network while it is not being used.
Sure there are lots of losing scenarios. But there are a couple of winning scenarios too, and one - becoming a natural monopoly in mobility services - is a very big win indeed. I assume that the high valuation partially reflects that very small but non-zero probability of success. Sure, the US government doesn't like monopolies, but shutting one down involves proving that consumers are being harmed.
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.
What does that have to do with anything? You're going to dismiss all his thinking because people said things about two completely different things? Lol
As far as I can tell from how frequently Uber and Lyft give me discounts whenever I don't use them for a few days, they're burning crazy amounts of VC money just to grow.
If investment dries up before they get profitable, I think they're screwed.
The claim that taxi supply is sufficient in most cities to compete with Uber aside from on price is clearly not based on much experience with taxis in the US.
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.
Their algorithms increase the usage of each car, reducing the cost per passenger mile. So Uber can cheaper than normal taxis.
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.
The difficulty of shorting something like Uber is getting the timing right. Not only do you have to bet that Uber is over-valued, you also have to bet about the timing of when Uber runs out of starry-eyed investors to fuel the valuations. That is dependent on when it runs out of money, how quickly Uber decides to burn, and when the financials become clear enough to enough people that the public decides that the emperor has no clothes. (If it's actually the case that the emperor has no clothes.)
We did see the same doubters in the early days of Amazon. And we see how that turned out. Personally, I'm not confident of either success or failure with Uber. They (and their investors) are making a big gamble. In their favor is that it is a very capital-intensive gamble, and I don't see any other companies stepping forward to make that investment. A large car company could do so, but they've not made the transition to thinking in terms of the future "autonomous mobility services" paradigm.
I think the doubts about Amazon were different though. The doubt was whether they would succeed at their goal, rather than whether the goal would actually constitute financial success. Wal-mart for the digital era is clearly a successful position, and Amazon didn't subsidize their product to the degree that Uber has had to.
I respectfully disagree. Amazon MASSIVELY subsidized their service. It was commonly stated, and I believe true, that shareholders were paying for that critical 2-day free shipping.
In, say, 2006, $884M was spent on shipping and $567M in shipping revenue[1], so there was a subsidy of $317M. This was in total revenue of $10.71B[2]. That's a 3% subsidy, and is within a profit margin.
Uber is a bit harder to pin down from a quick google [3]. I'm seeing $750M loss in the recent quarter, which are "largely" attributed to driver subsidies by third parties, but Uber isn't talking. Let's say $500 as a rough estimate, which is 10% of the $5B in bookings that quarter.
So I guess Uber's subsidies aren't as high as I thought, but are still significantly higher than Amazon's. They both operate in cut throat industries with slim margins. Whereas Amazon invested in warehouses and their infrastructure. Uber may have something up their sleeve, and I hope they do, but it's not clear for an outside observer how they are anywhere as likely as Amazon was to have profits to justify their valuation.
There's a startup, dotblu I believe, that allowed you to bet on anything. It was with fake blupoints, but I think their plan was to then transform the site into a general purpose betting platform where folks like you would shell out real money on a well defined bet. I think they pivoted to do esport betting.
It's possible to believe that Uber's future valuation will be lower then it currently is, and also believe that the traditional taxi companies will not be the big winners. Or to believe that they will be the big winners, but not because medallions will become valuable.
Why everyone assumes that Uber could be allowed to become a monopoly? There are anti-monopoly laws. I understand that so far Uber was allowed to break lots of laws - but this cannot go on indefinitely.
This is zero information article. In fact, zero insight article. Getting in to app-based cab business is hard because you need users so drivers come in and you need drivers so users come in. Its chicken and egg problem. The only known ways to break this is put up a huge hussle. Uber is just doing that and if its successful at it then it can virtually monopolize this segment and rip benefits years later like Amazon. Every one can make cab app, but not every one can get millions of users for their cab app.
Just as a response to the first section, you can't say that Uber is subsidizing both customers and drivers like they are separate costs. There is some margin, which is the difference between what the customer pays and what the driver gets paid. Currently this margin is negative, which means that Uber is "subsidizing" the transaction by paying the difference themselves. For any given ride the customer subsidy and the driver subsidy are same thing, Uber doesn't pay twice.
The author makes good points, but his understanding of Ubers vision is very limited. It's not about drivers or passengers, it's an API to get stuff from A to B, be it people or goods.
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.
Whether Uber achieves redemption and become a highly profitable monopoly, or other players make it a low-margin red ocean, transportation seems to be set to be dominated by few players compared to today's diffuse private ownership.
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?
"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'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.
To have a moat, they just need sufficient software/human network/infrastructure/legal infrastructure that competing requires too much investment. All of these things are a PITA, and not immediately replicable by fresh local competitors, even without the self-driving cars.
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. :)
I live near large city. I can't afford to live IN the city ( because paying 3000$ rent is stupid ). Now I have to commute. I have to Have a car because other options waste too much time. I got a 16 year old reliable toyota that I paid 3k for years ago. I don't see Uber doing anything financially positive for me anytime soon.
Uber isn't an on demand ride service. They're a logistics company. Also uber isn't waiting for autonomous vehicles to come along and save them, they're one of the industry leaders in developing autonomous systems, investing/acquiring autonomous systems, and collect more driver/vehicle data than any other company in the world. It's not just civilian transportation either. They've already launched an autonomous commercial shipping service. If there is an item, person, or service that could potentially need to be transported from point A to B, it's a safe to assume that Uber has already started collecting logistics data on it and will(or already has) raise funds to begin implementing a network to service said logistical situation. This all may sound a bit extreme at first glance, but look at amazon. Amazon isn't a revolutionary e-commerce market place, they're a revolutionary logistics company. It's the same story as uber just in a different phase. Years of massive losses and outside funding. Both companies fully understand the value/defensibility of heavily investing in operational logistics at massive scale.
As you suggested, eventually Uber will have to make profit but also keep profit margin very thin not to loose customer. Their only hope could be in future most people in cities would not have their own car and rely completely on ride sharing. This massive increase in ridership should help them to make money.
Sometimes due to heavy rains or unfavourable weather , getting a uber or even a normal cab becomes really difficult. I am from India ( so it happens here) . Facing that kind of situation may deter from people giving up owning a car.
Here is an additional risk for Uber: What if Tesla or Google or some other company bring self-driving technology to market a year before Uber? For those 12 months Uber will be the guy with a knife in a gunfight.
I've said it before and I'll say it again -- Uber needs to release a tier where you can hire a backhoe or other construction vehicle and arrive at your destination in style.
The only thing they need to do, from investor perspective, is to slide on profit/loss margin line while eating market in big chunks - until human drivers can be phased out.
tl;dr He thinks UberPool is a viable business with network effects, but Uber's valuation is too high.
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.
Because people taking taxis/Ubers don't generally like to share rides. See also car pools.
Now there is an argument that, given sufficient scale and intelligent routing, some sort of jitney bus system could work in a space between private taxis, driving yourself, and scheduled buses. Though that person would then need to explain why we don't really see this business model at any real scale today (in wealthier countries).
The problem is that Uber can easily be destroyed when that happens. For example, imagine that all the German automakers decide that their fleet of autonomous cars works only for an app that they developed(maximize profits). The same can happen from the Japanese automakers, etc. Another problem is that they will need A LOT of money to buy and maintain all those autonomous cars, something that they don't do now. Personally I think Uber can die under hundreds of scenarios and survive under one or two in the long run.
uber offers a better product than taxi services do. So if uber raised their rates to be comparable to a taxi services, i would still use uber because its a better experience. And because i learned that because they incentive it with overall lower rates.
I would say the "better experience" argument is mostly true when you look at how payments are handled, but a taxi will pick you up and drop you off very much the same way as Uber does. A lot of cab companies have now implemented their own apps - so you can get a similar request-on-demand situation, only that you'll not be charged extra when demand goes up...
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.
>uber offers a better product than taxi services do.
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.
Yes, but it's also not uncommon that cab drivers use their knowledge of the local streets in their advantage, which is a lot less likely when your average Uber driver relies on GPS navigation.
I particularly remember taking a cab in Las Vegas many years ago trying to get from one end of the strip to the other. I was an obvious tourist - so he took the "faster router" around the city - just to "realise" that the exit he was going to take was blocked due to construction work and he now had to do a huge detour.
That's fair. The GPS nav does tend to eliminate obviously scammy behavior which historically has been a significant issue with cabs. (Never personally had an issue in Vegas but have elsewhere.) But it also eliminates local knowledge optimization as well.
>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?
I don't think he's saying that it will take a long time for them to turn a profit, but that they never will (or only ever will see the tiny profit margins that, say, the airline industry does).
Amazon and Tesla both required large capital expenditures to get running and get more efficient. It's not like Amazon was actually losing money each sale like Uber is.
I think one of the biggest points being missed here is that Uber may very well be an iceberg. Meaning moving people is literally just the tip, but to get to the rest you have to subsidize the hell out of moving people.
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.
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...