> In contrast with the scenario in 2000, most of today’s tech companies are real businesses.
How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming).
I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. And yet companies like these are held up as prime examples of unicorn success stories. It's not just Uber - there are serious problems with many of the most acclaimed startups.
Obviously not all startups are terrible, but as someone who isn't a VC (but once considered becoming one), I think tech investors are unable to see their bias for just how awful most tech companies today are.
> I think tech investors are unable to see their bias for just how awful most tech companies today are
I agree. Ecomm broke first in other markets, and I am seeing profitable ecomm companies still having to raise capital. Uber is one of the worst ones (they took a business that is very profitable, and lost absolutely staggering amounts of money, they probably need to cut 50% of the workforce to start with, and then keep doing 50% until the business finds a level) but there are many others that have no business model or route to profit...and these are the best of the best that managed to actually list.
The public ones have a route to survival, some will raise, a lot of expense will go away with the stock price collapsing (employees getting bailed in). But most private ones won't survive. Too many staff, too little cash generation, and too reliant on the kindness of strangers (who remembers a few years ago, IPOs were so unfashionable, very old money...lol).
It is probably worse than 2000, the sector is much larger, private markets are far larger, there is so much hot money in the hands of brainless investors, it is a recipe for disaster. It is also worth saying, there will be a reprieve for a few months, then a story will break about one of the largest companies filing for bankruptcy overnight, then the private marks will come in. The losses sustained already have been some of the largest in the history of capital markets, it is the first inning.
I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already.
There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall.
After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups for startups vendors like Rippling and Brex.
And the final domino would be currently well funded private companies such as Airtable, Notion, Loom, and possibly even Figma. We’ll learn that none of these products had any significant traction outside of VC-land.
This would be even worse for the Bay Area than 2000. Remote work is still the norm here (I’m typing this on my lunch break in my nearly empty SF office). An economic downturn coupled with destigmatized remote work is an environment ripe for outsourcing.
I'd disagree re: Figma and Notion. These are very sticky, best-in-class tools which have a lot of use outside of "VC-land". Figma is becoming the de-facto way to share designs across the internet. Notion has a good shot at becoming the internet's default business wiki, killing Confluence.
But the problem isn't the product. That is the mistake that people make when they say it is nothing like 2000.
The problem is: way too many staff, not enough revenue, no route to profit. It doesn't matter if you have a "best-in-class" tool...where is the money coming from, how are you making payroll next month with no VCs.
The main problem with tech companies isn't the products, the products are fine. The issue is that they have taken a profitable product and built an economic model around that product that incinerates money.
Figma's incredibly hard to replace because its tools are highly customized for specific design workflows. Notion, I'm not nearly as sure about.
With Google Workplace having pageless Google Docs now, and other shops having content centralized on Office 365, a lot of cost-cutting companies will ask "we just use Notion for a wiki anyways, can we migrate over to the system we're already paying for?" And sure, Notion is making the right move here, to move rapidly on becoming a hub for project planning and other structured content, which is harder to move into a plain collaborative document. But is enough of Notion's userbase using those table features to such a level that it would cause pain? I'm truly not sure.
This is a 2000s mindset as well. Designers are a few YouTube tutorials away from jumping from Figma to Dingus or whatever will come next. Notion’s moat erodes with every iteration of Google Docs and Office — it’ll be the WordPerfect of 2025.
I don’t deny that they are great products with incredibly talented engineering teams.
All of that doesn’t matter when 90% of your revenue comes from series C startups that will go bust in a year, or switch to cheaper and marginally worse alternatives.
The Bay Area has never really reconciled being a protective property market (the old money NIMBYs) and being a high-growth business hub. One of the two had to give, and another tech market crash plus remote work becoming the norm (despite wailing and gnashing of teeth from some CEOs and VCs) will probably see SF reverting to the former.
When there arent NIMBYs, high rises are quickly built, every place is turned into a overcrowded, concrete jungle and the property prices still remain high. Hong Kong. Tokyo. Many examples.
Otherwise, I don’t think there’s much you can do to insulate yourself. It’s never obvious how resilient your employer is relative to the rest of the industry.
Just reset your expectations on what working in tech will be like for the next few years. And prioritize learning and building your network - whether at work or outside - over trying to climb the career ladder. It will pay off in the long run and you’ll be happier.
Also, articles like this show that we’re nowhere near capitulation. When we actually get there, stay passionate about tech. There will be another boom.
Keep your resume up to date and start applying for new positions. Even if none of them are what you are looking for, it's good to sharpen your interview practice.
> An economic downturn coupled with destigmatized remote work is an environment ripe for outsourcing.
It isnt. That cheap outsourced software engineer wont be staying for ages with any company. They get promoted or found their own businesses. They dont keep slavering away for dimes for an US company that wants to have them as sweatshop labor.
Designing, engineering and maintaining highly scalable systems is not something that you could outsource to have it done for $15/hour.
> How many of today's startups are just servicing each other with VC money?
IMHO this is mostly the a phenomenon of the SAAS/platform space. Those practices don’t really apply to more traditional businesses (including high tech ones).
But you made me think of something else: this phenomenon was definitely booming in the 2000 crash, when net-related hardware companies were underwriting their own sales, which ended quite poorly. Not only is the subsidization you point out happening elsewhere, but hardly anyone buys much “networking gear” any more. From crucial, enabling tech to boring infrastructure in what, 15 years?
Specific anecdote - SaaS companies selling to other SaaS companies is going to cause a mini-winter in that sector. My company (which we thankfully sold last year :praise) had several (though not exclusively) high-growth tech companies as customers.
Now, when I look at layoff announcements, I see a lot of our former customers. Additionally, with budget freezes (driven by VC RIP decks), these same companies aren't buying new software for a while, even if they would benefit from it. And many tools now are priced based on headcount. So it's sort of the perfect storm - valuation resets so you have to go a lot farther with your current funding, reduced retention revenue because your customers are paying for fewer seats and harder sales because of budget freezes. Ick.
Isn't this what YC does essentially? YC backed SaaS companies buy each others products, write favorable case studies and use that to convince other enterprises to buy in, and to IPO quickly they raise lot of money to have the market share that commands the multi billion valuations with insane revenue multiples?
Seems like this model is beginning to fail, most YC backed IPOs are now trading in deep red. ex) coinbase
edit: lurkervizzle I can't respond to you since im throttled but this is what I wrote in response to add on to what you wrote in the other comment
this is far more serious than I thought I seemingly just made the connection that YC backed SaaS (or any other accelerator schemes) were essentially just writing cheques to each other and playing whack a mole: You direct your cohort members to send cheques to one SaaS, raise series B & C, push for IPO after making splashes on media outlets (also owned and controlled by stakeholders), which in turn generates more fervor from retail investors eager to get in on the "next" Facebook.
Then you would naturally use these beacons to essentially send more cheques, this time across many tiny bets that they can cycle through one after the other. Some make it to IPO, many don't so they get "acquired".
The more I look at the YC business model and silicon valley in general is that very small group of people are actually in it to build sustainable businesses, since the Uber secondary market successes of VCs that successfully dumped their shares on Masayoshi, the SaaS have become the new "social media opex", where losing $2 to make $1 is preferred over slower growing but consistent net profit generating ones.
By next year I anticipate ton of pain and anger. I took a look at some TC figures and they are roughly 30/70 mix of cash and RSUs. Many of those people are also in debt through real estate using HELOCs too.
What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com
Even more crazy is that we had the exact setup going into the new millenia: e-gold, real estate, dot com but the difference back then was that monetary supply was nowhere near as low as they have been in the past 3 years (take a look at the M2 supply/velocity chart).
100% this - a good chunk of initial traction for YC companies is other YC companies - which is great in some ways to bootstrap initial growth/credibility, but the uncharitable view is that it's a Ponzi scheme in a way.
I think Ponzi is an overstatement, though I agree with the general sentiment.
There's in principle nothing wrong with clusters of companies that are inter-dependent on selling stuff to each other. Car parts manufacturers live and die by the big car companies - and to some degree vice versa - but we would hesitate to call that a Ponzi scheme.
The key is whether or not this clustered ecosystem is bringing in money from the outside. Somebody in the ecosystem has to be making money from the "outside" world. It's the sustainability of this outside connection that really matters.
For a lot of SaaS companies I think the rude wakeup is that the "outside" source of money was never an actual business but instead was just endless rounds of VC cash. Likewise (and IMO more offensively) with crypto the "outside" money source was hyped-up retail investors (and hyped-up VCs) and not any actual useful business.
I do agree though - the VC sphere has spent the last 10+ years building up an entire web of companies that inter-depend on each other but where the "outside money" was always highly dubious. This is distinctly unlike the older crop of BigTech companies where the outside money is (relatively) stable: actual advertising, actual hardware in people's hands...
100% and legitimately have nothing but respect for YC. Ponzi is definitely an overstatement which I used to make the point that in-network traction is potentially a risky signal of product-market-fit which was obfuscated when everyone was being rewarded with gobs of money for early 0->$1M traction.
> What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com
Crypto is an almost invisible blip on the scale of the financial system. Real estate, well, there's a shortage, so I think it will take a very long time to unwind.
Dot com -- yeh, it's a mix of unsustainable Doordash/Uber/Airbnb, SaaS-for-the-SaaS market (both of which are ponzis in the context of this thread) and "AI"/"Data Science" puffery. I still can't tell if the reckoning will be quick, or if the air will simply slowly leak out.
But your examples of bad companies are Coinbase and Uber -- these aren't B2B companies that are caught up in some kind of ouroboros of everyone mutually basing their growth on each other's business. Both are consumer businesses.
What's the example of a company that's actually failing from this hypothesized mode of depending on other startups? I mean, better, what are five examples -- I mean, if this is a group of companies that are mutually dependent, then it can't just be one failing.
Yes, at least in the startup SaaS space. As lurkervizzle put it, it's a kind of ponzi scheme, though in that case I think the "victims" are investors. And mostly the seed investors, less the LPs and GPs of the VC firms.
> If your unit economics don't work then you're fucked...
From the company's perspective that's certainly true.
As a regular person I'm more worried about the companies whose unit economics work too well. Companies like Amazon have so much momentum that it seems like they could go on indefinitely, instead of eventually failing and making room for new entrants.
Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Companies that work too well can become an inescapable force.
> Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way.
Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF.
You could say, well, they wiped out the buggy whip makers. But actually they wiped out the infrastructure and then went bust, leaving a desert (in dry cleaning terms) behind.
This is the pessimistic view of Uber. If Uber was just subsidizing car rides, that would be fine. But since they’re dominating the industry in an unsustainable way, they’re hurting public and private transportation infrastructure. Cities aren’t investing in trains or buses because of Uber, but if Uber goes under, we’re going to be out of luck.
> they’re hurting public and private transportation infrastructure. Cities aren’t investing in trains or buses because of Uber
i dont think you can blame the lack of public transport investment on uber. and there's no hurting private transportation infrastructure - that's just private cars! People who ditched their car because of the availability of uber isn't getting hurt if uber goes away. They can just repurchase a car (after all, they saved money not owning a car previously, so they must be ahead already).
So Uber is the culprit behind the lack of public transportation and infrastructure development? Lol...In 2006 when I came to the US, the train between LA and SF took 13 hours. Today in 2022, 18 years later, it still takes 13 hours.
They mean "actual" dry cleaners that clean in the shop - almost all those you find are fronts for some massive cleaning warehouse somewhere else (check to see if they have any machines on-site).
Even if that's the case, how does that make it a dry cleaning "desert"? I only care if I can get my clothes cleaned quickly and I've never had any problem with that.
Not the OP but I assume it has something to do with the loss of same-day or 4 hour turnaround-type services (which if you need try laundromats, some offer fluff and fold services where they'll wash for you).
> Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere).
Is that not the default business model of dry cleaners globally?
Chemicals like PERC are nearly completely banned in residential/commercial zones. Almost all dry cleaning in the developed world is done in centralised depots in industrial areas, for health & safety reasons.
No, most dry cleaners use more friendly chemicals locally, and only send out things like leather goods. Otherwise, how would they be able to do sub 8-hour turn arounds?
It's never happened, though. Buffett likes to say something along the lines of, "I like to invest in businesses that could be successfully run by a monkey, because eventually they will be."
My prediction is that every behemoth of today will be tomorrow's Sears Roebuck, GE, West India Trading Company, etc. At some point, they'll become mired in bureaucracy. Enough incompetence will eventually rise to the top to allow competitors to pounce.
I'd bet on that, if I had to.
That said, I may easily be wrong, and I honestly share your concern about Amazon, Google, Facebook, Apple, etc.
In particular, I want a successful OSS phone competitor to Apple and Google. I don't think something as important as our telecommunication devices should be run by a duopoly. There's no freedom in the phone market the way there is in the PC market, and I'd really like to see that change.
I agree with the premise. Success is never immortal. The gap, however, is in societies being intended to be immortal. If you let companies run amok, so the thinking goes, when goes the company so goes the country. Limiting companies’ power let’s them creatively destroy one another without threatening the culture at large.
It takes an awful lot to actually kill a company (often fraud or similar), but a company that is no longer dominant the same way is usually considered to have "died". Myspace still exists, but Facebook is clearly the one to beat in that sector.
If Amazon retreats to being AWS-only, I'll consider them to have "failed", even if AWS continues to be a success.
I think the silver lining is at the time of their peak Sears etc. seemed unstoppable. And it took only a few decades for that to be undone. And that is basically guaranteed to happen to any behemoth simply by their inertia and inability to stay relevant for a long time.
> Uber is a prime example of a company that seems destined to fail.
I'm not a fan of Uber, both as a company and as an investment thesis, but I think this is far too strong. Uber isn't prioritising profitability at the moment, so obviously the unit economics isn't going to work.
I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes then Uber will be fine so long as they're one of the apps that people continue to use to hail taxis. Personally I don't see taxi hailing apps going anywhere and I don't see Uber losing significant market share to its competition if they price competitively.
Where I think you have a point is in regards to Uber's potential operating margins. Is it reasonable to assign Google / Facebook sized margins to a company like Uber? Probably not imo, and that's where I have problems with it as an investment. I think as an investment it's more likely to end up like a Twitter or Snapchat. They'll make a bit of money and as a company they'll be fine, but I doubt they'll ever reach the levels of profitability that other big tech companies have achieved. The stock seems likely to trade fairly flat as they continue to see decent demand for their product, but continue to struggle to achieve significant profitability.
I'd argue taxi hailing apps (as they currently exist) are basically commodities. There's no real difference in experience between the different apps and if I'm being made to pay then I'll just pick the cheapest. Only if they're all pricing around the same will I use Uber and that's just because I know I can trust them and there's a friction in downloading and signing up for something else. They have a viable business, but very little operating leverage.
> I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes then Uber will be fine so long as they're one of the apps that people continue to use to hail taxis [and they figure out how to get their unit economics to work]
If they don’t get their unit economics figured out, not only will they not be Google/FB/etc., they will be nothing at all.
uber's unit economics will easily work out if they stop expanding (which is where the expenses are).
Their backend services have a "fixed cost", if you assume they've designed it to be scalable, such that the marginal cost of a new user doesn't add more cost to hosting and compute. Then fire most engineers, and keep some skeleton crew maintaining the services.
The other cost is obviously the payment to drivers. I believe the unit economics will work here, since uber is not making capital investments into equipment, and is paid per-ride. Competition would drive the margins down, but thin margin is still a positive unit economics. Right now, the cost is subsidized by uber, but only as a marketing tactic to obtain marketshare and drive out competitors (unsuccessfully i might add). Uber can choose to stop the subsidizing, which can then make the unit economics positive.
> How much will their market share fall when they do this though?
who knows? But if their competitor is going to subsidize, but uber doesn't then they'd lose most of their marketshare. But the same story would be true for their competitors.
So the subsidy would drop slowly for every player in this market, until they reach an equilibrium, where the final margins for every player is as thin as possible but still pay the bills.
I think the important question to ask here is if people continue to want to pay & hail taxis from their phone? If the answer to that is yes then Uber will be fine so long as they're one of the apps that people continue to use to hail taxis. Personally I don't see taxi hailing apps going anywhere and I don't see Uber losing significant market share to its competition if they price competitively.
100% agreed. It wasn't that long ago that Amazon was starting to catch on in large part due to its (and more broadly the Internet's) reputation for low prices. Nowadays that's no longer the case, and yet here we are.
Where I think you have a point is in regards to Uber's potential operating margins. Is it reasonable to assign Google / Facebook sized margins to a company like Uber? Probably not [...] I'd argue taxi hailing apps (as they currently exist) are basically commodities.
I would also have to agree with this. I've long since used Lyft and Uber interchangeably depending on current local prices; a third-party app could easily go further to consolidate every major ride sharing service and automatically book the cheapest ride at any given time.
I see the trajectory of Uber and Lyft more as consolidating the market share of the taxi industry into a handful of owners than really creating a novel market or economics. The economies of scale and massive VC-backed war chests could make for viable stepping stones to bringing production-ready self-driving tech to market, which would change the economics, but last I heard it seems like Waymo is leading the pack there without the albatross of a massively unprofitable service business.
They were lucky to find a whale like Masayoshi to dump their shares but seems the equivalent of bragging about how you got rich in the early phases of a ponzi scheme with the losers holding bags.
I was there in 2000, and we all thought those tech companies were real businesses! Most of today’s tech companies don't really look all that much different.
Not only that, but it wasn't even the largest issue.
People point at pimentoloaf.com or whatever and laugh. But when those companies went under, they took away real dollars from "real" B2B companies. And then when those companies went under, "real" companies who depended on them went under. And so on.
I was there too and I remember a distinct malaise about pointless tech companies that would make up for per customer losses with scale. There were a lot of companies whose only product was eyeballs for advertisers. (Ok, that part is the same.)
I read this line and wondered what really has changed in the past 20 years?
"In 2000, the Nasdaq superheated due to the large number of companies that skyrocketed into the public markets fueled by fanciful metrics disengaged from revenue."
Interest rates have been held around zero since almost the dot com crash and certainly since 2008. No wonder VCs were given gobs of cash to try and eek out a better market return. The injection of cash on Wall Street resulted in huge amounts ending up in the stock market, perpetuating those returns once they went public and encouraging more VC activity. Is there any realistic forecasted revenue stream that justifies the valuations of some of these companies?
Some good companies and good prospects are going to get lost when this monetary bubble bursts. It's a shame, but inevitable considering how long the Fed has been holding their finger on the scale.
it's also interesting to see the impact of cheap capital on software development trends. for instance to reproduce the same SEO server-rendered site we had pre-2008, we have increase in complexity and costs.
Applications and websites that should be more than fine to be rendered on MVC frameworks are now sending several megabytes of javascript down the wire, as a result our devices have more memories, more computing power, thereby consuming more energy than ever before contributing to the growing global warming crisis that we are only beginning to witness now.
Coupled with lobbying for not regulating personal data in databases connected to the internet thereby allowing a select few giants to essentially act both as cartels to monopolize the arbitrage of the data of everyone on earth. The labor market are also controlled as a result of this monopoly, it feels like the best version of state sanctioned businesses: self-sufficient on its own while gathering data on everyone as the price of privacy is artifically suppressed.
Mobile devices, ubiquitous 4G comms, GPS location-based services. Underlying tech is always what enables "too early" products to succeed later on, particularly comms bandwidth. The same fundamental products have been reinvented with every improvement in bandwidth since the beginning of the internet. Once you've seen these cycles happen over and over you just watch for the underlying tech improvements, pick an idea lane and re-execute. Keep an eye on 5G and Starlink, it's already happening.
> I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail.
Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years.
Why do you believe they are destined to fail? Established markets have been profitable for a while.
As they have been for over a decade. Just not actually GAAP profitable, except maybe a one off sale to DiDi.
>> Established markets have been profitable for a while.
So what market is Uber not established in? Are they pouring their oceans of profit from New York, Los Angeles and London into building a business in La Paz? I am sure they are trying to grow in places but they are way past the point where their profitable markets could fund growth. But they don't seem to.
I am sure there is a profitable and enduring business in Uber in some markets and at some prices. I just think they know that the economic realities of that business would not support their public stock valuation. So they work on self driving and buy postmates rather than focus on those profitable established markets.
Uber's net GAAP loss, excluding losses from investments in DiDi and other companies, is around 300m last quarter [1] which is a ~1% loss on their gross bookings. Most of that is stock based comp. Their FCF loss was only 47m last quarter.
I know HN likes to hate on Uber and other gig apps but a 1% margin is something they can easily make up given their stated take rate on mobility and delivery is around 20%.
> So what market is Uber not established in
If you follow their earnings calls (or that of DoorDash as well), advertising is a huge growing market for these companies. My guess is they take on an airline business model: zero to slim margins on the core offerings, but huge money on advertising and ancillary sources of revenue (for airlines, this is credit card points).
Yes, Uber is close to break-even and they aren't going to just disappear. But there's still a big gap for them to close between "breaking even" and "profitable enough to justify a $50B valuation."
There's plenty of room for a moderate view in which Uber survives as a business but their investors are extremely unhappy.
Uber invested most of their money into self driving tech and it was a dead end. If it would have worked out we would be having a very different conversation. Now I think they are essentially break even until someone figures out self driving and buys them to deploy their fleet of self driving taxis.
In a recession some people suddenly are eager for any job, no matter how bad, driving down Uber's "cost of goods sold" i.e. driver fees..
But in general economic downturns are tricky, as they affect different groups differently - are the people who would suffer in a recession the same people who are currently using Uber?
That's not true, really, in this case with inflation.
There will be no point in taking such low paying jobs. We're already seeing massive shortages at the low end of employment - working for that cheap simply doesn't make economic sense.
Driver fees are already so low that between depreciation, gas, and your time, you're barely making ends meet driving. They can't squeeze the drivers any further, unless they only want people to be driving 15-year-old beaters.
Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin.
Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting that it's usually only people who have never driven for Uber that claim it's completely unprofitable.
From the Uber fare estimator for a trip in East Lansing Michigan.
Per-minute
$0.17
Per-mile
$1.20
----
What is the catch?
Drivers do not make any money while driving to pick someone up or after dropping someone off. Often, when I tried out driving, about half the miles driven were without a fare.
Subtract the service fees from those numbers and it gets less lucrative.
Often pickup traffic was very "directional" people going to the bar at one time, people leaving at another, so often you would have to drive back to where you started the last fare for the next one.
Back when I used to work for a FAANG in advertising I looked at how much money Uber was spending on driver advertising. At that point, I became convinced that Uber were doomed.
> The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile
One thing to note about Uber drivers is they’re typically putting 50-75k+ miles per year on their cars. I’m curious what that does to those depreciation/etc figures.
If you assume 25k MSRP on a base model Prius, and that the car will sell for $5k after 150k miles (absolute garbage offer - an actual number would be something like $10k-12k in today's market), then you get a worst case depreciation of 13 cents/mile. Let's say a Prius gets 45 mpg, gas costs $5/gal which gives you 11 cents/mile. Factor in tires and oil/brake fluid changes and maybe you get another $2k all in costs over the 150k miles, which is 1.3 cents/mile.
All in costs around 30 cents seems right. That assumes absolute worst case depreciation too. And don't forget, the government lets you deduct 58 cents/mile off your taxes, so you actually make a profit off every mile driven.
Okay, that's my bad. But if you assume an effective tax rate of 15% (combined federal + state + SS + Medicare), which sounds about right for an Uber driver making 40k/year, 0.58 * 15% * 75k mi/year is an $6525 tax reduction. A quick look at an income tax calculator says someone in California making 40k pays about 6k in tax, so your credit per mile is 6k / 75k = 8 cents/mile.
Depending on your costs that could put you under 20 cents/mile in cost. And you get paid over $1/mile in practice, even on delivery orders. Really the only party getting screwed by gig apps is the government, because they get 0 tax revenue from these guys.
I made some comments below, the devil is in the details. It is not theoretical, I tried to Uber to challenge my notions about this.
Circa 2021:
The main point I would like to make is that in my market at the time, the mileage was getting paid was .76 a mile, as I look back in the app. At the time additionally was getting .11 per a minute fare. The main issue is that the mileage rate is for time that passengers are in the car.
But about half the time it was driving to a pickup location. So you are looking at an average of .38 per mile + .11 per minute. These were city miles, not quick highway miles.
So to pull one random example from my actual history.
I did a 6 minute and 57 second trip that paid 2.86. The distance was about 2.5 miles. So by your calculations we subtract .75. This leaves 2.11 profit. The issue is it pulled me 2.5 miles from my next fare, so you need to subtract another .75 to get back. So we are at 1.36. We also have another ~7 minutes of driving.
So in 14 minutes I made 1.36... So we are talking $5.80 an hour. This is pretty poor pay for the service provided. I might quibble about your numbers in my case because it was a 2020 traverse, that was about 35k and worse gas mileage. So I was probably doing worse...
HOWEVER, that's only part of the story. Uber has bonuses, so there will be a deal where for a particular weekend, if you do 40 trips (no matter the length of each trip, which was strange to me), they might pay an additional $80 bonus. So that adds an extra $2.00 for that particular trip, if you meet the quota. And is nearly as much as the base rate. So that will push the earnings to ~$10 an hour. Significantly better!
And that is where the VC money criticism comes in claiming the subsidization is what makes it work.
TLDR;
If you are very economical about the bonuses and surge rates (which the example was not) you can make better than minimum wage income, it is not a loss. But you have to be very savvy and strategic. But the bottom line is the base rates, at the time were a bit over break even, and very low if you had any down time. But the bonuses and incentives made it reasonable.
> And that is where the VC money criticism comes in claiming the subsidization is what makes it work.
It might seem like that, but +$2/ride still puts Uber in the black here. A ride is minimum $8-9 so they're making at least $5 on that ride.
Also, I think your example is not too great because low fare/short rides disproportionately screw you because Uber takes a flat $3 per ride as a "marketplace fee" in addition to their 25% cut. If that ride was 5 miles instead of 2.5, you'd make a lot more than double 2.86.
Uber drivers don't make anywhere near $1-$2 per mile. More like $0.50-$1 according to some Googling ($1 seems reasonable from conversations with friends who drive for them, here in Austin).
30 cents per mile costs is also extremely low, at least on average.
How many uber drivers are in Priuses? I haven't ridden in a single one...
How many people do you personally know that make their living as an Uber driver? I don't mean pensioners making beer money, or people doing it as a side job, here.
I know one. He's been doing it for a year and half, or so. He doesn't own his car. he has to lease it on a weekly basis, and he's paying through the nose for the privilege. He's doing it because his credit is shit, and he has no savings to buy a car outright.
He's getting ahead, but if driver rates get cut, he'll be going right back to being a line cook.
It will vary by year and city, but generally speaking Toyotas tend to dominate ride share with Camry usually #1, then Prius, Corolla, and RAV4. However, the long tail is very long and you're about as likely to get a ride in a less cost effective vehicle.
the first sentence is a terrible take unfortunately, prius one of the most popular taxi and ridehailing cars ever, it's sully arund >50% of car supply in most western cities.
As usual, you are conflsting your singular consumer experience of Uber with the global business giant Uber.
Oh, I don't disagree about taxis. Priuses are everywhere in that space, and for good reason. If you are going to make a living driving, you should probably drive one.
I do disagree on Ubers. I see very few Priuses, but there's a different explanation to that, that I missed. Casual drivers, people doing it as a side thing, or for beer money didn't optimize their car purchase for the purpose of driving a taxi. I suppose full-time drivers are more likely to drive one.
My bigger uneasy feeling here is the advertising/marketing world where ROI basics like attribution are highly questionable and bohemeths like Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors. So risks a repeat of the dotcom bubble collapse when cpm/cpc collapsed. So much of saas is directly serving these questionable areas, and in turn, more neutral b2b (data, ...) is in turn powering those and thus also fragile.
Variable sales+marketing spend is easy to scale back on during a recession. We've seen preeemptive layoffs due to valuation drops, but not this stuff yet. It's hard to handle. Our team largely focused on helping enterprise/gov/etc customers (think visibility/ai for core fraud, cyber, supply chain operations) and prioritized more self-serve etc for the crypto markets: they came to us with similar questions, but had way more risk, and so luckily we're seeing only a bit of churn right now. But if/when the sales/marketing/etc. collapses hit, that'll be much harder to avoid for many people.
> Apple & Google are using their $T war chests & monopoly positions to cripple the sales/marketing ecosystems of their competitors.
To be fair, they are doing so by forcing competitors to in-house their advertising efforts. Largely, AdTech in large companies is outsourced to 3rd parties and those existing workflows calcify into positive signal. There hasn't been much incentive to change. Recently, the belts are starting to tighten and network (public market) adtech companies, even with big accounts, are always in danger of disappearing overnight.
Many companies rather continue with the few winners in the network adtech space, than engage in the lengthy and risky in-house development. It's slow to see all of the parallel development efforts coming to fruition, when no company wants to make PR announcements that it's no longer sending customer data to a 3rd party, but still collecting it all the same for an internal platform. This migration is happening nonetheless. Amazon built out their platform in under 2 years and the ripple has pushed many others forward toward dogfooding their own adtech stacks.
The problem is that sustainability was never the goal to begin with. The goal was to generate enough hype around a product in order to go public or get acquired by someone else.
It's the rich people's version of "hodling". Just like crypto-holders that created lots of hype around various coins and whatnot, VCs just bought stakes in lots of different companies hoping that one of them would go to the moon.
I think this is the wrong model to think about companies like Uber. Their business model is not based on unit economics, but on becoming a monopoly. Their goal was to seek rent permanently on the taxi business by putting all other taxi companies out of business. If you look at it that way, losing money to put competitors out of business seems like a viable strategy.
> I think tech investors are unable to see their bias for just how awful most tech companies today are.
I think investors are more greedy than stupid. When money was essentially free, weirder and weirder investments make sense. If the world was crazy and throwing money around, why not fund a bunch of ridiculous companies with the knowledge that you can very likely unload that risk on the public when the company ipos.
And we're seeing that that logic is correct. Just look at the record numbers of IPOs that were happening right before the market started to collapse [0].
Investors know they are playing musical chairs, but they're playing with the public and the know they song quite well and can tell when the music is winding down.
Now IPO'd companies that don't know how to make a profit are the public shareholders problem, not private VCs.
100% - when interest rates are over 5% and/or gas is over $5, the delivery startups are toast. The economics just don't work. Especially when people start cutting back on conveniences.
Are you sure people wont just pay 10-15% more for an Uber taxi or SkipTheDishes? Those have become staples of peoples lives. It take a pretty significant change to stop people from using them to the point where it’d be a failure (of course there will a subset of more price sensitive people, especially during recessions).
Because it still isn't profitable and maybe never will be. I would still use it if it cost more -- hell: I'd probably use it more as I'd feel better about it ;P -- but a lot of people wouldn't as it is already a borderline-luxury for a lot of people. They continue to claim they are "drawing closer to profitability" -- as recently as a couple months ago, after reporting their first quarter earnings (which happened to show a $6b loss that isn't actually relevant as it was primarily due to investments instead of operations) -- but I feel like they have been saying that for a long time now? But sure: they might finally succeed in reaching at least "break even".
> If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money.
Hum... VCs exist exactly because this is not a general truth.
It's true for Uber, but there are many sectors where unit economics change with scale.
How many times has Detroit, housing, and finance been bailed out?
They’re all operating on magical money because money is a shared hallucination. They legalize bailouts and complain about the debt but never mention the future can just say, eh, fuck those dead peoples bullshit.
The bias you seem to not realize you’re hung up on is society looks nothing like it did 100 years ago. In another 100 they won’t give a fuck about any of this.
If we take away the money, people still need to do shit if they want to survive. Fuck their money, do weird shit. Let the olds take it to the grave.
How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming).
I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. And yet companies like these are held up as prime examples of unicorn success stories. It's not just Uber - there are serious problems with many of the most acclaimed startups.
Obviously not all startups are terrible, but as someone who isn't a VC (but once considered becoming one), I think tech investors are unable to see their bias for just how awful most tech companies today are.