I'm no economics expert, but if Uber loses money on subsidiaries, that's dumping(1) against local Taxi companies and these companies actually might have some valid points, no?
There's a fine line between predatory pricing and "forward pricing." It's a very common, and valid, business practice to price a good or service at a level that will be profitable in the long term, rather than try to be marginally profitable on every single transaction. For example, on UberPOOL or LyftLine, the companies are betting that they can support the reduced pricing for shared rides when they get a large enough customer base. The only way to prove out that business model and grow the scale is to offer the discount pricing for those rides from Day 1.
In my mind, the situation is a little more suspect if they are subsidizing standard rides in the market. However, at this point, there are two major competitors in almost every US market, Lyft and Uber, so they are making the market between them. Whether or not either of them is losing money, if they raised their prices at this point, they would suffer a precipitous drop in market share. Sooner or later, they'll find an equilibrium. Taxi companies can choose to ante up and participate in the market, or fold and get out -- that's how it goes. From a competitive standpoint, it takes two to tango, it doesn't take three.
> Would that mean that if two price-dumping companies collude, a third party cannot sue them -- because there is "competition"?
No, if they are actually colluding, that is an illegal combination in restraint of trade independent of whether that collusion involves dumping, and anti-trust law provides both private causes of action (for harmed competitors) and public causes of action (for the government) to address such collusion.
Anti monopoly laws are meant to protect consumers, NOT other businesses.
It is very hard for a company to get in legal trouble for price dumping, because as it turns out, price dumping in many cases is freaking awesome for consumers.
Collusion's another thing all together, and not the thing you're replying to. Complicated, as always, but in short the scenario you describe might very well be illegal.
Genuine question: is it safe to assume that dumping is bad for consumers? It's clearly bad for competitors, but it's basically like handing out free money to consumers. The concern is that once all the competitors die, the dumper will have a monopoly and jack prices up. But empirically, what are some examples of that happening? With few exceptions, it's only possible for monopolies to sustain above-market prices when laws block new competitors from starting up.
Look towards video rental back in the nineties. Blockbuster would move into a town, give very cheap rentals until the moon and pop stores went under, and then raise prices.
The interesting thing in the case of Uber/Lyft/etc. is that the end goal would almost have to be a situation in which on-demand ride sharing applications became nearly the sole mode of transit in the regions of interest. Otherwise, literally as soon as you drive out all the other transit competitors (taxi companies, other ride-sharing services, whatever) and begin to apply monopolistic prices, there will be a huge flood of lower-priced alternate options, like taxi companies popping up again.
For me, this is what's so scary about Uber. It's not "disruption" as many people seem to claim. It's engineered regulatory capture.
The goal isn't to disrupt a market, but rather to wipe it out and have the financial and political backing to secure some sort of regulatory environment in which lower-priced options cannot emerge after the VC-subsidy phase ends and the monopolistic price increases begin.
It's double sad that as the sort of flagship start-up of the era, Uber leads the way in deplorable executive behavior, shady business practices, and questionable labor policies ... and despite it, they've managed to win the PR war that has every naive tech youngster singing about how they are "disruptive" and singing how all criticisms against them are invalid because of precious, precious "disruption."
It seems to be coming around a bit, but people still talk about "taxi monopolies" and whine about how awful cities like Austin and Vancouver are to block Uber.
In a town here, we had basically the same with a doner kebab shop. The chain moved in, priced the doner at 1.20€ (local was 2.20€ which was already cheap), killed the competition after a few months and then raised prices to 3.50€.
If a monopoly keeps prices high, but has deep enough pockets to temporarily lower prices and put any competitor out of business, then no competitors will arise.
Unlike what the other commenter said... there are plenty of historical examples.
> The most notorious of the trusts were the Sugar Trust, the Whisky Trust, the Cordage Trust, the Beef Trust, the Tobacco Trust, John D. Rockefeller's Oil Trust (Standard Oil of New Jersey), and J. P. Morgan's Steel Trust (U.S. Steel Corporation).
Those monopolies were generally protected by tariffs, expensive licenses or regulatory costs, or other laws that blocked competition.
Some dominant companies of course emerged in that era, but I'd be interested to see evidence that companies that weren't insulated from competition by government policies actually used their dominance to harm consumers.
Taxis once provided a good service. Just 20 years ago, you needed a specialist to take you to random places in a new city.
Then a little thing called the "GPS" was invented. Uber takes advantage of the GPS and anybody can now plot a course to anywhere without specialist knowledge of a city.
The strange thing is, people seem to have forgotten what life was like before GPS.
Fares are still the same, you just don't notice it because a VC is subsidizing it for you.
The day that ends, it will be back to business.
Think of Uber as a taxi company subsidizing your travel for a few years. Things will be back to normal once the VC realizes they can't make profits until they charge customers like other taxi companies.
There are no examples. Social/price dumping is the big boogie man here in Europe used to regulate, tax, sue or just plain forbid foreign companies from competing aggressively against local companies. Branding the permanent menace of social/price dumping is just cronyism and protectionism in disguise, it hurts customers, innovation and employment. I hate it when populists and even regular politicians uses it and I hate it even more when people buy it, really makes me cringe but there's nothing I can do I guess.
I dunno about European History, but here in the US, every child is taught the lesson of the monopoly era.
Rockefeller Oil, J.P. Morgan Steel / US Steel, Tobacco Trust, etc. etc. These companies monopolized the industry in the late 1800s and fixed-prices to kill competitors.
> With few exceptions, it's only possible for monopolies to sustain above-market prices when laws block new competitors from starting up.
This is false. The 'exceptions' are the norm.
It's all but tautological that monopolies can only be established in markets in which there are meaningful barriers to entry.
Those barriers are seldom legal, and legal barriers are of arguably limited value.
The only way for a 'start up' to 'disrupt' is if they are extremely well funded relative to the monopoly holder's investment in the market.
As noted elsewhere today, that is precisely the business model of Uber/Lyft/AirBnB: use vast amounts of capital to attempt to break into locked markets, while unprofitable for years and years.
Absent funding at that level, monopolies that level are largely unassailable once established.
The pace of breaking them and evolving the market in the interest of consumers is thus measured on a very very long timescale, during which consumers take it in the shorts.
>The concern is that once all the competitors die, the dumper will have a monopoly and jack prices up
I'm not sure how relevant it is to ride-sharing, because the industry is not particularly vital to the economy, and the barrier to entry is low.
Where it becomes a concern is in crucial industrial infrastructure. Over the long term, China, for example, can dump cheap, government subsidized steel in the US, obliterating the domestic steel industry. 40 years down the road there's nowhere else to buy steel, which is bad both economically and militarily.
in addition, uber may be getting rid of one kind of competitor that has a hard time competing with it while laying the ground work for other low-end entrants to compete with it.
I really love seeing cars around town with both uber and lyft signs in the windows. ..I can imagine a sign with 8 of these.
While Uber competes with Lyft directly in the on demand rides space it by no means will gain a monopoly on all transportation, there are multiple levels of competition after all. So I don't believe we'll end up in a monopoly situation soon where we have to pay whatever Uber demands. If Uber gets too expensive (similar to how they started with pricey black car service), consumers will simply resort to alternative ways of transportation.
Technically predatory pricing rather than dumping which is for products. Probably hard to do them in the US:
>the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole
The two market leaders are losing money hand-over-fist in the hopes of becoming a monopoly. I'd say it's affected competition in the market as a whole.
Heck, if you buy Uber's logic, they don't actually compete with Taxi companies. Lyft is their only serious competitor, and both of them are losing a ton of money (arguably, but I'd like to see a court weigh in) because of Uber's irresponsible behavior.
It depends on bit on whether you think a ridesharing brand is a defensible monopoly.
Even if they figure out some onerous legal contract that forces drivers to work exclusively for Uber, other drivers will sign up for a company that charges consumers less and pays drivers more.
They get praise for their logistics expertise, but advanced routefinding using digital maps is literally a commodity (you can pay ~$0 for a route from lots of companies).
The brand is not the defensible monopoly. It's having a thick market. Drivers want to drive for Uber because they can expect to find riders, and riders want to order from Uber because they can expect to find drivers.
Destroy all competitors by dumping. This is financed through investment and disregarding all regulation (who needs background checks for taxi drivers anyway?)
AirBnB put about $10M in SF fighting regulation in the last election. Smart money.
Their problem today is that despite their success in that round, the fiction that their business is about a 'share economy' is unraveling as details emerge from third parties on their actual revenue stream:
Lyft and Uber both perform background checks on drivers. Lyft also has a mentorship program where new drivers are screened for safe driving, car quality/condition, and other criteria by an experienced driver.
What's insufficient about the background checks Uber already performs? If they're quantifiably less safe than other transportation mechanisms, customers will vote with their wallets.
I'd be opposed to adding additional regulation if not needed.
Dumping is really only applicable if they are undercutting their prices in specific regions. If I am under-charging across my entire lineup, that's just on me.
Which they absolutely do. AFAICT, Uber doesn't subsidize rides in Europe because predatory pricing is illegal there. But they do in new markets in the US and used to subsidize heavily in China, which opens them up to charges of dumping, it seems to me.
There's a bit of a difference on which government body enforces which rule.
In quite a few countries, taxi rules are governed by cities - so the municipality government is the enemy.
Anti-monopoly/ predatory pricing rules are at least national level - and if you are unlucky you can go against the EU itself, which historically has not been afraid to slap companies with gargantuan fines that would never be allowed from the pro-business USA SC.
Uber has lots of problems with legality in Europe. In Germany it's basically nonexistent. Note that the regulation for taxis in Germany really makes sense (for instance background checks for drivers).
I don't know what's the definition of "full" here, but I'd guess they leave the middle back seat empty. 3*18 is still 54 so there's clearly some profit to be made.
I don't think ride-sharing companies and taxi companies are in the same market (kinda like cars and horse-drawn carriages aren't in the same market, even though the former killed the latter). Uber's losses don't stem from them trying to kill taxis, but rather from rapid expansion and intense competition from other ride-sharing services.
I'd say that Uber is more a taxi company than a car sharing company as people buy dedicated cars to provide service and earn a living. I'd go as far as to say it's a first trully global Taxi company with a very good app and payment implementation.
The whole car sharing is marketing bull, so that they can justify dodging regulation and dumping prices.
In my mind there isn't a clear view as to what Uber are.
A driver does not make money if his Taxi is not running or it's running idle.
What Uber are currently doing is at least trying to minimize idle times.
Also, Uber win ultimately if all Taxi drivers in all the countries only affiliate with Uber (if Uber are so good at reducing their idle time)
But then, there is the aspect of self driving taxis. In that case Uber will win if Uber are the only operator and no competition is EVER allowed... which seems to be very difficult in the longer run. Mass-transit solutions will be more efficient than transporting only a single individual or maybe 3 or 4 at the same time ? So Uber may be the cost-effective somewhat luxury transit providers ?
I'd also add that the proof is in the whole "let's create autonomous cars and drive people around without drivers", where it's kinda obvious that it can't be a sharing economy if they provide the car and the driver is not needed.
They might be cash flow positive but would they have enough to pay back all the leveraged debt they've taken on?
If they pulled out of a bunch of markets (why is Uber wasting its time in places like Japan where taxis are basically fine?), then they could no longer justify their valuation.
Their prices are going to go pretty high up, meaning they'll only survive in places where taxis are super awful (so, basically the US).
All that stock they've handed out would start dropping like a rock in the private valuations of the institutional holders, I bet some loan conditions will trigger, and they're going to suffer quite a bit. Not to mention the talent exodus.
It's like austerity. If your company is suffering due to a lack of growth to meet ambitions, is cutting costs going to make growth go faster or slower?
That said, I think Uber will figure something out, even if it ends up not hitting its goals.
Quality is fine?!? Cars are clean, polite, don't try and screw you. But they often don't have detailed knowledge of the town in which they operate (no test like the knowledge in London). And rather than falling back on GPS will regularly dig out a dirty old A to Z.
Granted that might be less common in central Tokyo but it's happen to me several times. Taxis often have a really poor idea of where they're going.
I've experienced this too, and these days I almost always ask them to use the GPS as soon as I get in the taxi. I've only been refused once, and that guy physically did not have a navi in the car.
It's reputational hangover from I would say maybe the 80s. My experience in Japan was totally the opposite. Most people's emails are something like abc3fa3a11fe.afj.kl@softbank.co.jp because that's the email their phone provider gave them, and they don't know how to check their email if they lose their mobile phone. Internet access is sparse - not even the starbucks at the famous shinjuku intersection had wifi when I was there in 2014. If you want internet, you need to go to an internet cafe - those places that people sometimes just move into as cheap apartments. To do that, you need to register for a card... with a Japanese phone number and a Japanese bank.
You want any paperwork done, it'll involve a fax. No, scanning and emailing will not work, sorry. No, you can't just bring the paper in, it must arrive via the fax machine.
Rest of the world: "Please take me to such and such address"
Japan: "Please start driving towards <famous landmark>. You know that convenience store near there? Yeah that's the one, can you take me there for starters. OK, now still continue a bit forward. Now turn right in the next intersection. Yes, right here, next take a left..."
Personally, I don't think Uber's strategy is to run out the clock against it's competitor Lyft (B). But to run out the clock against the technical and policy headwinds for self-driving cars.
Clearly that's the profitable long term strategy. A lot of people are flabbergasted that Uber seems to be burning cash for a no-expense, non-capital intensive operation. But if you look at it as them using the funding to:
1) own the market, mindshare -- driver subsidies
2) technology investment on logistics infrastructure to support a fleet of driverless cars
3) driverless car tech
4) lobbying for policy change ( on current taxi model, as well as future self driving model )
well then... the amount of funding and cash burning can somewhat be reasonable.
NOW, having said all of that. each one of those can are HUGE impediments to deal with for any new company, and yet they're trying to fight them almost simultaneously with huge question marks for policy and technology.
They might have a good strategy, but I feel like they might have been 5(10?) years too early. Time will tell...
>> But to run out the clock against the technical and policy headwinds for self-driving cars.
That would take a few decades at the current pace. They are currently burning $2.4 billion/year. Lets say it takes 20 years for self driving cars to take over.
In that case it would take $40.8 billion in losses. All the best finding an investor who can give $40 billion and expect nothing in return for 20 years and have hope of recovering any of that even after 20 years.
5) Gathering tons of data on where riders start/end their trips across time. Lots of rides requested at 6:30pm at the Palo Alto cal train station? Start moving cars that direction before 6:30.
The article says net revenue was $1.1 billion in Q2. Losses were "significantly" more than $750m. So we're talking a scenario where either they lose a lot of drivers or raise prices drastically. I'd expect a fair bit of damage either way, meaning still-lower revenues.
And they have very large fixed costs. Because they've already shifted most of their operating expenses to drivers, they have relatively little room to cut costs. They have a lot of expensive staff. They have a whole robot car research operation, which can't be cheap; Toyota has committed a billion dollars to figuring that out. So it's not clear to me that they'd be able to get to break-even.
I also think C is risky for them. Their valuation is "astronomical" by Bloomberg's standards; they're supposedly worth well more than, say, Ford. That's been based on a hard charge for global dominance, not just getting by in a few markets. And getting into the black might require big cuts in their marketing budget. If their growth numbers tank, their stock will lose the "dominate the market" premium.
So even if they could somehow get into the black, I'm not sure they would still be Uber at the end of it. They might not be the next Webvan, but they certainly could be the next Groupon.
> a) Uber would stop subsidizing drivers, and then would overnight be cash flow positive
Raising prices also means loosing costumers though. It seems like 25% is the targeted commission for uber. Probably even traditional taxis can stay under that.
I'm surprised that Bloomberg failed to account for inflation in their comparisons. Amazon's 1.4 Billion loss in 2000 is almost exactly 2 Billion in today's dollars (1,956,479,674.80 according to http://www.usinflationcalculator.com/). So this loss is not unprecedented.
I just fished out Amazon's 2000 financial statements ... and even with the inflation adjustment, Uber's results are in a class by themselves. Here's why:
It turns out that Amazon's bottom-line loss of $1.4 billion in 2000 included a host of non-cash items, all of which are conveniently being left out of Uber's EBITDA summation. These include:
- $304 million of write-downs on other dot-com equity investments that weren't working out (Webvan, etc.)
- $321 million amortization of goodwill (for full-fledged acquisitions that weren't looking so hot)
- $25 million of stock-option expense
- $200 million of impairment-related and other. (Jeff? Jeff ... what was that all about?)
Anyway, on an operating basis comparable to what Uber is reporting, Amazon's basic business probably ran a more modest deficit of about $400 million in 2000. In fact, Amazon made a point of saying that its book/music/video business was cash flow positive in 2000, though obviously not much else was.
Uber may still bring everything into profitability, and its commitment to build market share no matter what is quite gutsy. But there's still a lot of work to be done.
The interesting symmetry between the two right now is that in 2000 Amazon was regarded as a book/music/video business while under the hood they were building the worlds premier shopping fulfillment platform (and cloud services).
Right now Uber is the "taxi service" but is building a world class transportation logistics platform. Noting the Otto acquisition and the self driving car investments you can track their path forward. If Uber can become for transportation what Amazon became for online sales then they have a pretty clear path to success. That being said I think Uber has savvier competition (Google, Apple even GM) who recognize them as a real threat where I think brick and mortar didn't realize Amazon's potential until it was too late.
What's striking about the Amazon/brick&mortar comparison is that retailers' senior management did recognize Amazon early as a fundamental threat. (For example, Walmart.com came to life in 2000 and was set up in the Bay Area with plenty of love from the Walton family.) But on an operating level, few retailers' managers wanted to change the business rapidly enough to deal with it.
They fell into the Kodak trap of sticking with the old ways for a few more years of higher margins ... and thus building out online versions that were way too timid and deferential to make it big.
For example: limited supply of hot items? Put them in the physical stores, not the online one. Price war online? Can't compete, because it might mean undercutting the retail-store price and hurting high-margin sales.
It will be interesting to see if the car companies are able to build out new transport platforms that succeed by making life much worse for their existing dealerships. If so, they can give Uber a run for its money. If not, they will compete in slow motion.
> What's striking about the Amazon/brick&mortar comparison is that retailers' senior management did recognize Amazon early as a fundamental threat.
Some did, many didn't. A number of retailers outsourced their branded online presence to Amazon until fairly late in the game instead of building their own capacity, even in the market Amazon was by others earliest recognized as a threat in (e.g., Borders did so until 2007. Target, IIRC, did as well for quite a while.)
Although your overall point is valid - some companies need to lose (read: invest) a lot of money now before they can make a lot of money in the future - I'm not sure the comparison between Uber and Amazon is valid or meaningful as 2000 Amazon and 2016 Uber are completely different companies targeting completely different markets in completely different macroeconomic climates.
If a company is investing in production facilities, building up a supply chain or R&D, I can completely understand how losing money is a solid strategy. It is basically taking a loan to invest in being a better company in the future.
On the other hand, losing money by handing out free stuff (cheap rides in this case) only makes sense if you want to either bankrupt your competitors or increase the awareness of your brand. Since Uber is at least not a complete unknown anymore at this point, all signs point towards the "driving out competitors" strategy. This might still be a viable business plan for Uber (though I don't see how to be honest), but certainly not one that should be cheered.
Another difference: I'm not sure that Amazon ever lost money on the margin. Their losses were always attributed to reinvesting whatever profits they made back into the business (and then same). Uber by contrast appears to be losing money on every ride. People will say that they can just jack up the price once they have annihilated Lyft or whatever, but I'm not so sure that is going to work. A big appeal of Uber for a lot of people is that it's currently only slightly more than public transit. Raise the price and your back to being a taxi service, and we've seen how that goes.
People tend to think of this in black-and-white terms. The actual deal is that if Uber jacks up its prices significantly, on the margin people will ride with Uber less.
Will their number of rides go to 0? No, of course not. But even if there is no other ride service available, there's still taking public transit, driving yourself, or, you know, not going out to whatever you're going to.
Remember also that even if Uber fully defeats Lyft and Lyft's service shuts down, there are plenty of companies out there better capitalized than Uber itself is. Those companies have so far decided to stay out of a "lose $2b per year" business, but if Uber can demonstrate that this is a "gain $2b per year" business, then Google, Amazon, one of the car companies, maaaaybe Apple, and probably a bunch of other companies can at that point launch their own service.
Indeed. If Apple decides 'getting and offering rides is part of Apple Pay and iOS' and does to ride-sharing what they did to the music industry, Uber is not ever going to become a 'gain $2b a year' business because there will be no such business.
The idea of ridesharing being a profitable activity is an assumption.
I don't know how they manage to lose money on their ride considering how crazy multipliers are at night. First and last uber ride had a 4x. Even without this, some articles said Uber was more expensive than Taxi rides .. weird.
Profitable can have many more meanings than you'd think. On the surface, to me, profitable means you make more money than you spend (subtracting all the costs of doing business, acquiring customers, taxes, payroll, etc).
Depending on who you're talking to, however, that can mean things like "it costs less to acquire a new customer than they're likely to spend", or that excluding things like salaries, rent, taxes and such, they're profitable.
In this case I'd guess it means that Uber pays less to drivers than the user pays them, and ignore everything else (marketing, salaries to employees, taxes, etc).
I mean sure, there are. In fact, there are lots of pretty standard ideas of what constitutes profitability. But if you just say, we're profitable, most people will assume you mean on a GAAP net income basis. If you don't mean that, you can say, we're cash flow positive or something like that. Or you could say, "we're profitable on an EBIT basis," or we have a positive gross margin. You can't just say, hey! if you exclude a bunch of our costs and count all of our revenue, the revenue is bigger!
'Profitable can have many more meanings than you'd think.'
Postmodernism meets accounting meets Bay Area startups. I like these threads were everyone isn't just a programmer, but an accounting expert.
This is hardly an area where startups are on the leading edge.
> For one contract, in July 2000, Enron and Blockbuster Video signed a 20-year agreement to introduce on-demand entertainment to various U.S. cities by year-end. After several pilot projects, Enron recognized estimated profits of more than $110 million from the deal, even though analysts questioned the technical viability and market demand of the service. When the network failed to work, Blockbuster withdrew from the contract. Enron continued to recognize future profits, even though the deal resulted in a loss.
Right, using accounting methods that were "generally recognized as having been invented at or by Enron, used nowhere else in the industry and at least passively, if not actively, misleading".
The Bloomberg article reported "In February, Uber earned an average of 19¢ per ride in the U.S., according to previously undisclosed financial documents" then added "Not included in Uber’s profitability calculations are interest, taxes, or equity-based compensation for employees".
This seems to suggest that everything else was taken into account in the profitability calculations, but a little skepticism does seem in order!
Really? Sure, a division can operate at a profit, or a product can be profitable while the rest of the enterprise is on fire, but profitable has a pretty solid definition in the GAAP world, doesn't it? Now I could totally see uber using all sorts of non-GAAP E.B.(some bullshit we haven't even thought up yet) metrics and those numbers can indicate favorable growth and a direction of future profitability but you couldn't seriously refer to that as "profit" when dealing with real investors.
Are you talking cash flow positive, net income positive, or operating income positive? If you want to talk about profitability, you'll need to be very specific.
It's hard to understand what companies mean when they say profitable these days.. maybe they meant gross profit positive or profitable on unit economics?
So if they're relying on driver subsidies to be competitive but can't make money that route is there a plan for them to make money without relying on autonomous vehicles? Or is that the bet?
That would be a ridiculous bet. Autonomous driving in any wide-spread form is still years if not a decade away. Losing money for a decade while awaiting the glorious future to redeem you is a sure way to go bankrupt, and quickly.
Uber did not start with plans to use autonomous vehicles and so far their plans amount to little more than "well, yeah, we'll shift to autonomous cars when they come." Well, yeah, so will everyone else on the planet. I don't think it's a coincidence that all of this came up around the time Uber started to lose money... when they were in the black all the talk was about the "rise of the freelancer economy."
As crazy as it sounds, they might not actually go bankrupt even if they continue to lose hundreds of millions per year. They've received $11.5B in total funding. They've averaged $1.6B in funding per year of operation and $4.65B in the last 3 months.
It's likely that they're actually building up a war chest at this point, getting ready for extra spending on self-driving cars.
According to the article, their world wide loss for the first HALF of 2016 is $1.2 billion. So $1.6B per year ain't gonna cut it at the current burn rate.
Yes, but it doesn't mean that Uber cannot catch up. As Musk said, it's very easy (relatively) to get to 99% driverless cars, but it's the 1% that is truly difficult (with all edge cases). Furthermore, say driverless car technologies for all companies come around the same time (plus/minus a year) - don't you think Uber would have the distinct network effect advantage that Google would have to build from scratch? Said another way, would you rather bet that Uber can make up the 1 year technology lead (ex. aggressively hiring and more R&D) in driverless car FASTER than Google can make a uber-like driver/rider worldwide car share network?
That being said I don't think Google (who is also an investor in Uber) would - they're mainly looking to license out the software. This is also leading to problems because car companies are realizing how pivotal this is going to be and want to control the entire process rather than be downgraded to a mere OEM.
Truly autonomous vehicles are probably the best and worst thing that will happen to Uber. One of Uber's greatest strength is having all of those drivers, it would be very hard to create a competing service and recruit that kind of fleet. If tomorrow it was legal to put truly autonomous vehicles on the road what is stopping anyone with a few billion dollars (e.g. Apple, Google, etc) to enter the market and compete on price per ride? I don't think many people are loyal to Uber, they are loyal to whatever is easiest, cheapest and quickest.
Autonomous cars don't solve the 'someone puked in the back' problem. So, companies will need a fair amount of local infrastructure near every city. Drivers are probably easier to find. So, I suspect 1-2 years after Ubner runs out of money is going to be the time for a competitor to show up.
Their real risk is a company treating ride hailing as a million dollar company vs. a billion dollar company and running with ultra thin margins.
You only need a parking lot with cleaning staff. As soon as it was detected that the car needs to be cleaned it will automatically drive there. Should be much cheaper than paying drivers full time. And in most cities finding employees shouldn't be that hard.
It takes at least a 1/2 hour to get back to base. Your cleaning staff can't be waiting around all day doing nothing, they need things to do. So the dirty car sits idle until the staff gets to it. Then it takes another 1/2 hour to get back to where the hoity-toity crowd likes to party.
If someone pukes in the car, it's out of service for the rest of the day.
> Your cleaning staff can't be waiting around all day doing nothing, they need things to do.
The service staff may have more to do then cleaning, and even without major events like "someone puked in the back", a large fleet is going to have a continuous, ongoing level of cleaning and care needs (much of which, while needed on an ongoing basis, can easily be deferred when a puking, etc., incident occurs to focus on that.)
So its quite likely that there will, at least in major markets, be work for a 24/7 service staff that also handles puke-like incidents.
Or, I could just drive the cleaning person to the vehicle in question.
I'd still have those 30 minutes of downtime + cleaning time, but no time returning the car to action. So maybe I lose an hour a day per cleaning (and maybe the car should be cleaned once a day regardless, nice way to keep the cleaning team engaged) BUT a self-driving car isn't a person. It can work 24 hours a day, so I'd still get 23 hours out of it.
> Autonomous cars don't solve the 'someone puked in the back' problem. So, companies will need a fair amount of local infrastructure near every city.
Well, they obviously need someplace to park the cars, and the cars obviously need to get charged periodically (which is likely to require human intervention), and it may be useful to have in-house service capacity. But a combination of internal monitoring systems to detect cabin issues that require a stop for cleaning, and stops for charging and service (that can also be leveraged for in-person cabin and exterior cosmetic inspections) seems to address this, and may require less cost and less risk of forces outside the company's control than relying on individual owners.
You are assuming Uber would want to own the cars. Probably they would want to let the car owner put it to work, while it would otherwise be sitting in the garage or parking lot.
Totally agree - the Otto purchase suggests that they're looking to retrofit existing cars. I'm guessing this means you still need that driver network to at least provide the vehicles (and potentially manpower in the short run to ensure safety).
So let me get this straight. I'm a private citizen early adopter who buys a fancy new expensive self driving car. I'm super fond of it because it's a hot new technology. Then I lend it out to Uber to have the shit beat out of it with city driving, drunk people puking in the back of it, etc. And I'm supposed to cover the costs of maintenance and cleaning. Uber better be offering me a fuck load of money, otherwise that sounds like a pretty bad deal.
Taxis were fine in Arizona, but we only had 'Electronic Dispatch v1.0' [1]. The upstarts upgraded the dispatching system to v1.1. The main advantage of their upgraded system (over v1.0) was providing instantaneous feedback of the to the passenger's mobile computer. v1.1 also gave the passenger the ability to 'rate' their driver, which was also not a feature of v1.0.
>So if they're relying on driver subsidies to be competitive but can't make money that route is there a plan for them to make money without relying on autonomous vehicles?
Wait until others (taxis, Lyft) are out of the market and raise prices?
I don't understand it personally. They sort-of remind me of how the US brought cable TV to the UK. There was huge investment on infrastructure and an amazing service. The funding ended, service declined but that infrastructure, which was decades ahead of anything else still existed.
Uber is similar, but anyone can set up a taxi service. Their own taxi drivers can even do it. Existing competitors can take over when the discounts disappear. It just doesn't make sense, it's like a pyramid with no foundation.
But is Lyft really the competition for Uber in the long run?
This almost feels like the Blu Ray and HD DVD war - yeah, Blu Ray beat HD DVD, but digital beat out both. At what point do self driving cars mean that Uber no longer has a competitive advantage in transportation? Aka if you remove the need to sign up drivers, then you're just competing on cost of a vehicle + overhead as the cost to a customer to switch from Uber to say 'FordNow!' is so low - I just download another app.
Uber is competing with all forms of transportation and to beat everyone there is a long time to try to wait and stay solvent for.
I think this is the key here. Network effects are powerful, but are highly contingent on switching costs. It costs drivers and passengers next to nothing to switch between providers. A relationship between driver and passenger only exists for a single ride.
By contrast, look at Facebook's network effect. The switching cost to obtain a comparable service is talking all your friends and elderly relatives into Something New. Hence G+ making roughly zero gain against the Book.
Ubers treatment of their drivers as "contractors" has hurt their network effect. Because they can't make them exclusive to uber. All the uber drivers in DC also use lyft. And they'd use another service if that popped up.
I bounce around between the two based on whoever gave me a discount.
"Uber is just waiting until driverless cars are a thing and then they will own transportation." I hear this all the time, but realisticly that's at least a decade away. Are Ubers investors prepared to pour $24bn into the company waiting for this nirvana? They certainly could, but I'm not so sure they will.
A decade is being generous. Early adopters maybe by then but they'll be sharing the road with human driven cars for a long time to come. It's not clear to me how Uber profits from this scenario. My sense is that driverless cars are the shiny dangly toy that Uber is using to distract investors. But maybe I'm being too pessimistic.
Not to mention that if you wind-up with a bunch of fully autonomous vehicles whose owners put them up for hire, that market might look utterly different from the current market for rides and so Uber's "first mover advantage" is rather hypothetical - like a company that rents horses to buggy drivers saying "wait till we have cars, then I'll be profitable, I won't have to pay anything for horse!"
Realistically, Uber faces major competition from Google and Apple, both who are investing heavily in self-driving cars and have easy access to loyal consumers.
> Name one physical consumer product that has garnered them loyal customers?
Transportation is a service, not a physical consumer product. Google has plenty of consumer services (including some "meatspace" services, like Google Express) that have garnered them loyal customers.
EDIT: But perhaps most relevantly to competing with or commoditizing Uber, Google has Google Maps, which not only has a huge user base, but already has a ridesharing button in it. Now, AFAIK, all that does right now is give an estimated Uber price and a link out to the Uber app -- but its a fairly trivial move for Google either to include their own autonomous car service (if they launch one) or other Uber competitors in that link, and either eat Uber's business directly or at least weaken Uber's moat.
Google maps has added new options to it's ridesharing:"New partners include 99Taxis in Brazil, Ola Cabs in India, Hailo in the U.K. and Spain, mytaxi in Germany and Spain and Gett in the U.K. They will sit alongside listings from Uber,"
Also, don't forget Google now surfacing a notification saying: "would you a half price shared taxi for your predicted route ? click to open Google maps" - sounds like a great way to form new habits for users.
For a company with practically zero expenses, losing $1.27 billion in 6 months astounding. Charge a client whatever the driver is willing to work for, plus a small overhead ... what's to lose money on?
It's a Fabian strategy to establish market dominance. Uber is spending like crazy to expand for market share. On the surface at least, they are similar to how Amazon was operating in its early days - investing in itself early to expand and not expecting to generate a profit for many years.
It's currently pretty even, despite higher margins for AWS, and "already" is saying a lot despite how long AWS has been around. I covered this 64 days ago in [0], but here's the relevant part again.
Looking at Amazon's Q1 2016 Financial Results [1], page 8, we see that net sales of non-AWS amounts to ~$26B, and AWS is ~$2.5B. From the Segment Highlights section (same page), AWS sales is 9% of total sales.
AWS beats non-AWS income only because there were losses in international; ignoring international, it's a $16m difference.
Looking at page 14, Media sales in North America and International sum to $5.6B. Media sales alone is double AWS's sales of $2.5B (page 13). Profit margins are way higher for AWS, so there's still a lot of room for a larger income difference between the two segments.
That's fine so long as they're not losing money. Someone can fill us in about how much Amazon sunk into startup costs before breaking even. Amazon is perceived by customers as usually the cheapest place to go for products/services.
My concern is that Uber is already considered "expensive" by customers, and that's at a massively subsidized rate - how will customers react when Uber wins the price war, destroys the competition, and then has to actually raise prices? and not just raise prices to break even, and not just to make a profit, and not just to grow the currently non-existent fleet of physical vehicles (self-driving or not), but to also make back the US$billions lost to win the war of attrition?
Part of the argument is the Uber is building product infrastructure of their own - Amazon built AWS as part of their everyday working, Uber could roll out delivery, autonomous tech or even their financial services as separate strands once they've reached pervasiveness.
Indeed, Uber already has their UberEATS program where they offer home delivered food from restaurants that don't yet have their own delivery service. So they're already experimenting with providing delivery & mobile payment processing services.
It's pretty simple: they've hired a vast number of employees, they're spending an immense sum on building out a reliable global infrastructure (not an MVP product), and they're not making nearly enough money in relation to their current organization's size. Their bet is that later on that ratio will invert.
Facebook as one example also lost a lot of money (not $1.2b in six months mind you) for years before finally turning profitable. What was there for them to lose money on, social networks are just a couple servers, right? No, they were building out a massive foundation for the future. And now they're a money printing machine.
But they have enough runway that it doesn't have to be one day cheap rides, the next expensive ones. You simple optimise the rate at which prices increase so as not to immediately alienate customers (isn't it something like we only feel a price rise pain if it's over 5/10% in one go?).
bootstrapping both sides of the marketplace at once is very expensive. They need drivers before riders will bother using their service, but drivers will only sign up if they get paid. So uber has to heavily subsidize the drivers to stick with their platform while they then ramp up customers usage. Over time organic customer demand should be sufficient and drivers shouldn't need subsidies but that can take a while and in the mean time you are burning a lot of cash.
Why shouldn't drivers need subsidies? In high cost areas, the subsidies are the only reason that drivers are willing to work. If the pay dropped much they would be better off finding other jobs, or not working at all.
They pay doesn't need to drop. Ridership needs to increase. As long as drivers are driving and not staying idle they should be able to earn enough to sustain itself. But early on there is a lot of idle time and that's where subsidies are important.
I wonder if Uber shouldn't stay hyper-focused on markets where people usually don't have cars or where using a car is pretty difficult. In most of America, people already have their own vehicles which they prefer to drive. Occasion to use an Uber/cab is fairly rare for most people. At least, it doesn't seem like the same hyper-expansion strategy that works in carless areas like NYC or areas with horrible parking like LA would necessarily be applicable to the rest of the US.
There are a lot of reasons to use Uber even in areas where people generally have cars. For example to get rides to/from airport, get a ride back from a bar instead of driving, get a ride to a popular event or a crowded part of town to avoid dealing with parking, etc. All of the reasons why cabs exist can be served by Uber better and cheaper.
Yeah, I'm aware of these -- that's why I said there's 2-3 occasions per year when Uber might be useful. Most people don't go to the airport every week or even every month (and even then, a lot of them will ask a friend or family member to drop them off and save the money). Most people don't go to the bar to get drunk every weekend. Most people don't go to crowded events that often, and if they did, they would probably rather spend 5-10 minutes looking for parking and get to enjoy the comfort and freedom of their personal vehicle on the drive over rather than paying an extra $50 just for someone to drive them.
>All of the reasons why cabs exist can be served by Uber better and cheaper.
I don't necessarily agree here, because Uber always has to have drivers standing by. If usage in the area isn't high, average people won't become reliable drivers because their app will usually be empty and they'll give up. Thus, Uber would probably be more efficient if they paid the same small subset of people to be available at set intervals, and at that point, what's the difference between Uber and a typical cab company?
In markets that aren't hot enough to get normal people in the driver pool, Uber may do better just to open their platform to local cab companies.
The owner maintains the car, but Uber has to pay the driver enough to cover the cost. So it's a cost for Uber even though it's not on their balance sheet. "The rider pays the driver" is just semantics since Uber decides the percentage.
Well the idea (originally) was that the driver is already driving and so they are sharing/renting out their open seat to get a little bit of money. Uber would just skim off the top for matching riders with drivers.
The reality of the economics is likely different but that's how it works in theory. Now they are likely paying drivers to be out looking for rides to ensure that service isn't disrupted, and yes they need to subsidize that as others are mentioning.
It's not as simple as that. The market becomes more efficient as the volume goes up. The simple example is uberPOOL. Many driver subsidies kick in only when a driver does not earn enough.
Singapore just launched self driving taxi. Other competitors are doing the same. To me it does not matter where I get a cab ride from as long as it is cheap, safe and fast.
Zipcars are actually fairly clean, in my experience. Professionally cleaned regularly and it's easy to track who caused a mess if the next person in the car reports it.
I've been seeing the Uber robots driving around Pittsburgh in the last week. They can still loose a lot of money in the short to mid-term if they succeed in fundamentally changing the nature of mobility with autonomous people movers.
They often guarantee drivers a minimum hourly rate to ensure there is a pool of available drivers for their users. If they don't do this, users will get frustrated at times and give up on the service.
They're essentially loss-leading until a few things happen:
- fuel prices drop away
- self-driving cars are available
- their competitors die out
People misguidedly say that Uber takes the 25% and then keeps it and throws it in the bank. No one seems to realize that a good portion of that money is funneled back into the drivers as incentives. One SF driver told me that Uber guaranteed her $50/hr for 2 hrs during rush hour, she was already making $100 for the day by driving those 2 hours and everything else was gravy. That money is obviously coming from the 25% cut they take, except they use it to shape the behavior of the drivers so that it more readily matches demand patterns.
Uber, at least in the past, has been offering subsidies to its driver in many markets to grow its market share, Basically making up the difference between what customers are willing to pay and what drivers are willing to work for. The driver may very well be earning $25 for that $20 ride with Uber making up the difference.
So in the longer run, either the drivers will have to work for less than they are willing to or the customers have to pay more than they are willing to. Or Uber has to keep paying the tab.
I imagine the plan is that once Uber has become ingrained enough in peoples lives that they have hard time imagining life without it, they can start slowly turning up the price without losing too many customers.
Uber's premise is that it is a mere facilitator of service providers and customers, and therefore it can scale like a tech company and not like some oversized yellow cab with thousands of employees and vehicles on the books.
It's a shell game. Uber may not call it's drivers employees, it may not claim ownership of the vehicles, but those drivers and vehicles represent overhead all the same. At the end of the day, the cars must be maintained. High quality drivers must be recruited and paid. If they aren't, Uber goes out of business.
At this point Uber is looking suspiciously like a large traditional company that provides a taxi service, with a nice app. Maybe a potentially profitable one. But worth $60 billion? Nope.
Maybe someone who knows can answer this better, but my guess is that the primary purpose of drivers is to draw (then try to lock in) consumers to their ecosystem. So, their investment isn't in getting drivers for the long haul, but rather paying drivers to offer a temporary service that will help their business further down the line.
That's VC valuation though right? I maybe wrong, but are you sure market will value this same company at $60B when it is not even profitable? I genuinely have no knowledge about this, so feel free to correct me if i'm wrong.
Uber will fall 1st victim to its own success. They are facing strong competition, id be surprised if they survived (but even then they will lose a significant market share).
They're not facing strong competition, they're facing extremely weak competition (Lyft is heading toward bankruptcy and can't even manage to sell itself off). They aren't going to lose significant market share, they're going to end up with a modest monopoly, replicating the positions acquired by: Google, Microsoft, Facebook, eBay, Amazon, PayPal, Intel, Cisco, etc. The same story plays out over and over again in tech, and it does so for very obvious reasons.
Who else is threatening Uber in the US for example? Nobody. Who is going to spend billions to take the market away from Uber? Nobody.
>The same story plays out over and over again in tech, and it does so for very obvious reasons.
Yes, and that reason is anti-competitive supercharged intellectual property laws, plus anti-competitive obsolete computer access laws that can't tell the difference between a parcel of land on someone's farm and a network-attached server. Together, these laws make it virtually impossible to break the grip of ingrained players.
Instead of competing on the merit of their offering, big internet companies only need to take the basic steps that qualify them for those legal protections, like a non-sensical Terms of Use that, if read literally, would ban any access at all. These companies thus conspire to use the law to prevent the use of technical solutions to make switching costs reasonable for consumers.
(PayPal deals with an extra type of regulation, and even its founders have said it would be impossible to start a new PayPal today given the current state of financial regulation.)
We should consider how much money is being monopolized by copyright and ask ourselves, as a society, if that's really proportional to the value provided by granting said monopoly. I would say that copyright's constitutional purpose of "promoting progress in Science and the Arts" is actually being impeded by the massive, virtually unlimited (effectively "forever minus one day") monopoly that copyright now represents.
Uber may find itself hyper-extended. I wonder if a startup that provided a white-label on-demand ride hailing system wouldn't do better, at least in markets where taxi use is small.
groupon couldn't make it work. This seems more like hundreds of local markets and not 1 big market. And that company that has only women drivers for women passengers seems like it might be able to carve out a niche. and if it gets to profitable what's to stop grub hub, task rabbit or another deliver company to make a run at the market.
At many times, they pay drivers minimum amounts to enter the pool even if there might not be enough jobs out there. They also hand out loads of vouchers to promote the service. Plus lobbying, marketing, PR, etc. Multiply by however many countries they're in.
This article fails to mention Uber's potential to disrupt the trucking industry. Uber has been heavily invested in automated driving since inception. They will not see true profit until this hits the market.
1. https://en.wikipedia.org/wiki/Dumping_(pricing_policy)