Maybe I'm being naive but how can a company that replaces a whole layer of management and overhead of traditional Taxi companies by an App not reach profitability? Is maintaining an app that expensive? I can't imagine.
> By contrast, in the hundred years since the first motorized taxi, there has been no evidence of significant scale economies in the urban car service industry. That explains why successful operators never expanded to other cities and why there was no natural tendency towards concentration in individual markets. Drivers, vehicles and fuel account for 85% of urban car service costs. None of these costs decline significantly as companies grow. As the P&L data above demonstrates, Uber has not discovered a magical new way to drive down unit costs.
Sweden famously deregulated their taxi industry. American taxi regulations are awful--I can't compare them to other countries, but they're terrible in an absolute sense, and they vary widely by city. In New York, they even change depending on where you are and what color the taxi is (yellow ones and green ones have different rules). So all these city-by-city variations become a big diseconomy of scale.
The reason for the US' horrible state of affairs: corruption. Ever since regulation of the taxi industry started, the 'players' in each city decided to use this artificial constraint to enrich themselves. Medallions (the right to drive a cab in a city) were doled out to the politically connected, who, in turn, rented them out to the actual workers (drivers) for a tidy sum. It was a great scam.
If there's one positive thing about Uber, it's that they brought an end to this medallion monopoly.
The medallion system helps create gypsy cabs. If starting a legal and licensed taxi service just required filing the same type of paperwork as any other similar company, and becoming a regulated taxi driver was more like becoming a truck driver you'd probably see a lot less gypsy cabs.
One imagines the cost of complying with labor regulation in those countries makes for better economies of scale. I agree that "seldom in the U.S." is more precise, though.
robot driven electric powered vehicles that operate 24/7 (minus maintenance and recharge time) are a major way to gain efficiencies in drivers/vehicles/fuel. the nature of an automated ride hailing service, also, gains efficiencies in densely populated areas. it doesn't quite reach economy-of-scale level stuff the way a manufacturing business does, but there are definite efficiencies that Uber (and their competitors) are aggressively pursuing.
The parent comment on which this thread is based is arguing that Uber's elimination of top-heavy management in traditional taxi companies is so great that they should be able to profit even if they never achieve self-driving cars. Clearly if they can entirely eliminate the cost of labor it complicates the question.
That seems like a strange conclusion considering Uber doesn't even pay for the vehicles and fuel.
UberPool is one pointed example of scale economics working. Another would be Uber's brand encouraging more riders and the ability to scale into smaller markets that taxis normally couldn't service.
> That seems like a strange conclusion considering Uber doesn't even pay for the vehicles and fuel.
Well, they do, indirectly, in that that is part of the money the driver is paid. Yes, one way they've improved the numbers is squeezing their drivers more, but they can't do that forever. They're already encountering a lot of pushback.
I question the claim that Uber is serving a bunch of small markets that traditional livery services do not. Do you have an example?
Not OP, but I can say from personal observation/experience that while not 'small', Uber has increased taxi use in the general sense in Texas cities that are so car-centric and-or sprawl-like that traditional taxi services were never really popular (Houston, Austin, Dallas, etc) - having more drivers available in an ad-hoc manner has made the dispatch time much more reasonable (minutes vs a hit-or-miss scheduling ordeal of ~1h) and so using taxis (e.g. Uber) as a viable means of transportation, especially for things like social events, is much more common than it was before. I suspect the same is likely in similar places where 'everyone has a car' and the geography is very spread out.
For example, Boca Raton in Florida is a wealthy area that had no taxi service until Uber. You literally had to get a limousine to go somewhere. Now its simple and cheap to get an Uber.
The point is that you can get a $5-10 Uber ride instead of before where you'd spend $100+ on a limousine ride that you need to arrange well ahead of time. It wasn't a realistic option before except for special occasions.
Simple economics argues you are wrong about the costs aspect of things here. Do you think drivers are simply doing public service? Perhaps they have special gas pumps that are 30% cheaper?
Traditional taxi companies are now increasingly employing 3rd-party apps which function much like Uber's. In many US cities, the "Curb" app will hail you a regular taxi cab and allow you to pay for the whole thing through the app (including tip, even if you just happen to hail the cab without opening the app).
Uber's long-game, and the reason they've been funded so handsomely, is the autonomous taxi plan.
Its a pity that taxi companies were so slow to adapt to Uber by providing convenient ways to summon and pay for a cab. All that people really want is to get from point A to point B without a hassle.
Talking about Sweden Uber is just another taxi company here. It's not possible to provide taxi service without having a license. Uber has to comply. Still it's more convenient to use their app because it has better UX than everything else on Swedish market.
Which isn't hard to replicate or improve upon. Is Uber fighting the local government in Sweden to have less regulation too? It seems that's what they are doing here (Brazil).
I don't think so. They have already lost one legal battle and it's really hard for a corporation to lobby the government due to a lot of reasons: trade unions involvement, prevailing social-democratic mentality, one of the lowest levels of corruption in the world (4th place, probably related to the mentality).
, (social-democracy and one of the lowest corruption levels in the world).
I have yet to see one of those app's come even close to replicating the experience that uber brings. It's one thing to have an app, it's another thing to have a well designed app with consistent policies that are followed the same by every driver.
Any time I've had to use an uber clone apps (from a traditional taxi service, not lyft) they haven't instilled a lot of confidence in me to how reliable they are.
> consistent policies that are followed the same by every driver.
This was the most amazing thing about Uber, to me. I live in Boston and used to take cabs all the time pre-Uber (still take the occasional cab from the airport). Cab drivers are rude, frequently claim the credit card machine is down (despite violating city laws saying they're literally not allowed to drive with a broken CC reader), take the long way / detours to run up the meter, air conditioning or heating might be broken, the cars are dirty, no real recourse for bad service. Even if they have a GPS, drivers refuse to "waste time" by typing in your destination address and require turn-by-turn directions. I'd call a cab and it was hit or miss whether they'd show up or not. I even had a cab driver threaten to call the police when I didn't have cash after he tried to claim that Boston was "cash only" on Saturday nights -- and he was driving me to my HOME in the South End, so it should have been pretty clear I wasn't a tourist unfamiliar with local laws.
Even with the most well-designed and reliable app in the world, cab companies can't compete with Uber -- it's the service and consistency that really made it take off.
Yep, agreed. I've literally been hijacked and taken to an ATM before by a cab driver who clearly had a VISA sticker on the window of his car. While uber seems pretty evil these days, I just can't risk the unreliability of traditional cab services.
Do you think cab drivers have gotten better since Uber came out? I only take them from the airport occasionally now, but the biggest thing about pre-Uber taxis was the service issues.
As I've learned while participating in these discussions is that all of this is HIGHLY localized. The issues you have with taxis and/or Uber will not make sense in other places with different regulations, better apps, etc.
Almost every regular/licensed taxi I take here, the driver has Uber/Lyft/99Taxi app running simultaneously so they can reach more clients. In that case, it's the same quality of service as before (which is just fine where I live, so Uber/Lyft aren't disrupting anything here).
True. Escaping the law, sexual harassment of employees and low wage to drivers aside, it will still make me feel very inconvenienced to see Uber go out of business. Not even Lyft comes close to how good and fast the Uber app is. I was sold the first time I used it. I just hope some other company steps in to fill in the void.
eCab in Vancouver is getting pretty close. The app's technology is all but reliable, but where the problems still exist are when demand is high and taxis (by the very nature of being limited) are unable to meet it.
That was effective in cities with good (or any) taxi service. In Pittsburgh, Uber and Lyft have utterly changed people's ability to get around the city.
One Saturday night we wanted to go out to a place 10 minutes away. We called a taxi cab around 7:30/8:00. We were told that it would be between 2.5 and 3 hours for a cab, if one came. We were considered "out of the way" when we were a 10 minute ride from downtown/the main bar area in the city. Forget about getting a cab back from those bars. We used jitney cabs all the time to get home. Yellow cabs wouldn't bother or were too infrequent.
I remember jitney's in Pgh !! In the 70's I used to ride in jitney cars with my mother to get back from the grocery store. In some cities, "jitneys" are called "hacks"-- unlicensed cab drivers driving their own cars. Perfectly safe if they're neighborhood folks that you know.
There used to be a similar/related practice called "slugging" as well, it seems to have faded as Uber rose up.
Great point -- ridesharing apps have genuinely contributed something important in areas that didn't use to have much taxi service. My point is limited specifically to big cities that already had decent service -- in those places, there wasn't a significant improvement brought by Uber and friends.
5 minutes would be fine. But sometimes it was more like 45 minutes to an hour. You wonder if a cab is ever going to show up. That's why I started using the apps - you know the driver can get in touch with you and you can see where the car is.
For me this can be problematic in my second language, and near-impossible in my third, fourth, and fifth languages. I travel a lot and it is the only time I ever use Uber.
> Maybe I'm being naive but how can a company that replaces a whole layer of management and overhead of traditional Taxi companies by an App not reach profitability?
They employ more than 2000 Engineers, many of them in the Bay Area. Those cost easily more than any manager in a Taxi corporation..
Yep. Amazing how you need 2 thousand engineers just to make an app (which is already made) and run some servers (which are probably hosted on AWS anyway).
Well, the greyball program took some real coding and testing out to implement as it was reported. From the point of view of 'if you see one cockroach scurry on the floor, your walls infested with them' then we can make an educated assumption that there are more 'secret' projects they may be working on to further obstruct justice (highly dependent on location). The question is then: How many coders work on the core app, how many worked on the greyball section, how many worked on the self-driving cars (auto-automobile is maybe a better term for these vehicles, but not by much), how many does that leave left? Take that answer, assume that the greyball is average the number of coders on a 'secret' project (very very dubious to do this, but what other data do you have?), and then you have an estimate on the number of other 'secret' projects they have going on and what their abilities are as compared to your cadre of coders. Then try and steal them if they are doing better than your folks, now is a good time to invest in their coders before the crash and rush for them happens.
You don't need thousands of engineers to keep a mobile app up-to-date, and the driverless vehicle thing is a boondoggle as there's already other companies doing that work, which are much better at it (Google, GM, etc.), and don't need tons of VC for such a risky endeavor.
In your opinion, is work not worth doing if those mammoth companies are pursuing it?
Also, you say it is a risky endeavor. Would you argue that the driverless vehicle is not an inevitability? I would certainly argue that betting on Uber to come out on top is risky, but that doesn't mean there isn't money to be made.
>In your opinion, is work not worth doing if those mammoth companies are pursuing it?
Depends on what it is, and what kind of resources you have. In this case, you're talking about a massively difficult task (between the technical and regulatory aspects and the safety-critical nature), and at least two mammoth (i.e. well-funded internally) companies are already working on it. What exactly is a company with zero expertise in the field (a mobile app? Please), with absolute reliance on VC funding, likely to bring to the table? A lot of risk, that's what.
Yes, I think driverless vehicles are probably an inevitability, but I wouldn't look to Uber to come out on top here, any more than I expect Tinder to come out on top in asteroid mining.
Saying that if they're not working on self-driving cars, then they must think self-driving cars aren't worth pursing is a non-sequitur. Every Uber I've been in has had music playing, why don't they buy some satellites and build a SiriusXM competitor?
Uber isn't even profitable with their core business of being a not-quite-taxi company. They quite obviously don't have the money to build their own self-driving cars, too.
I wonder if they were just overzealous in hiring and don't actually need all those employees, but now can't let them go because of the impression that would give to the industry/equity holders. Large staff cuts usually do not instill confidence in investors, even if that staff literally isn't required.
Their backend consists of hundreds of microservices that are frequently breaking, so it's more complex than just an app and a basic backend on AWS. Also they have been doing a lot of massive refractors in the last couple years, so they need lots of people for that.
I would imagine most of the complexity is from handling a massive number of requests from around the world, and needing all of their data to be backed up and secure. They have their critical data backed up to like 10 different servers, when your dealing with scale like they are things get complex really quick.
The problem is not competition from traditional taxi companies (they do indeed replace taxi companies' management structure) but other ride sharing companies, ie Lyft. Uber has only managed to stay ahead of Lyft by undercutting Lyft's prices, incurring severe losses in the hope that as soon as they have self-driving cars they will be able to become profitable by eliminating one of their main expenses, the drivers themselves, while maintaining lower prices than Lyft.
Without self-driving cars, that strategy isn't sustainable, and so eventually Uber will find itself unable to maintain its advantage over Lyft.
> Uber has only managed to stay ahead of Lyft by undercutting Lyft's prices, incurring severe losses in the hope that as soon as they have self-driving cars they will be able to become profitable by eliminating one of their main expenses
I think someone should pause to note that, if true, this is one of the dumbest long term business strategies in the history of high finance.
This idea, apparently, is a bet on a technology that not only doesn't exist, but is extremely highly regulated, that the company has literally no demonstrated core competencies in, hasn't been even successfully prototyped, that represents the hardest most complex use case of the technology, and is obviously years away at best, but yet it justifies a policy of losing billions of dollars in the present just to get market share when the costs of switching brands are literally so non-existant that a typical customer often does it several times in a single evening out.
Maybe it's my old age and having lived through the first dotcom crash, but it seems to me that even when you feel like the only person who sees that the underlying business logic is nonsensical magical thinking, it's still quite possible you're correct.
You aren't alone in that thought. Being privately held the financials are opaque enough that no outsider knows for sure how much of the spend is subsidizing the low prices, versus being used for expansion and R&D.
The leaked data from Naked Capitalism is really the only data outsiders have at their disposal: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver... The use of EBITAR (vs EBITDA) makes it difficult to draw real conclusions, though the fact that they use EBITAR at all is suggestive on its own.
However, something as epic as self-driving cars are one of those things that come once every two generations. SDCs, if achieved, have the potential to change the entire American way of life and massively disrupt society. Start-ups love to disrupt and this would be the mother of all disruptions.
So, for that reason alone, I think firms are willing to bet a sliver of their portfolio. If I was a family office I certainly would do so.
Right. But it's the second half of the business strategy that I outlined above that's key to the discussion, ie the idea that paying billions of dollars for market share in this field makes sense. That's literally crazy, the network effect and lock-in at scale is really modest at best.
Sure the more cars you have the better the service can be, but it's trivially easy for a competitor to come along at any time and attack your most profitable market segment in a given city, and trivially easy for any customer to switch as easily as clicking on a different app and glancing at the estimated time and price. That's going to be true forever, this isn't a market that will ever have a defensible monopoly position.
Investing some amount to hedge in self-driving cars could conceivably be defensible, but looking at what's going on it feels like that's more of an rationalization for their present behavior.
They've been lighting money on fire subsidizing rides for a few years, and have hunted around for a plausible excuse. One is the "pool" functions, as that has a slightly more plausible network effect story, and the other is self-driving cars.
Both appear to be post-hoc rationalizations designed to provide some plausible story for why they need to borrow another couple billion dollars.
I wouldn't say it's trivial for a competitor to take over.
The Uber app is still best-in-class, and all my friends now say "Get an uber" instead of "Get a cab" because the UX is so much smoother.
Generally it's extremely difficult to dislodge an incumbent from a market slot. Newcomers can only compete on price, UX, and brand recognition. Ideally all three need to be significantly better than the incumbent to have a hope of taking over. Without all three the best a newcomer can hope for is a small slice of the pie.
So market share definitely has value in the abstract. Unfortunately in Uber's case it has negative economic value because of the costs/subsidies.
Then again I suppose it's possible Uber has always been a cunning plot to take VC money and spend it on subsidised transport. If so, it's definitely been a success - for now, at least.
What you are saying is right about Uber's current business. But that is not true for self-driving cars.
The infrastructure costs of deploying a fleet of cars to compete with Uber if they gain market share will be massive, all but assuring they will hold a monopoly position for years unless a decentralized competitor could actually become reliable quickly (I doubt it).
Once you have a self-driving fleet sure, you can start printing money, but it makes no sense to sacrifice revenue today by starting an unsustainable price war long before the tech is ready. All this does is shorten your runway, and you don't even know how long a runway you will need, given that reliable, fully autonomous driving is so hard.
> Once you have a self-driving fleet sure, you can start printing money
Why?
Are drivers who make $10-15 an hour so ludicrously expensive that saving that money fundamentally changes the business?
Are the carrying costs and maintenance costs and depreciation costs of self-driving cars likely to be lower or higher than the cost of a 2017 Toyota Camry? How about the regulatory and insurance costs?
Is there likely to be some magic secret that allows one company to dominate self-driving cars, or will it resemble the historical markets for transportation devices, whereby there are dozens of companies who make different offerings of similar technology, and a network of component suppliers and hardware and software companies that contribute?
I guess it captures a unique place in our imaginations, but this topic has an unusually severe infestation of magical thinking for some reason.
I can see an argument that a vertically integrated car manufacturer and taxi service provider would be hard to beat. Still makes Tesla and GM the companies to worry about, not Uber. The manufacturing part is much harder than the app part.
> Is there likely to be some magic secret that allows one company to dominate self-driving cars [...]?
I actually agree with you that this is not a given, but it wasn't clear from my phrasing. I should have started my comment with "Even assuming you will print money with a self-driving fleet, etc".
That said, whoever deploys a self-driving fleet first should enjoy a significant cost advantage against human-driven taxis, at least for the initial period before competitors finalize their own transition. Insurance costs should get lower if SD cars prove to be safer (if not, they wouldn't pass regulation), and taxi customers are very price sensitive, so the $10-15 per hour cost advantage will certainly matter. Taxi drivers hate the price competition from upstarts already. If anybody figures out how to make those prices economical, they win, at least until the market commoditizes itself at a lower price level.
Given your $10-15/hr rate, the monthly insurance costs for a vehicle are paid for in less than a day. As SD cars prove themselves, they may even have lower insurance costs than humans.
Since drivers can't work 24 hours per day, you are paying depreciation on ~three 2017 Toyota Camry's, not one.
It's déjà vu all over again. Remember "eyeballs" from 1999.
Research into "autonomous driving" began 1987 with the Prometheus programme consortium, then came C2C and C2X.
We have "autonomous driving" the day an automotive CEO is happily blindfolded on the back seat, alone, chauffeured a random journey through Seoul on a morning commute in monsoon season or a scooter-mania evening on Friday in Milan.
So far, Uber et al. have operated on the principle of pitching easily disposable worker bees against each other, at the mercy of an opaque rating system, with zero rights to appeal, burdening them with all costs of doing business (car, insurance, maintenance, etc.) while providing nothing more than an app with server-farm back end - the classic founder/VC/underwriter/IPO-seller benefit narrative.
> Without self-driving cars, that strategy isn't sustainable, and so eventually Uber will find itself unable to maintain its advantage over Lyft.
I see the "Uber is a bet on self-driving cars" coming up in every discussion about their business plan. But even if that's true, why is there an assumption that Uber would have a monopoly on self-driving cars?
Google, every car manufacturer, and a whole series of startups and universities are working on self-driving technology. If for example Google perfects it first, they will sell licenses to car manufacturers, who in turn will sell cars to Uber, Lyft, and every taxi company in every city of the world. Even if Uber develops the technology first and keeps it to themselves - then others cannot be too far behind, the potential payoff is just too great.
I totally agree with you. I don't think Uber would have a monopoly on self driving cars. In terms of the tech, they are definitely not ahead of e.g. Google. According to this TechCrunch article [1] their self driving cars require human intervention every minute.
I disagree with the other comments. I think it's because the rides are currently cheaper than they need to be. From the airport to my place, it costs 50$ via normal taxi. Via uber pool I pay $10-12. Most of the times it's only me in the car. There you have it.
Nope, worse than that. Uber did have its butt kicked in China and surrendered last summer, having it's China operations purchased by Didi (the company that applied the foot to Uber's posterior). But the problem was everywhere: Uber lost 800 million in 3Q 2016 ex-China, 2.2 billion for the year. "Even in the U.S., Uber's home market, the company continues to lose money." They did manage to turn a profit in the US in 1Q2016 but lost 100 million in 2Q and the losses "increased" in 3Q, looking only at the US. Source: https://www.bloomberg.com/news/articles/2016-12-20/uber-s-lo...
That doesn't show they are losing money by subsidizing rides.
From your source:
> Net revenue—the amount of money Uber generates after it pays its drivers—was $1.7 billion in the third quarter,
That's what it takes to be a real business. If you are a grocery store that buys bread for $1 and sells it for $2, you potentially have a real business even if you only move 20K loaves a month and need 30K to cover all expenses.
People keep on alleging that Uber is somehow buying bread for $1 and selling it for less than $1. There was stupidness like this in the first dot-com bubble. You aren't a business if you are doing this.
This distinction really matters. Since Uber is making money on each ride, there is a real business here.
I don't claim to know what's going on behind the scenes, but even years after launching in NYC, both Uber and Lyft have continued to send me notifications with steep discounts, free rides, etc. I've used both apps since they launched here and a major percentage of my rides have been discounted below 'sticker price'.
Uber has massive costs as it scales, but unlike Amazon that has fixed costs, Uber's problem is that it has massive VARIABLE COSTS in three areas: driver recruitment, local advertising and local regulation.
The work Uber needs to do to onboard a driver in Alberta, Canada is completely different from Ontario, Canada (e.g. drivers needing a commercial class 4 vs consumer class 5 license).
As a result, they are facing unique regulations that is making it difficult to automate the work that is being done in each local market.
Uber may indeed have poor management, but I believe you paint with far too broad a brush in this scenario.
MOST companies fail. 75% of venture backed companies fail quickly. Only about 50% of all businesses are capable of lasting 5 years, and only about 35% are able to last 10 years.
We have all seen companies that were offering products you wanted, but that closed for one reason or another, and it is not in every case that you can attribute it to bad management.
Companies can fold while offering products that are in-demand. The problem is that you have to have enough demand, and sell at a price that allows you to be profitable at that demand level. So it's quite possible for a company to have a product that's in-demand, such as glittery pink mechanical computer keyboards (there's got to be a few people out there who want them after all), but not be able to sell them at a price high enough to keep the company afloat. So glittery pink mechanical keyboards surely have some demand, but it's not going to be high, and the manufacturing cost of such things is going to be high, so between the low volume and high cost, that means you need to charge boutique prices. If you can't get enough people to buy them, then the company goes under.
But this is still attributable to "bad management". Good management would not even try to sell a low-volume product where they cannot price it high enough to make up for the limited demand and volume, and would instead come up with a better business plan in the first place.
Taxi's don't have an app to maintain. Uber does everything that Taxi's do, but also has an app (and associated server resources and operations) to maintain.
Your assessment of "replaces a whole layer of management and overhead" isn't entirely true as far as I know. If anything, they have more overhead.
I believe you're wrong and here's why (maybe the previous poster's way of explaining it wasn't good).
1) Economies of scale. Airbnb has management and overhead but it's spread across thousands of cities. Cab co.s need a full structure for each city in which they operate.
2) Automation. Many of the manual jobs in local cab companies like dispatch and scheduling are automated. You don't call a human when you need a ride, you push a button on an app. So that's also less overhead.
They are also very clever in how they treat their drivers, so labor cost is also low, and of course there is no maintenance on cars (drivers change their own oil, buy their own tires, etc).
So I believe Uber could probably make money just by replacing cabs, but like others have said, they have to compete with other VC money receiving ventures that are wiling to burn money to come out on top.
For now, we the customers are benefiting greatly from the situation.
You forgot: not paying local taxes and being able to operate illegally in some countries (without public transport insurances and legal permits). Which actually also happens to be the case of Airbnb.
Naked Capitalism made a good argument that Uber cannot experience economies of scale with its costs the way Amazon could when it scaled. Why? Because Amazon's fixed costs were... well.. fixed.
Unlike Amazon, Uber faces massive variable costs in driver recruitment/onboarding, legal regulations and local advertising.
Seriously. The rules needed to onboard a driver in Alberta, Canada are completely different from New South Wales, Australia. You can't automate driver recruitment/onboarding in either of these cities because these markets have passed actual legal regulations to allow ridesharing that require unique, but idfferent things (e.g. like market-specific commercial drivers licenses, background checks... or filling out registration forms made by the jurisdiction).
I'm not sure of their business model, but my understanding is that AirBnB doesn't set the price of the rentals or pay the home-owners, they take a cut of whatever price the homeowner decides to charge.
As I see it, Uber employs drivers, whereas AirBnB facilitates BnB owners.
> By contrast, in the hundred years since the first motorized taxi, there has been no evidence of significant scale economies in the urban car service industry. That explains why successful operators never expanded to other cities and why there was no natural tendency towards concentration in individual markets. Drivers, vehicles and fuel account for 85% of urban car service costs. None of these costs decline significantly as companies grow. As the P&L data above demonstrates, Uber has not discovered a magical new way to drive down unit costs.