
Uber's billion-dollar losses expose the fragile state of the on-demand economy - prostoalex
http://qz.com/782916/ubers-billion-dollar-losses-expose-the-fragile-state-of-the-on-demand-economy/
======
zigzigzag
Uber is an example of what happens when central banks attempt to 'stimulate'
the economy through misguided central planning. By forcing down interest rates
and essentially moving spending from the future into the present, they're
stimulating investment in general. But what they forget (or more likely,
choose to ignore) is that investments can be just bad investments.

Uber is a bad investment. There is no barrier to entry in ride sharing.
Drivers can install multiple hailing apps. Riders can too. Building a real
time ridesharing engine is not hard - I did it once as a prototype years ago
but it was unfortunately in the pre-smartphone era and you had to find ride
matches using your regular computer.

So central banks print money in order to buy up safe investments. That forces
institutional investors to pour their money into risky investments like
venture capital firms. VC firms look around at a field with slim pickings but
that torrent of money has to go somewhere, so it ends up being used to fight
vast unsustainable price wars. And in the end people's savings that they will
depend on in retirement don't end up invested in productive assets that'll
yield ROI into the future .... their money ends up subsidising a 10 minute
taxi ride and being lost forever.

The people who run Uber may feel that they 'have' to do this otherwise their
competitors would do so instead, but that just reinforces how hopeless the
situation is: they know perfectly well that their main competitive advantage
is illusory, or at best, is merely a result of better access to capital flows.
All it'll take is a sustained set of interest rate hikes and the end of QE,
and suddenly Uber will have to charge the real underlying market rates. How
will it end?

~~~
michaeldunworth
I'll tell you exactly how it will end.

Uber will be one of the first companies to a $1T valuation. (First two will be
Facebook and Apple).

Here's why. Uber isn't about ride-sharing, at all. Uber is about rewriting
your idea of needing a car. The market they're going after is literally
automotive industry.

So right now, they're burning money hand over fist, but they don't /need/ to
be doing that. It's a strategic choice, to drown their competitors (see
Amazon, that's exactly what they do by tapping good sources of financing in
the past). Uber will continue to do so until it is not viable to compete with
them.

The only companies that will be able to compete is one with infrastructre and
rivers of gold. Google. Google owns all the data of Ubers (maps), and they've
got everyone on their own maps, they've got hundreds of millions of users that
are tied into a google profile in some capacity (gmail/youtube/etc...) and a
lot with linked credit cards. This makes for the biggest threat to Uber.
Google can afford to lose, and Uber not buying Lyft is going to be the only
potential down fall of the company. If Google buys them (which I don't think
they will) then that is the headshot on Uber unfortunately.

Back to my point, basically Uber is going to burn and burn while capital is
cheap, and force other players out. Makes sense. They can stop subsidizing
their rides for users once they've bullied out the others, and there we end up
with decently priced normal rides (Which is still ridiculously better in price
and experience than a taxi). But by the time this happens (3 years-ish)
Autonomous vehicles will be making their ways into cities at much more
capacity. This will reduce their costs significantly, and all these price
points they have which they have to pay for, will pay for itself by autonomous
tech (instead of just forking out their own money to make our rides $5, the
lack of labor because of the autonomous vehicles will force the COGS down
essentially).

People will have a huge uproar at Uber for creating and then cutting hundreds
of thousands of jobs (the drivers) - But their service and value add of an
autonomous driving network will wash away everyones humanity side because it's
just "too good". Leaving them in the tallest tower in the city with a
penthouse office and a cat sitting on Travis' lap while he looks out the
window down onto his autonomous city laughing in an evil tone.

$1T company, without fail.

RE Groupon: Groupon as compared to in the article is a different situation.
Groupon had minimal barriers to entry and is only a sales machine. People,
people, people, and more people were needed in order to bring in the next
deal, the next bargain, etc... Uber is absolutely incomparable as they have an
innovation in technology, financial defensibility, and humungous footprint of
recurring revenue. Groupon had none of those so I feel the article writer
putting that out there doesn't seem like a just example. The only thing they
have in common is that they're losing money.

~~~
JonFish85
Why Uber? What do they really have, at the end of the day? They're one of
several companies investing in driverless cars. They're competing with
companies that have cash cows (e.g. Google and Apple) as well as companies
with a century+ of car-making experience, from the ground up. Uber has a cool
app and some name recognition.

If/when self-driving cars are a thing, why does anyone need uber?
GM/Ford/Toyota/whomever all make their own cars and will presumably make the
cars of tomorrow. If not, Tesla would be a solid bet. Again, all companies
that MAKE cars. Apple & Google are probably betting on their technology being
better and licensing it to manufacturers. Why would Uber have a better shot at
any of this than the other players? They have a slick app and have
successfully found a grey area where they push most liability and upkeep costs
onto their not-employees. In some markets, by some measure, maybe they're
profitable.

Now what? To get to $1T is either going to take a monumental shift in
everything they've accomplished, or it's going to take some silly investors
(or financial tricks). I'd say it's much more likely that in 15 years we look
back at Uber as something closer to WebVan than they get a $1T market cap.

~~~
michaeldunworth
The value of Uber is not in it's app, it's design or any of that. That's all
bs cosmetics stuff. The value is in it's execution, infrastructure, and
processes.

Tesla - Doesn't make nearly enough cars to even be considered in the same
spectrum of any other of the players. Autonomous, great. Ride sharing/micro-
logistics infrastructure? Not enough strength unfortunately.

GM/Ford/Toyota - Great, they've got cars, let's say those cars are autonomous.
Now what about the logistics management that they've got zero experience in?
Uber has serviced millions of rides and learned and learned from that. The
tech is not enough, the experience/data is what counts imo.

Any company looking to just "jump in" because they've got money and a car, is
going to get vaporized, unless they've got data and resources (Google being
the only one that fits this mould imo).

Just how Facebook and Google got vaporized in the "daily deal" market. They
had more access to the businesses, and more access to consumers than the daily
deal sites ever could. Yet they struggled to find any kind of market share.
Another example is Google Shopping.

Resources aren't the only thing needed, experience and processes. Which is why
I say that Google is a threat, but if they're buying out Lyft. Otherwise,
Google will potentially compete, but more than likely cater to a different
segment than what Uber does.

Time will tell I suppose :) Definitely see what you're saying, but I just
don't think you're focusing on the most valuable pieces of Ubers business.

Either way, we're very fortunate to even be in a position to discuss such cool
stuff! Exciting for sure :)

------
Pharylon
Why does Uber keep keep getting called a "ride share" service? Passengers
don't share the ride with other customers. The driver wasn't already going in
that direction. It's just a simple transaction. I'm paying X dollars to
someone to drive me to Y place. It's a cab with an app.

Uber is "ride sharing" like hiring a carpenter is "hammer sharing."

~~~
joosters
It's because "sharing" sounds really good. Everyone knows that it is kind to
share, so lots of companies try to stick the word on to their own business.

I hate the way that any company with a vaguely peer-to-peer business model
calls themselves 'sharing', or 'part of the sharing economy'. It's not just
Uber. e.g. Zopa (a p2p loans company) describes itself as 'sharing', but it's
a business where people lend money to others for a fee. AirBnB claims to be
'sharing', but at it's core, it is little more than a hotel booking system.
Taskrabbit gets described as 'part of the sharing economy' but no-one is
sharing anything, you are paying for workers to do chores.

Since when has sharing involved making a profit by charging users?

~~~
pm90
I had a similar thought when I saw a person working for a company called favor
([https://favordelivery.com/](https://favordelivery.com/)). The dictionary
definition of favor: a kind or helpful act that you do for someone.

~~~
personlurking
unless one is a politician or a mobster, of course.

------
parfe
Uber's insane valuation hinges on growing from a cab service into a Dominoes
competitor? A Peapod competitor? A Zipcar competitor? An Amazon competitor?
All of them? It just seems so improbable that one company would capture every
single market segment that falls under "Cell phone app to get things in near-
real time"

~~~
AJ007
It hinges on them getting public transportation agreements locked down with
cities before Google or Tesla do. Imagine a major city where 80%+ of the
vehicles are run by a single company and the rest are paying a toll to be on
the road.

Uber doesn't appear to be any more overvalued than stocks and bonds, broadly.
It may be a big gamble but so is buying $1 billion of bonds that yield .25%.

~~~
JonFish85
"Imagine a major city where 80%+ of the vehicles are run by a single company
and the rest are paying a toll to be on the road."

Wait, what? Is that really the goal? Is that even legal? I guess the closest
approximation of that is legal monopolies for companies like the telecoms and
maybe utilities like electricity & gas, but I doubt if Uber et al. want to be
treated like that?

~~~
AndrewKemendo
Of course it's the goal. Every company should have a goal of being a monopoly
in what they do (big or small) it ensures the highest efficiencies.

~~~
JonFish85
But they're not your standard monopoly in the sense that they can charge
anything they want. The city retains at least nominal oversight on what they
charge. If it's a utility, they're subject to more scrutiny than is probably
worth it. And even if we get to a point where such a monopoly exists, Uber
isn't really in a position to bring much to the table that
Ford/GM/Honda/whoever can't also do easily.

~~~
Fricken
Uber wants to become public transportation. To become infrastructure. They
want to get their hooks in before anyone esle has a chance. Their labour will
organize. They'll be regulated as a utility. They'll be too big to fail. The
government(s) will subsidize them.

In theory, with autonomous vehicles, public transportation will be 10x what it
is today. Maybe even 100x if private vehicle ownership goes the way of the
dodo.

Their Otto aquisition signals an interest in shipping. With the right kind of
network effect, they could be in charge of everything that moves. You can't
get to that kind of scale unless you merge with the state.

That's the plan, anyhow. We'll see how it plays out.

~~~
prostoalex
One needs a core advantage that's exclusive to them to become such a monopoly.
In other words, not only they must win, everybody else must lose. What's the
core advantage that other players won't be able to replicate?

~~~
Fricken
Scale and mindshare, more data, and the ability to operate with slimmer
margins, or to operate at a loss in any local market long enough to muscle out
competition- which they already do.

Uber has the same kinds of advantages that Google, Amazon, Facebook and
Starbucks have in their respective domains.

~~~
prostoalex
Existing taxi industry got upended by Lyft, which then got upended by UberX. I
think the value of mindshare is overestimated, and most consumers will happily
jump the ship for whatever is more convenient.

Scale is a competitive advantage in homogeneous markets. But even if you're
the most efficient ride facilitator on the streets of New York, this does very
little to someone looking for a ride in Des Moines or San Sebastian.

------
allendoerfer
Or it just exposes Uber's strategy to throw money at the problem to capture
the market first and solve _details_ like legality or profitibility later.
Which is kind of what you have to do when you have billions lying around and
investors that expect you to multiply them.

~~~
ethanbond
> Which is kind of what you have to do when you have billions lying around and
> investors that expect you to multiply them.

Which is also part of their awful strategy that they _didn 't_ have to do.

~~~
allendoerfer
We cannot tell yet whether it was awful or not. As we all know, many of the
really big ideas looked awful.

------
endswapper
The post has a misleading headline.

It doesn't expose anything and mostly just whines about Uber's valuation.

If anything it underscores the challenges of disruption and the fluid nature
of the on-demand services.

It may even be a case for opportunity in the space because this seems to
indicate that people want it, but no one has gotten it right, yet.

I don't know if this is a conclusion or an indictment, "It’s increasingly
obvious that Uber’s $69 billion valuation makes sense only in a world where
it’s the only player in town—with workers who are either squeezed or replaced
with robots." Either way, it's silly.

~~~
fu9ar
Do you realize that Uber and Lyft drivers are often making below minimum wage
when you account for their costs? The only way they are getting drivers is by
offering fat bonuses to both parties for driver referrals. The entire business
model is unsustainable and now Uber is hemorrhaging money because all of their
drivers figure this out, drive enough to get a bonus and move on.

~~~
jonknee
Do you realize that most Uber drivers aren't working it as a full time job?
They're working when they have downtime and can make a few bucks.

~~~
JonFish85
"Do you realize that most Uber drivers aren't working it as a full time job?
They're working when they have downtime and can make a few bucks."

Isn't the entire point of "minimum wage" because of thinking like this? Most
people working at McDonalds making minimum wage aren't doing it full time
either. The minimum wage laws are trying to enforce that a person's time is
worth a minimum amount, regardless of the total number of hours worked.

~~~
mamon
Not all jobs are supposed to pay all your bills and mortgage. McDonalds and
similar jobs are there for students and other people who want just part-time
gigs paying some additional cash for their non-crucial expenses. Such jobs are
supposed to be temporary, therefore there's no point in enforcing minimum wage
for them.

~~~
fu9ar
Thanks for the neoliberalism in a nutshell post. Go ahead, bury your head
deeper up your own ass instead of dealing with the reality of the economic
situation in which we all find ourselves. I got a job as a "temp" once. I was
working full time second-shift in a fucking factory, doing RMA services for a
major laptop and tablet manufacturer. I was doing advanced troubleshooting and
repair, with no benefits or security. Capitalists are, en masse, exploiting
this stupid idea that somehow, people should be paid less for the same work
because of what they intend to spend their pay on?

------
gt565k
Last I checked Uber poached like 40 staff members from Carnegie Mellon's
robotics lab.

[http://www.wsj.com/articles/is-uber-a-friend-or-foe-of-
carne...](http://www.wsj.com/articles/is-uber-a-friend-or-foe-of-carnegie-
mellon-in-robotics-1433084582)

They have driverless cars out on the streets in Pittsburgh to gather data.

How are they not innovating again?

------
zxcvvcxz
Don't people see that this is analogous to China's steel dumping?

[http://www.industryweek.com/global-economy/aisis-gibson-
chin...](http://www.industryweek.com/global-economy/aisis-gibson-china-has-
get-out-steel-business)

Lower your prices, dump your product, try to bankrupt the competition, then as
sole market leader raise your prices.

------
jonathanjaeger
Freakonomics covered Uber in one of their recent episodes and a study claimed
that there was a consumer surplus, with people willing to pay 50-60% more for
Uber than they were otherwise paying. Curious if it would actually play out
that way if they had a monopoly AND raised prices that much.

[http://freakonomics.com/podcast/uber-economists-
dream/](http://freakonomics.com/podcast/uber-economists-dream/)

~~~
erispoe
Kill the competition now, reap the customer surplus later.

------
apatters
I think Uber's future hinges on two things:

1\. Whether they figure out how to cut costs with driverless automation

2\. If not, how many people will keep using them when fiscal discipline is
inevitably imposed and prices go up.

They are in a tough spot. Without driverless cars they are a commodity service
in a market with low barriers to entry. But no one has yet pulled off the type
of driverless they need - _no actual human in the car who needs to get paid._

~~~
JonFish85
As much as people seem to think "driverless cars" are obviously Uber's future,
it's a pretty monumental change to their business model.

It seems that their model now is to own essentially nothing; drivers own the
cars and are responsible for 100% of the upkeep/maintenance, costs of
insuring, etc. If that changes, where does that leave Uber? Are they going to
own the cars? If so, that's a tremendous capital investment, which is
something they've specifically avoided as much as possible. If they don't, and
they just remain a brand name, then it's likely that someone like
Ford/GM/Toyota/whomever will eat their lunch if cars are just on-demand and
self-driving. Uber offers very little in that world.

~~~
nerfhammer
It seems to be w.r.t. self-driving cars Ford et al will just offer "Fords on
demand" etc and not need Uber. The self-driving car is the hard part, not the
app. Network effects are a lot less of a barrier to entry if you don't need
drivers.

------
tn13
I think Uber has complicated what is a simple business. It connect Taxies and
Riders. I have never understood Uber's insistence to build a back office
around it. Why not just act as a platform and let all taxi companies,
independent drives etc. use your cool shiny app ?

Uber should have been more like Yelp. Something that connects rider and
drivers while letting riders know what to expect. At the moment it is like
Yelp that wants to run all the places listed on their website.

Besides there is absolutely nothing Uber that might help them be a monopoly
that a service like Google or Facebook is. Since they have made themselves a
physical company they have exposed themselves to politics that will destroy
them at least in some markets.

------
rubicon33
As someone who is extremely excited about the prospect of self driving cars, I
have to say that I love the situation Uber is in.

They're flush with cash, and on a timeline to innovate. They NEED a solution,
and they need it soon. An autonomous vehicle is their ticket out of this mess,
and they know it

------
Animats
From the article: _" The company is primarily engaged in buying a monopoly to
justify its status as the highest valued start-up on the market."_

That's it in one line.

------
aitn
A huge subsidy is the illusion drivers have of making more per hour as they
extract equity from their vehicle. After about six months the reality of
vehicle costs sets in but Uber can refresh with new drivers. Stupid newbie
drivers will be depleted from market in a few years.

------
M_Grey
I wonder if they just thought that when they had enough market share, they
could pressure regulators into folding? That seems so shortsighted and
unlikely though, I find it hard to credit the idea. I'm not sure what the
alternative explanation is though.

~~~
uptown
I believe part of their positioning is to become beloved by regulators. Become
part of the routine of the politically elite in Washington, and you're more
likely to have favorable laws passed. Whether they're able to scale this to
less-friendly jurisdictions is an open question.

~~~
M_Grey
They certainly missed the mark in China at least.

~~~
prewett
That was inevitable. I don't think you can be a foreign company and become
"beloved by regulators" in China.

(There are some good reasons for China to favor Chinese business, but it would
be nice if they were honest and acknowledged that, instead of pretending like
everything is fair when it's not.)

~~~
M_Grey
Agreed on all points, but the inevitability makes the years dropping of a
billion USD seem even more insane.

------
mark_l_watson
I am reading the book "The Sharing Platform" right now and it has a lot of
discussion of Uber. I have mixed feelings about Uber's business model: as an
occasional user when I travel to large cities I think that Uber provides a
great service inexpensively; as a business model, I find it disturbing that
heavy investment is used to temporarily keep prices low. I suppose it is
common to 'buy into a market' but in Uber's and some other platform companys'
cases I think it is getting to extreme.

~~~
readhn
if it looks like a duck, if it walks like a duck....

UBER is on its sure way to bankruptcy, the model is not sustainable.

------
realworldview
The über economy may be disappointed to hear about the anticipated surge in
home-based working and local property redevelopments to support family-
friendly working ours and distances. Can't wait for über buses though.

------
elmar
And when there is a swift to driveless cars the business model economics is
totally diferent, Uber will have to spend billions on a fleet, drivers costs
will be replaced by fleet costs.

~~~
abvdasker
This would be a best-case scenario for them. While personnel costs will stay
the same or increase fleet maintenance costs will only decrease over time as
driverless tech gets cheaper. If they get to the point where their dominant
cost is maintenance of an autonomous driving fleet they will have won the
competition for the future of transportation which is today in its infancy.

------
tn13
Ride sharing is like airlines. Even thought the providers might make huge
losses and little profits I think it serves a very legitimate and real need.
It is here to stay. I only expect their shine to go down a bit. More opaque
pricing, more penalties etc. etc.

------
jokoon
I was delighted to learn that Uber raising money means subsidizing their
prices.

Still wondering why nobody has created a geo localized, mobile version of
Craigslist.

------
naveen99
anybody use a cheuffer service for your car instead of uber ?

[http://www.bemydd.com/](http://www.bemydd.com/)

[https://idriveyourcar.com/](https://idriveyourcar.com/)

------
victor9000
It's pretty funny to read this headline.

I interviewed with them about 3 months ago for a Senior Engineer position. I
aced all the design, coding and algorithm questions and then spent an hour
brainstorming the ways that Uber can improve the quality of life in a city.
The brainstorming question was super ambiguous, so I explored lots of
different angles and kept the conversation pretty high-level. I was rejected
because "We have a really high bar and we expect good problem solving at the
business level". Really? You want Senior Engineers to implement business
initiatives? Yeah, ok. I'll say this much, burning through a billion dollars
doesn't sound like good problem solving at the business level to me.

~~~
Kiro
Pretty sure you didn't ace anything. The fact that you think you did shows
that they made the right choice.

~~~
enraged_camel
What an odd comment. Are you familiar with his situation?

~~~
Kiro
Familiar enough to know that if he really would have aced the interview
there's no way they would have dismissed him for that reason. The fact that he
blatantly and hubristic claims he aced it adds to the warning signs.

~~~
victor9000
You have no idea of what you're talking about.

------
readhn
RIP Uber. 8/29/2016.

posted by readhn 16 days ago on: Google Takes on Uber with New Ride-Share
Service

~~~
ethanbond
Really? Is anyone expecting a successful product to come out of Google anytime
soon?

~~~
Synroc
I've personally given up on new Google products becoming successful for a
while.

