
Uber Eats Is Uber Costly to Uber - prostoalex
https://www.eater.com/2019/5/1/18524180/uber-eats-ipo-sec-filing-restaurant-food-delivery-app-profits
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ohiovr
If they raised rates few would use the service. The costs are inflexible. So
making it up in volume is still funny like the joke was in the 80s. "losing
money on every sale but we're making it back in volume".

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mimixco
Uber has no viable business model and no way to make money. Their approach to
taxi service has none of the economies of scale of a traditional taxi service.
It's a loser from the get-go.

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wahern
Uber doesn't have the capital costs of a traditional taxi service, which are
born by drivers, so in a sense it has infinite economy of scale.

In a perfectly free market the fact that these drivers are individually paying
a premium for their cars would matter, but that free market doesn't exist and
never will. And if you factor in risk diversification (across many drivers) as
it relates to the cost of financing, I'm not sure the overall capital costs
are much more expensive for the Uber model. Uber has figured out how to turn
humans into security for financing capital assets. The only other examples I
can think of off-hand are employee life insurance schemes and slavery.

Some quick Googling tells me that Uber's proposed IPO at ~$100 billion is 10x
their ride-hailing revenue at ~$10 billion. Nothing seems fishy or
unsustainable about that. Their ride-hailing system is mature and could likely
be made quite profitable (if not already) if divorced from their other
ventures.

That said, I don't like Uber. I always walk to the cab stand if I can. If it's
too late at night that the stands are empty, or I want to use up my free AMEX
credits, I'll hail a licensed cab from the Uber app. My experience in San
Francisco is that regular cabs are cheaper, anyhow, notwithstanding the Uber
app's grossly inaccurate estimate. Plus, even as an adult male I'm not keen on
jumping into random strangers' cars. Cabbies are licensed and undergo more
rigorous background checks.

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mimixco
The economy of scale in a taxi business comes from owning a _fleet_ rather
than a single vehicle, making the vehicle's purchase and maintenance less
expensive than what you or I would pay. This isn't possible when each driver
has to buy and service his own car at market rates.

The economy tops out at a certain point, after which is isn't beneficial to
expand the business further -- which is why taxi companies are local and
regional. If more money could be made by having a national taxi company,
someone would have done that already.

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wahern
Right, but Uber doesn't have to pay for that fleet. And even though each
individual "contractor" effectively pays a premium over what a volume
purchaser could do, because each driver (1) would need and can use the car
personally, anyhow, (2) can either leverage their own personal assets or
otherwise benefit from our car centric culture that makes individual financing
relatively cheap, and (3) is willing to eat the premium because of labor
economics which favor employers, it doesn't actually put Uber at much of a
disadvantage, if at all. Arguably it puts them at an _advantage_ to
competitors, even if the sum of vehicle acquisition costs is greater than a
hypothetical competitor at that scale.

Emphasis on hypothetical, which alone should be a huge clue about the
underlying dynamics relating to capital financing, firm size, and
transactional costs. Uber exists and their ride-hailing business is clearly a
success. It couldn't possibly cost $10 billion/year to maintain their
smartphone app and backend IT services, not in a sustaining mode. Economics
101 doesn't suffice to explain the situation. Uber's business exists past the
threshold where the transactional costs (regulation, financing, firm size) of
non-perfect markets result in outcomes that contradict classic economic
models.

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mimixco
Here's a good take on it:

[http://nymag.com/intelligencer/2018/12/will-uber-survive-
the...](http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-
decade.html)

Also mentioned in that story is a link to Hubert Horan's excellent multi-part
series "Will Uber Ever Deliver?" It was that series which convinced me of the
arguments I'm presenting.

