
The true cost of an Uber ride is higher than it seems - aaronbrethorst
https://motherboard.vice.com/en_us/article/9a3vye/uber-true-cost-uh-oh
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valuearb
The Naked Capitalism analysis was a joke, and there literally is no evidence
supporting their conclusions.

Imagine Uber issues a financial report saying they lose $3B in a year on $2B
in revenues (total spending $5B). We also know they opened over 100 new
markets that year, and in new markets spend an average of over $100 each to
recruit new drivers.

So what’s the truth? That passengers are only paying 40% if Uber’s ride costs?
Or that Uber front loaded billions in new market development costs
internationally, while more mature markets like the US are already close to
profitability?

Naked Capitalism would have you believe the first scenario, without enough
detail in Uber financial reports to give any idea which scenario is true.

Some of us despise Uber so much, that unfounded speculation by NC tells them
what they want to hear, so they turn off all critical thinking about it.

Not only does this article ignore rapidly improving Uber financials since the
NC takedown, but that booking a ride costs Uber pennies. Their share of the
ride revenues is dollars. How is that not going to be super profitable once
new market development costs ramp down?

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kesselvon
No one has ever shown that economies of scale exist in the taxi/ride-share
industry.

~~~
valuearb
Having a fully automated dispatch system that requires no phone operators, and
with its development/operational costs amortized over worldwide markets 100x
the size of any individual taxi market is a huge increase in economy of scale.

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chairmanwow
I'm not sure that I buy the logic of "Winner take all" in the TNC space. The
service is intrinsically localized. There were competitors in NYC that I had
never heard of before after living in SF, and SF companies that New Yorkers
had never heard of. Furthermore, their is little efficiency to operating such
a business at scale. The marginal cost of each ride is the same. I can see
some strong network effects from travelers, but that doesn't prevent a service
from cropping up in a local market that can compete with Uber.

All of the scenarios that I see where Uber can grind out competitors is by
continually operating at a loss? I would imagine that eventually investors
would tire of such a position.

~~~
saimiam
Wait till Uber (and others) launches a rewards points system. All they have to
do is to give regular riders some multiple of their number of completed rides.
People will willingly lock themselves inside the Uber World network to earn
points. Leading the charge will be people like The Points Guy.

Then comes co-branded credit cards.

The endgame is to replicate the airline industry - 4-5 companies controlling
everything.

~~~
jedrek
But where are the profits? Uber is already subsidizing rides, while cabs and
cab companies have to turn profits. Trying to build loyalty with points just
increases Uber's costs, as they can't push that off onto drivers. Retaining
customers and increasing ridership by increasing loss per trip is not a
sustainable model.

Ride services are completely different from airlines, if only because the
capital outlay is incomparable. You could run a ride sharing business and get
two hundred drivers driving around New York by December for 250k. That won't
even pay for a single flight crew for a year, much less a plane to put them
in.

~~~
ghaff
Furthermore, pretty much by definition, pretty much all airline passengers are
travelers. Some car hire users are travelers. Many are just people going out
for drinks in their local city.

I assume the mix varies by locale.

I don't use taxis etc. a lot when I travel but if I did a single goto brand
would be useful. Locally, if Bob's app was the best local taxi service, I
don't really care if someone else operates in 500 cities worldwide. (Just like
I don't care that the car service I use to get me to the airport covers only a
slice of even my local area.)

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tristanj
> _Uber passengers were paying only 41% of the actual cost of their trips ...
> That means your $25 trip into Manhattan from Brooklyn should actually cost
> around $60. Investors in the private company are currently footing the other
> $35 (most!) of your fare._

Ehhh I don't buy the thesis. The author is suggesting all Uber rides run at a
loss, but Uber makes a killing on some rides. Not every ride is subsidized,
I've paid $60 for a 20 minute ride through LA during surge pricing, and I'm
certain both Uber and the drive made a profit off me. I've seen stories of
$300+ Uber rides too. There's no way Uber and drivers don't make money off
these.

I know many rides are subsidized and Uber loses some money on them, but
implying Uber's business model is a failure based off average cost is a
fallacy.

~~~
onlyrealcuzzo
Looks like the author is being intentionally deceptive. Uber lost $1.27bn
globally (mostly in China AFAIK), but only $100m in the US. The author spent
all his time talking about the US, and then tried to group the global loss
onto the price of all rides. Not all rides are equal. Not all loses come from
driver wages. Big overhead and marketing costs trying out the Chinese market.

Uber booked well over 100M US rides. I think 400M, but I can't find a reliable
source ATM. You do the math. Uber rides don't cost an average of $2 in the US.
Uber isn't paying 50% of our bill in the US.

~~~
towelrod
This article is based on a naked capitalism article [1] from 2016. That
article adresses the China criticism under the section:

"Uber Losses Not explained by Uber China and No One Can Explain How
Profitability Can Be Achieved"

The losses covered in that article don't include anything from China.

[1] [https://www.nakedcapitalism.com/2016/11/can-uber-ever-
delive...](https://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-
one-understanding-ubers-bleak-operating-economics.html#_edn4)

~~~
valuearb
The Naked Capitalism “analysis” never broke down how much Uber spends opening
new markets vs. it’s costs in mature markets. Their conclusions are totally
farcical.

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pyrale
> "This is critical because it suggests we're dealing with a charity case in
> disguise."

Since when has dumping become "charity in disguise" ?

~~~
conanbatt
Dumping IS charity.

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newscracker
In my opinion, the true cost of a Uber ride is much higher on society, rules,
ethics and other aspects. The money that Uber loses (or the rider gains) isn't
even on my radar. Massive VC funding, "winner takes all" assumptions, and the
primary goal being "acquire the entire world market" are propelling many
companies forward and making our world a comparatively worse place (when
looked at along side benefits).

~~~
an_account
In the case of “ridesharing”, how is it making the world a worse place?

It’s not clear that this market is winner take all. Rides are very cheap for
consumers on Uber or Lyft. The experience is MUCH better than cabs in every
city except maybe NYC. Drunk drivers are reduced.

So far it looks like the loser is going to be VCs. What’s wrong with that?

~~~
kesselvon
Turns taxi industry into a subsistence workforce. Uber drivers get screwed in
the equation once you factor in all the costs and depreciation, then uber
sucks up the profits and takes them out of local communities.

The sharing/on-demand economy is incredibly cruel to the 1099s doing the heavy
lifting

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devdad
This is so absurd - a company that loses $1.27 billion is seen as a market
leader. Only in tech is this a possibility. A manufacturing company would be
closed for years before they can even achieve such losses.

~~~
amelius
Their pricing scheme is also illegal or of dubious character, [1]:

> Predatory pricing (also undercutting) is a risky and dubious pricing
> strategy where a product or service is set at a very low price, intending to
> drive competitors out of the market, or create barriers to entry for
> potential new competitors.

> ...

> Nowadays predatory pricing is considered anti-competitive in many
> jurisdictions and is illegal under competition laws. However, it can be
> difficult to prove that prices dropped because of deliberate predatory
> pricing rather than legitimate price competition. In any case, competitors
> may be driven out of the market before the case is ever heard.

[1]
[https://en.wikipedia.org/wiki/Predatory_pricing](https://en.wikipedia.org/wiki/Predatory_pricing)

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otakucode
>"Uber passengers were paying only 41% of the actual cost of their trips; Uber
was using these massive subsidies to undercut the fares and provide more
capacity than the competitors who had to cover 100% of their costs out of
passenger fares."

Wouldn't that constitute very clear violation of the Sherman Antitrust Act and
be considered profound anticompetitive behavior? I'm fuzzy on specifics, but I
thought offering your product at a loss to drive away or outlast competitors
was one of the big giant no-nos alongside price-fixing. Is the person doing
the analysis just interpreting the numbers in that way because they're not
showing a profit? Or, in other words, would the FTC be likely to interpret the
situation in the same way?

~~~
yjftsjthsd-h
I could very easily be wrong, but I thought that only counted if you were a
monopoly or coordinating with other companies? I mean, it's the "Antitrust"
act. Would love it if anybody could clarify this.

~~~
gnicholas
Correct. You can only get in trouble under antitrust laws if you're a big fish
in the "relevant market". Defining this term is generally where all the
fighting centers, because it makes or breaks the case. And in the case of
Uber, they would argue that cabs are part of the same market. Including cabs
(and not just Lyft) would make the market big enough that Uber would not be
considered to have monopoly power. (Even with just Lyft, this is probably also
the case.)

Source: I was a summer law clerk for the antitrust department of the CA DOJ.

~~~
otakucode
The Sherman Antitrust Act has a great deal more in it than only defining
monopoly powers. No business is permitted to engage in price-fixing,
regardless of size, and that is due to that act. Many other anticompetitive
practices are defined in it as well, and also apply to all businesses deemed
to be engaging in 'commerce'. I'm not talking about claiming Uber is a
monopoly at all, just that their actions (as described by the article) sounds
to me like anticompetitive practices that are illegal under the act.

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wskinner
This is 10 months old. Can we add a (2016)?

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zurn
What's the "actual cost" they compare to? It needs to include environmental
externalities like CO2 contribution to global warming.

~~~
vixen99
And there's endless debate about what that is. If you disagree with that
statement then please give a definitive universally-accepted (by those able to
assess the methodology) value for the climate sensitivity. There isn't one.
Currently as far as I can tell, values up for that debate range from < 1 to
5.5.

~~~
fulafel
That applies to costs in general though. Prices are noisy signals. But there
is price information available in co2 credit trading systems.

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graycat
Yes, maybe Uber loses money on each ride, but they make it up on the volume?

