
Beautiful illusions: the economics of uberX - aetherson
http://justin-singer.org/blog/2014/06/beautiful-illusions/
======
dnautics
I've been lyfting full time for 4 months now, I estimate my annualized income
at around 45k, not 90k. It's still better than being a postdoc. (less hours,
more gross pay)

Incidentally, at 4 months, I've already put on 30k miles, although ~25% of
that is personal and of the remainder, 50% are profitable, 50% are not.

I drive a honda insight (35 mpg while lyfting) and including maintenance, I
estimate operational costs to be around $0.30/mi, my average income floats
between $1 and $1.5/mi. I also get a $0.55/mi federal tax income deduction,
which means that about a third to a quarter of my income will not be
taxable... I consider that to be a reward for having the foresight to purchase
a hybrid years ago.

~~~
dnautics
In an additional benefit over being a postdoc, I set my own hours and don't
wake up to an alarm, which I think has resulted in a marked improvement in
mood and health. Although I work from 11pm-3am many nights out of the week, I
get to sleep in _every day_.

The biggest challenge is that the hours when friends are likely to want to be
social are also prime money earning hours, so I'm constantly assessing
opportunity cost when choosing when to be social. And I've already taken one
vacation, a week and a half, I thought making no money would be stressful, but
it turned out to be less of a problem than not having my laptop (which got
left behind in the TSA line). Like many things in life, it just takes careful
planning and saving money beforehand.

~~~
SeoxyS
Doesn't the lack of intellectual challenge in your work stress you? I don't
think I could do such a mundane job and still feel fulfilled. (I mean that
without an ounce of judgement—just remarking about the shift from academia /
high education to "unskilled" labor)

~~~
hashbanged
It sounds like being a postdoc stressed him.

~~~
shiven
Being a PostDoc has its highlights, but mostly, it sucks, especially in life
sciences, due to pathetic pay, unstructured hours and the suckiness is
generally impossible to convey to someone who has never been one. Just 'cause
it's research don't mean it's rainbows and ponies.

Source, I'm one.

------
dgreensp
I've been riding Uber since October 2010, and I've chatted with plenty of
drivers. Many of them used to be taxi drivers and have told me about how much
they prefer driving for Uber. They also tend to be very happy with their
income. I remember in particular one recent driver's big grin as he raved
about Uber and praised Travis the entire ride for letting him, his wife, and
his two kids live such a great lifestyle. His wife would even take the car out
and do some Uber driving once in a while while he spent time with the kids.

The calculations in the article seem to be based on just a couple numbers --
such as the 40,000 miles per year that Uber gave for the purpose of cost of
ownership calculation, which is used to try to calculate the hours drivers
work and the fare they earn per hour. Some real numbers about fares earned
would help here. The conclusion is not clearly stated in the "Conclusion"
section, but here's my interpretation: If you make certain assumptions about
an uberX driver, you find they make about as much as a typical taxi driver.
This suggests that driving uberX instead of a taxi does not automatically put
you in a completely different income bracket, but I think the devil is in the
details. Obviously the spread between different drivers is much, much larger
than the spread between taxis and uberXs. If we made a histogram of income for
each and superimposed them, they would be two humps with a lot of overlap. It
would be more interesting to know, for example, how the jobs of top-earning
uberX drivers and top taxi drivers compare.

Then there are implications that Uber is another Groupon, and its financial
success is dependent on a steady stream of investment dollars. Well, Uber is
making plenty of money. They write software and do operations and the money
just pours in. Every user is a paying customer, and the vast majority of users
come away satisfied and happy to have a better way to get from point A to
point B. The drivers make money and are thrilled. Some people take Uber
literally every day. Seems like a pretty good business to me.

~~~
jnks
You're arguing strawman points the article doesn't make. The primary claims I
see are

1\. Uber drivers don't make as much as Uber PR claims (based on data Uber
provided).

2\. Uber the business doesn't seem to be wildly profitable, or at least not in
a defendable way (based partly on data Uber provided).

3\. The large amount of capital being injected into Uber are not indicators of
growing real value, but instead indicators of a weaker-than-acknowledged
business.

It's possible for all of the above to be true but for drivers and riders to
both be very happy with the service. Especially since UberX seems to be
offering rides for below market prices but the drivers are getting switching
bonuses and per-hour guarantees (see elsewhere in this thread).

~~~
tkfu
Also, "I talked to somebody currently working for this company while they're
at their job, and they told me it was great" is not exactly a very reliable
way to get data.

~~~
mseebach
No, having them voluntarily start gushing about how great it is is better.

Also, who is the boss/supervisor who would fire or penalise the driver for
saying it's not great? More importantly, since there no strenuous and
expensive licencing going on, it's simple to just stop being an Uber driver if
it doesn't suit you.

~~~
bildung
> Also, who is the boss/supervisor who would fire or penalise the driver for
> saying it's not great?

From the view of the driver it could be you: It's not that uncommon for
corporations to test employees like that using HR people disguised as
customers. I have no idea whether Uber does that, though.

------
chromaton
This guy gets his supposedly objective information about taxicab deregulation
from a handful of studies of the taxi deregulation done in the 1960's and
1970's. In particular, he quotes from a paper [1] by Paul Dempsey from 1996 to
come to the conclusion that taxi deregulation yields poor results across a
variety of metrics.

Well, I actually read the Dempsey paper after reading this blog post, and I
have come to the conclusion that the poster is deliberately misrepresenting
the contents of that paper. Nearly every negative effect mentioned does not
apply to Uber/Lyft.

For example, an increase in rates is mentioned in this blog post as being an
effect of deregulation. In the Dempsey paper, this is attributed to new small
time cabbies taking fares at cabstands, hotels, etc. These drivers, in an
attempt to overcome the increased competition due to deregulation, would raise
their rates. Riders had no easy way to compare rates or get an alternate ride.
This simply doesn't apply to Uber/Lyft, as you can see the price right away
even before the car shows up.

Another example: the paper also mentions increased congestion and pollution
due to the increased number of taxis on the road. In the 1960's and 1970's
this made sense as taxis would cruise the streets looking for people to pick
up or possibly wait with their engines on at taxi stands. Again, modern
ridesharing services don't have this problem.

The Dempsey paper also mentions many negative effects from new entrants into
the taxi business during deregulation not being radio dispatched due to its
high startup cost. But every ridesharing service is "radio dispatched".

I could go on like this, but in general ridesharing services increase the
amount of information that consumers have, thus allowing the market to work in
a way that it couldn't 50 years ago. This blogger completely ignores that, and
just skips to the conclusions.

[1]
[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241306](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241306)

------
rayiner
> I should point out that the insurance costs here are surely low — although
> Uber encourages its uberX drivers to find “standard vehicle insurance” as
> opposed to livery insurance, the coverages required are nearly impossible to
> find, especially for someone with poor or no credit working 70 hours a week
> as a cab driver. Meanwhile, taxi insurance in NYC can run $7,000 – 10,000
> per year...

~~~
tkfu
Also, while those coverages might be difficult-to-find-but-available now, that
could change in a hurry. Once most insurance companies catch on to the fact
that people are paying for regular insurance and then operating essentially a
taxi service, they'll add clauses to their contracts specifically forbidding
it, and charge something more in line with commercial taxi insurance. It's a
lot like what we see with AirBnB, where as it caught on more and more,
landlords started fighting back against tenants who were using it.

~~~
greenyoda
_" Once most insurance companies catch on to the fact that people are paying
for regular insurance and then operating essentially a taxi service, they'll
add clauses to their contracts specifically forbidding it..."_

My car insurance policy has prohibited using the car for commercial purposes
for as long as I can remember. There are also probably state laws requiring
commercial drivers to carry commercial insurance, just as it requires them to
have a different class of drivers license.

------
al2o3cr
"Let’s go out on a limb and assume that the median full-time uberX driver
doesn’t have fantastic credit and would rather forego the credit check."

A paragraph later:

"Meanwhile, a trip to bankrate.com will reveal that today’s market rate for a
48-month loan is under 3%"

Not that it invalidates the piece, but this bit of handwaving bugs the heck
outta me.

The under 3% loans are available to people with "excellent credit", which it
was _just_ assumed didn't describe UberX drivers. myfico.com indicates, for
instance, that people with a FICO score under 620 are looking at a rate more
like 10-15%.

~~~
ryanobjc
He was using this to point out the discrepancy between the lease rate from
Uber's pre-selected finance company (15%) and the best possible rate one could
get - 3%.

It's just to illustrate the range of finances, and note that the finance
company is literally charging 5x!

In terms of credit, yes, better credit helps, but also since it's a secured
loan, it's not like a credit card.

------
gedrap
This is a really great post.

We are talking a lot about regulations, consumers but it's the first time I
see a post about the drivers themselves. As it is correctly identified by the
OP, it's the main and only asset for Uber.

That being said, I would love to read an AMA with a Uber driver.

~~~
hershel
Two ama's:

[http://www.reddit.com/r/IAmA/comments/1ypjd5/hi_reddit_iama_...](http://www.reddit.com/r/IAmA/comments/1ypjd5/hi_reddit_iama_uberx_driver_in_the_washington_dc/)

[http://www.reddit.com/r/IAmA/comments/1ztruj/iama_uberx_driv...](http://www.reddit.com/r/IAmA/comments/1ztruj/iama_uberx_driver_in_los_angeles_orange_county/)

------
pbreit
As usual, the truth is probably somewhere in the middle. Uber's numbers
actually seem a lot more believable. The author didn't even appear to be
trying to be "reasonable" or "fair".

The two biggest problems I see are 1) author doesn't acknowledge that Uber
behavior is probably very different from regular yellow cab behavior (ie, has
the author even heard of the airport or surge pricing?) and 2) I don't think
it's appropriate to allocate all of an auto's expenses as "business" since
it's almost always a personal car.

~~~
tkfu
For (1), how do you think it applies? The situation analyzed is taken from
Uber's numbers, and is for an "average" driver that works 70 hours per week.
If you're working 70 hours, you're not gaining a huge advantage from surge
pricing.

For (2), again, this is a vehicle being used 70 hours per week, 40,000 miles
per year. If you were looking at the case of a part-time driver it might not
be appropriate to allocate all the expenses as business expenses, but in this
case I think it is.

~~~
pbreit
We don't know that they drive 70 hours per week. That was made up by the
author. The author is fixated on the 10 mph in Manhattan when we know that
Uber drivers have more flexibility on time and geography (they do drive
outside of Manhattan, of course).

The car still provides for 100% of the owners personal driving needs so
completely inappropriate to allocate all costs to "business".

~~~
tkfu
To me all his assumptions seem pretty reasonable. Since Uber isn't providing a
detailed breakdown, all we can do is estimate. And if we're willing to accept
the basic assumption that people respond to economic incentives, remember that
Uber's incentivized to be as misleading as possible in their favour. Even if
it turns out they're completely lying, there's a reasonable chance that the
economic benefits from building network by doing so are significantly greater
than potential future costs if someone found out they'd lied. Given that
context, I think the author was actually being _overly_ generous and deferent
to Uber's stated numbers.

My father-in-law's an NYC taxi driver, and before that (in the 90s) worked for
a black car service. So I can tell you from inside experience that you make
more money in Manhattan than anywhere else, period. The fact that Uber drivers
have the freedom to go to New Jersey or Far Rockaway or wherever doesn't mean
that they actually get any benefit from doing so.

~~~
MarkPNeyer
the average speeds they are posting are only calculated during the day. uber
does WAY more trips at night, when there is less traffic, so the cars can go
much faster.

source: used to work at uber.

------
redwood
Why is no one discussing the downward pressure on price if more and more
drivers get involved? That's part of why cities cap medallions after all
right?

------
lifeisstillgood
> Market equilibrium in a wholly deregulated taxi industry comes only when the
> desperate have driven out the good.

And that's kind of my whole "can't quite express what is wrong here" issue in
a nutshell.

~~~
jessaustin
That argument could be made for _any_ service industry. Do _all_ service
industries require regulation? Aren't there some services we can just trust
the consumer to choose?

I'm not saying that the use of automobiles doesn't require some regulation
(although it isn't clear that commercial use requires more than other use),
but this particular argument for regulation is weak.

~~~
vertex-four
I think most service industries where the customer may be subject to any sort
of personal harm are regulated to some extent.

------
hershel
I think the author is wrong about the possibilities for UBER raising prices.
One such option combining trips of 2 passengers(or more) who seek a trip from
similar starting locations to similar destinations.

Such option could easily increase demand, be more cost efficient and higher
margin and be highly dependent on market reach , which makes it very difficult
to replicate.

And i'm sure UBER has some data to demonstrate this and other attractive
options to investors[1], which make it much harder for us non-insiders to
truly evaluate UBER.

[1]A similar example is the nest acquisition, which raised many eyebrows and
guesses, but it appears they had a "secret" way to monetize their service -
selling demand response services to utilities.

~~~
potatolicious
I'm not sure if ride-sharing (in the _actual, non-bullshit_ notion of the
word) would count as raising prices though.

It would increase per-driver revenue, certainly, but probably decrease Uber
revenue fairly significantly. Taxi services, whether in the old fashioned way
our the glitzed-up smartphone way, are pretty commodity.

The success of budget competitors like Lyft and Sidecar is testament to this.
The perpetual expansion of UberX too. It seems most people are more concerned
about getting from A to B cheaply than any kind of premium lap-of-luxury
service.

A ride-splitting service would be pretty great for consumers and maybe for
drivers, but from Uber's side it would be a pretty substantial price _cut_.

~~~
jyrkesh
I think what he's trying to say is that Uber could raise prices "per-trip",
split the cost of those trips with 2+ passengers, and actually decrease the
cost "per-user" of each trip. If the decrease in price increased demand
enough, overall revenue could go up while the consumer feels like they're
getting a price decrease (albeit, they now have to share most of their rides,
which may feel like a service decrease).

~~~
potatolicious
I get that - I just don't think it'll happen. Instead you'll have 2 people who
had a price ceiling of $10 each being transported for $16.

Great for the driver, great for the two passengers, bad for Uber.

~~~
hershel
On a $10 fare , UBER gets $2(or $4 for 2 trips) , the driver gets $8

For the $16 trip, let's say UBER gives $10 for the driver(instead of ~$8), and
takes $6. UBER still comes ahead. And don't forget the huge lockup it gets -
which is valuable in and off itself, esp. in the long term as a basis for self
driving cars service.

There's of course the issue of decreased traffic for drivers, but there's
probably a strategy to make it work.

------
Thaxll
Last time I asked a driver if Uber was better than X: he told me that 20 to
30% of people calling for a ride with the regular system don't show up.

~~~
zevyoura
Funny how that roughly mirrors my experiences calling taxis the old fashioned
way: about 1 in 4 won't show up.

------
paul
It's amusing to see how much skepticism Uber seems to generate. Apparently
it's super-hard to understand how a tech company could possibly do something
better than the decades old taxi industry, and that the resulting business
could have major network effects.

~~~
pron
It's actually a centuries old industry: taxis were already regulated in
1636[1]. I think the point is, though, not whether they can do it better (they
are certainly a driver for innovation in the space), but how successful that
particular company is going to be.

Given that in most cities you could pick up a phone and get a taxi for over a
century, or hit some buttons on your mobile phone and order one for the last
20 years, this becomes a question regarding two aspects of Uber: deregulation
and brokerage, which are Uber's two differentiating factors. The author claims
that deregulation has been tried numerous times -- and failed pretty much
everywhere (although, maybe this time it's different) -- and that brokerage of
a commodity is not too profitable[2].

[1]:
[http://en.wikipedia.org/wiki/Taxicabs_of_the_United_Kingdom#...](http://en.wikipedia.org/wiki/Taxicabs_of_the_United_Kingdom#History)

[2]: [http://www.quora.com/Uber-1/How-big-of-a-deal-is-
Uber/answer...](http://www.quora.com/Uber-1/How-big-of-a-deal-is-
Uber/answer/Justin-Singer)

~~~
paul
I've ordered taxies by phone, and I've used Uber, and I can tell you that I
have no doubt as to which is the future.

As for network effects, is it really that hard to see that a larger network of
vehicles will have inherent advantages over a smaller network? (think about
distance to the nearest available vehicle, especially as the network expands
outside of dense urban areas)

~~~
pron
Everything you say is true, but none of it predicts tremendous success _for
Uber_. It may well be that there's little advantage to being the first mover
brokering commodities. We might soon see meta-Uber apps, or Uber aggregators,
that optimize the selection of car across several providers. Uber will
probably just be a big, successful, taxi company, but not one that is worth
billions.

------
mseebach
> that means our hypothetical driver is covering 40,000 miles in 2,000 hours,
> for an average speed of 20 mph. Meanwhile, the average speed of Manhattan
> traffic is barely 10 mph

A lot seems to hinge on this, but I don't think it's a fair assumption that a
NYC Uber never leaves Manhattan. A couple of trips to the boroughs (airports!)
and 20 mph average on a regular 40 hour week seems perfectly plausible.

------
gtirloni
I'm wondering how do Uber investors think Uber will do in a, not too distant,
future where driver-less cars are readily available. Or even as public
transportation improves.

It looks like this Uber vs. traditional cabs is a battle with an expiration
date.

------
PaulHoule
It is so much fun to reverse engineer financials.

