
Why Uber's business model is doomed - donsupreme
https://www.theguardian.com/commentisfree/2020/aug/24/gig-economy-uber-lyft-insecurity-crisis
======
Animats
_Only in a world where more profitable opportunities for investment are sorely
lacking can such wild bets on far-flung futuristic technologies become massive
multinational companies. Corporations and wealthy individuals have accumulated
huge sums of money and cannot figure out where to put it because returns on
investments are extremely low. The flip side of falling rates of business
investment is a slackening pace of economic growth, which economists have
termed “secular stagnation.” It’s this decades-long slowdown that has
generated the insecure labour force on which Uber and Lyft rely._

Now that's a very important statement. It's correct.

First, how US-specific is this? Is it true for the EU? Japan? China? India?

Second, _why_ are profitable opportunities for investment lacking? Why are
people not building larger solar panels and wind farms in the US? Why is it
taking so long to get electric cars going? Why are there no new home appliance
companies in the US? Why isn't the return on investment there?

~~~
Barrin92
>Second, why are profitable opportunities for investment lacking?

Because ambitious technological progress requires coordination between state,
business and large scale entities. The cultural shift from the late 70s onward
pushed consumer-led economic growth and withdrawal of the government from
economic activity.

If you look at inventions like the internet or satellite tech, much of it was
military/government-led R&D with all the consumer stuff essentially being a
byproduct that fell out of it. Federal r&d budget in the US constituted 12% in
1965 and just about 4% today.

so at the end of the day you have the death of the research lab, fundamental
science, large state-led programs and so on in favour of people building
smartphone apps because they're cheap to make, you can spread them across the
globe a few people get very rich, they build themselves a huge HQ in Silicon
Valley and you get the illusion of having 'tech progress' while your
scientific and physical infrastructure rots away. It's worse in the US than it
is in Europe or Japan because Europe/Japan have at least kept part of their
manufacturing culture. China is if anything the only country that looks sort
of optimistic on that front, although it also has countless of problems as
society gets more affluent.

~~~
malandrew
Out of curiosity, what technological investments do you think the government
could be making today that would have the impact that satellites and the
internet could have?

I ask because the way I see it there are some pretty fundamental differences
between now and the 1970s.

The way I see it, progress is made not so much by companies or government but
by those individuals with the intellect and gumption to invent the future. All
that matters is that there exist organizations, be it corporations or the
government, willing to invest money on big bold bets that attract such
ambitious individuals and create conditions for them to collaborate.

At times in history, private industry achieved it (Bell Labs, Ford, Google,
Facebook, Tesla) at other times the government/military achieved it (Manhattan
Project, NASA, DARPA, etc.)

If government got heavily involved it would contribute just by putting more
money in the ring, but I don't see how it would achieve more than corporations
putting more money in the ring. End of the day, it's the money being put in
the ring that matters most, not who is putting the money in the ring.

Not saying, I'm against more money chasing ambitious ideas, I just fail to see
the argument that government is any better than private industry here. The one
advantage I do see of government is that they'll generally allow money to be
spent far more recklessly for longer than private industry and if that's not
your money, then that is something that is more likely to produce an
occasional great technological outcome.

~~~
Barrin92
>what technological investments do you think the government could be making
today that would have the impact that satellites and the internet could have?

maybe nuclear fission, make it the goal to create cheap, clean and abundant
energy, maybe a model city with new modes of transport, Gigabit internet
everywhere, a space elevator, an arcology, much more interest in alternative
new ways of agricultural production, a DARPA for construction and
infrastructure.

There are so many things that essentially work the same way they did 50 years
ago. I can't remember who said it but someone said, take the screens out of a
room and you can't tell if you're in 1970 or 2020.

Private business _tries_ to tackle some of the things on that list but without
backing by a state it never goes anywhere, and they do it more out of vanity
or because they have eccentric founders rather than any economic sense, these
are societal tasks.

Also foster a culture that admires scientific excellence and inquiry over
getting rich and being a celebrity by making science again the focus of the
education system. There's also a cultural component to this everything else
aside.

------
skybrian
It seems to me that a big problem with the discussions surrounding Uber and
Lyft is that so many people claim they know what drivers want, but it's
usually based on little or no evidence.

Who should represent drivers' interests? Uber and Lyft? California lawmakers?
California voters? Opinion writers? A union?

Even someone who is a driver doesn't necessarily know what other drivers want,
since they might not be typical. Different drivers may want different things.

It gets even worse when we talk about _potential_ drivers. Drivers aren't a
fixed set of people. There are people who aren't driving now, but might, under
the right conditions.

All of these have flaws. I'm pretty sure I don't know what drivers want, and
the average person talking confidently about the issue on the Internet
probably doesn't know either. As a result, very little commentary has any
credibility.

~~~
cbmuser
> It seems to me that a big problem with the discussions surrounding Uber and
> Lyft is that so many people claim they know what drivers want, but it's
> usually based on little or no evidence.

The thing is: The requirements that legislators are setting for employers are
fundamental social security services.

Whether a worker gets paid sick leave and vacation, health insurance and
unemployment insurance is therefore not up for the debate in most Western
countries.

Some people may claim that they don’t need or want these services, but the
reality is that everyone needs them as everyone needs vacation at some point,
will get sick or fired.

And because of that it’s good that the law requires them to be mandatory. This
is also why so many people from low-income households in the US have trouble
to afford a visit to the doctor or vacation.

Those things aren’t a problem for most workers in European countries.

~~~
skybrian
It's up for debate in the US, and I don't see why we shouldn't debate it. Is
there no room for innovation in work relationships?

In particular, health insurance being tied to employment seems US-specific and
has a lot of drawbacks.

~~~
Waterfall
The whole system is broken. You are not rewarded for living well and eating
healthy or exercising, you're penalized for other people's preventable
diseases, obesity being a primary preventable illness that causes other
problems. Universal healthcare doesn't care about the causes of illness, it
just cares about paying it's working for treating the illness. If there is no
requirements for keeping health to receive health insurance, and everyone who
destroys their body gets healthcare at the cost of those who don't use it
because they're healthy, why would a healthy person with no illnesses want it?

I'd love to see prevention before it goes to healthcare, but try even
mandating soda sizes in the US... The only way is to make it unpopular like
supersize me (although he was shady and never showed the food logs).

Healthcare should be paternalistic by definition but American culture cares so
much about freedoms they won't wear masks during a global pandemic so it's
incompatible.

------
lacker
It's too bad that this whole article never touches on the basics of Uber's
business model, like how much money they lose on each ride, how much funding
they have to ride out the current economic climate, the crazy fact that Uber
Eats is now a larger part of Uber's American business than the drive-me-
somewhere Uber business, and so on.

I don't see how Uber's business model is doomed. If Uber and Lyft are forced
to be less efficient, they will raise prices. Yes, their business would
shrink. But how could they be forced out of business entirely - would people
go back to using taxis?? At the very _least_ , Uber could charge the same
price as taxis and be superior to taxis because an Uber actually shows up when
you want one.

~~~
evgen
There is nothing Uber/Lyft do that any urban taxi company cannot do just as
good if not better. The taxi companies also have better economics when it
comes to their fleet (you can expect states to start mandating that gig
drivers be paid some additional amount for vehicle depreciation any day
now...) At the end of the day Uber/Lyft will be just another taxi company,
albeit with a less professional set of drivers.

~~~
reading-at-work
> At the end of the day Uber/Lyft will be just another taxi company, albeit
> with a less professional set of drivers.

What city do you ride taxis in? Because the taxis I've ridden have spanned a
range of tolerably annoying to downright abysmal experiences. Uber/Lyft
drivers have unequivocally been more friendly, punctual, and professional. No
taxi company I've seen can manage to make a halfway decent app or even
guarantee that a driver will show up within an hour of me needing one.

Even if Uber/Lyft become the same price as taxis, I'll take Uber/Lyft any day
over a traditional cab company.

~~~
cbmuser
I‘m always surprised when I read such statements because I never made such
poor experiences with taxis in Europe or Asia.

I think what you are describing is a problem that is very US-specific and it
doesn‘t mean taxis are that bad everywhere in the world.

~~~
chrisseaton
I've taken taxis in many European cities. It's universally a miserable,
sketchy experience.

European taxis are the absolute worst for trying to wiggle out of accepting
your credit card. Ever time I get in a European taxi I know I have a fight on
my hands.

~~~
joefourier
It depends on the country and city - here in Ireland the taxis are almost
always a class act. My local taxi company allows payment via smartphone and
even sends you the invoice via SMS or email if you need it as a business
expense. I've even had a driver turn off the metre and show me around once he
realised I was new to the city.

And tipping, although appreciated, is not at all mandatory like in the states.

~~~
mseidl
German taxis are great.

~~~
chrisseaton
In my experience they get evasive and rude when you try to pay with a card.

------
aphextron
It's not even the underlying business model that's unsound. People will always
need to get from point A to B, and the app based ride hailing model has
completely revolutionized the fulfillment of this fundamental need. That's not
going anywhere. Uber's problem is in their scale. You get essentially zero
benefits and all of the drawbacks from massive scale in this industry, with
the fact that your technology is trivially replicable by competitors, and
brand loyalty is almost non existent. Uber is doomed in its' current
incarnation. But my bet is that the future for ride hailing is one of hundreds
of different competing local services around the world that focus on their
locality, work directly with local officials and regulators, and provide good
customer service while keeping overhead extremely low and operating
profitably.

~~~
room271
The model is unsound. Private vehicles on roads in cities cause a ton of
pollution (and I don't mean CO2) that is very undesirable. Public/mass
transport with good mechanisms for _short_ journeys to and from hubs is a
better model. The rise of ebikes and scooters is an encouraging alternative
here too.

Yes of course there are times when people need a car, but they are not the
majority of the time for the majority of people. And their severe
externalities need to be priced in to discourage use.

~~~
aphextron
>Public/mass transport with good mechanisms for short journeys to and from
hubs is a better model.

Maybe in Europe or Asia. But in the US, private vehicles are the only viable
option for a huge portion of the population. Our entire society is built
around it. The density simply isn't there for public transit to make any
sense, and distances are far too vast for scooters/e-bikes to work.

------
Zenst
When I see a "it's doomed" article about a company from any newspaper - I look
at previous articles for contrast and found this better reading having just
read: [https://www.theguardian.com/technology/2016/apr/27/how-
uber-...](https://www.theguardian.com/technology/2016/apr/27/how-uber-
conquered-london)

Allows me to give the credibility to the article it deserves.

For me Uber already lost a customer for life due to horrendous customer
service that showed a corporate culture of the worst once I picked thru it
all. So for me they are already dead.

------
yalogin
At least over the last 2 yrs I was saying that Uber and Lyft should get out of
the self driving tech business. Its not who they are, and there is no reason
to invest in it when they could easily consume the best tech out there when it
becomes available. I now feel even more strongly so. In fact it feels like
these companies might themselves be re-evaluating their priorities at this
point. I see absolutely no reason to invest in FSD themselves other than to
attract talent.

They should instead accept that their value to the world is they unified the
taxi system and turned it into a global service that drivers can use. They
should focus on their core business and figure out their issues with drivers
and employees. They could cut the FSD costs and instead partner with Google or
some other company. Or they could wait and also partner with any other car
manufacturer out there that gets to FSD market. These companies could be huge
buyers of the tech when available and so auto manufacturers will fall over
themselves to get their business.

I wouldn't say its doomed though.

~~~
evgen
If FSD had actually turned out to be as easy as some people were suggesting 5+
years ago then there is no way Uber or Lyft could avoid playing in that game;
the first company who could mass-produce FSD vehicles would be able to replace
Uber/Lyft with no difficulty at all. Once it became apparent that the 'any day
now' BS from Musk et al was a lie then both companies should have dropped any
efforts in this direction immediately.

~~~
arcticbull
An MIT study indicated developing their own FSD technology would yield at most
a small margin improvement because the technology wouldn't be exclusive for
long, and shortly after it would be utterly commodity. [1]

[1] [https://www.businessinsider.com/uber-lyft-self-driving-
taxis...](https://www.businessinsider.com/uber-lyft-self-driving-taxis-may-
not-help-profitability-mit-2019-5)

------
LarryDarrell
Gig work and all that implies would be more tolerable in the US if we had a
universal health care system and worked hard to craft policies to make housing
affordable (not an investment).

Until that world comes to pass, the slow but growing movement to treat gig
workers as employees will only get bigger and bigger.

I doubt even in 20 years we'll have fully autonomous driving cars in every
jurisdiction. If I were Uber or another company who relies on gig work to
exist, I would be pouring money into lobbying for universal health care. That
would ease the pressure considerably.

~~~
rhino369
Why should we, as a country, want low paying jobs that only support people
with subsidies from others?

I support universal healthcare from a humanitarian perspective. But it doesn't
make sense to tax everyone else so that Uber can cut labor costs.

~~~
malandrew
> Why should we, as a country, want low paying jobs that only support people
> with subsidies from others?

Because the alternative for the people taking those jobs is often no paying
jobs where you need to subsidize the entirety of the needs of such people
instead of just subsidizing what wasn't covered by the low paying job.

Making low paying jobs illegal doesn't magically result in the creation of
well paying jobs.

------
Animats
Uber is very clever. They've been able to automate the task of the slave
overseer with the bullwhip. Dropping drivers who don't get enough stars keeps
them in fear and working hard. Dropping drivers for refusing rides keeps them
ready for work even while they're not being paid.

"Machines should think. People should work" \- no longer the future, it's the
present.

------
Ansil849
Pardon the very basic question, but as someone who just casually sees articles
pop up about Uber, I genuinely don't understand how the company continues to
exist. Is this very rudimentary attempt at understanding of what's happening
correct: investors keep adding funding despite regular losses because they're
hopeful for a sizable return in the (far?) future?

~~~
tristanj
On Uber's platform, the marginal cost for one ride, i.e. the cost for Uber to
coordinate a ride, is tiny. Uber's cost of a ride are its server and
maintenance costs, its incremental rider/driver customer support costs, and
credit card transaction costs. These add up to less than 5% of the rider's
total fare cost.

In developed markets, Uber takes a 25% cut of the total fare cost of every
ride. The 25% cut far exceeds the 5% marginal cost of the ride. On each ride
that occurs on their platform, Uber makes a 20% profit.

The more rides Uber handles, the more money they make. Last year, Uber managed
3 million trips per day on its platform. If Uber did 2-3x the number of rides
it did last year, it would be a very profitable company. It has not yet
reached this point (investors are still waiting).

However, Uber has very high fixed costs, mostly from its Silicon Valley
salaries. Further, trips in developing markets are heavily subsidized and
occur at a loss. Uber management has focused on cutting costs to extend runway
& make profitability happen sooner.

~~~
Ansil849
Thank you, but so this doesn't answer my original question: how does Uber then
continue to exist, given all the news I see seems to suggest that those fixed
costs you're describing are leading to Uber not actually being profitable.

~~~
tristanj
The 'rides' division of Uber is profitable, or at least, was profitable before
Covid. The rides division brought in a net positive of $742m in 2019. Uber as
a whole is not profitable since they lose money on their Eats, Freight, and
self driving divisions. The Rides division has only recently been profitable;
it lost money for over a decade and started being profitable in 2019.

Rides is profitable because Uber has significantly reduced subsidizing rides.
They also have cut expansion in many developing markets. Finally they raised
prices in developed markets.

See their 2019 Q4 financials - they now claim to make, on average, a 24%
margin on every Uber ride.

[https://investor.uber.com/news-events/news/press-release-
det...](https://investor.uber.com/news-events/news/press-release-
details/2020/Uber-Announces-Results-for-Fourth-Quarter-and-Full-Year-2019/)

Uber as a whole can become profitable at any time by cutting their money-
losing divisions.

------
rrivers
About a year ago I penned a short essay about this exact subject. Central
argument is that Uber is the type of organization that should be open to
public ownership given that there is no road to profitability for them. Since
writing, states like CA have taken firmer stances on gig economy workers and
employment status. The alternative is that Uber continues to try and find
avenues of financialization instead of continuing to experiment and innovate
with their core service model.

Article Link: [https://medium.com/swlh/socializing-uber-for-society-
shareho...](https://medium.com/swlh/socializing-uber-for-society-
shareholders-5cc4a27d28d4?source=friends_link&sk=8a819492253bd3e990b845861f8f32fc)

------
klmadfejno
A lot of people are saying Uber can just raise prices. Sure, they can, but
Uber's not like other businesses. If Uber raises prices, then fewer people
take rides. If fewer people take rides, then its harder for riders to make
money. Even if an equilibrium is reached with fewer drivers and fewer riders
at the same cost of labor, it's harder for Uber meet flexible demand and
manage driver retention, and what not. It could create a feedback loop where
higher prices require higher driver wages resembling economies of scale.

------
danimal88
Raising prices != Doomed...

Their business model: request a ride, pay for a ride, is not doomed. Their low
prices might be. Yes, their economics pitched to investors relied on
automation that's not here, but for medium density spaces, cabs have so much
more overhead and will struggle to keep up unless they have a platform/brand
that is competitive with lyft and uber.

~~~
danimal88
Also adding that perhaps the biggest unnoticed feature with uber and lyft is
the feedback loop. Good drivers and good riders stay on the platform, which is
good for the users. The Cab experience on the other hand is some guy mumbling
(best case) into an ear peice the whole ride while accelerating/braking like
they are driving an indy car, all while getting into a sticky back seat and
needing to settle up akwardly at the end of the ride. If cabs are going to
take back some market share, they need to invest in their experience.

------
jaybrendansmith
What about a ride-sharing protocol, like IRC? Seems like this is what is
needed. We don't need a company here to help us hail a ride, we just need a
standard way to hail a ride. We would then need to use our judgment as always.
Caveat Emptor. I know there's little money to be made in the creation of an
RFC for ride sharing. So much of the current Internet could be standardized in
this way.

------
timwaagh
he does not even bother to explain the premise: why uber drivers should be
classified as employees. If that makes me really dumb, so be it. They're paid
per job and have no exclusivity to work for one employer. How are they
different from say, the plumber?

~~~
tick_tock_tick
Plumbers aren't in the news and wouldn't add much to the state budget with
their payroll and unemployment taxes.

------
dominotw
> These companies are trying to survive legal challenges to their illegal
> hiring practices

illegal?

------
ogurechny
The hypothesis about self-driving cars doesn't hold water. Anyone doing
practical assessment of the idea (as opposed to table talk) knows there won't
be any, at least until all the infrastructure and human-driven cars are
reorganized to inter-operate with automatic ones. “If the mountain won't come
to Muhammad…” — unfortunately, it is possible that people will have to adapt
to robots instead of the other way round if everyone decides that it really is
the future. It might be that the author believes the general idea of “car
sharing” to be correct, and struggles to find the reason why the company loses
money. The problem is that the whole thing is a lie.

Their business model is not self-driving taxis. As with other “platforms”,
it's just blatant cutting down on “irrelevant” expenses wile keeping the good
bits to themselves under the pretense that they are just “operating the
computer” that allows someone else to do “everything”. Uber might have a lot
of money to smokescreen it, and keep the image of a middle-class citizen
“sharing” the car for a certain price, but in other places competition between
taxi companies rapidly “optimizing” and “professionalizing” the market makes
it clear that humanity has pompously reinvented the hackney coach. Even worse,
the unregulated hackney coach, when poorest peasants ride their carriages to a
big city and work endless shifts trying to catch some passenger first to be
able to feed themselves for a day, or some rickshaws fight and badmouth each
other only to get the tiniest number of coins. A typical driver for a
“digital” taxicab is a sleep-deprived immigrant (private person or an employee
of an official subcontractor, there's little difference) wielding a number of
burner phones running client apps from different companies (BTW, location
spoofing solutions market is booming) who is useless without a navigation
(hooray for modern bio-robots), but jumps every red light to shave minutes
off. The real sharing happens between drivers — they share shifts, devices,
accounts, and cars. However, the only important thing is that the big company
gets the commission from each and every ride, so it's all good. They seem to
make enough money to spend some on remediation when accidents happen, all
while keeping their stance on being just a system operator that gratuitously
helps clients. None of this is specifically modern. Immigrants working as cab
drivers predate computers, and tricks that allow stretching of taxi car shifts
are just as old.

Well, you can argue that there are ratings. (John Doe rated this driver 1/5:
We both died in a car crash. Would not recommend.) Well, anyone in any kind of
“digital marketplace” business can tell you that the whole point of stars,
likes, and the like is to make users believe that there is a complex system
that protects them in the background, and that their input matters. The fact
is, the owner and only the owner of the system decides whether any of that is
used, and to what extent. Say, how are upvotes and downvotes on Youtube videos
used? They are just a game, something for users to fidget and feel
satisfaction from.

------
sassycassie
interesting read.

