
Uber is doomed - chirau
http://jalopnik.com/uber-is-doomed-1792634203
======
salimmadjd
1 - Uber has a weak network effect (drivers drive Lyft and Uber) same for
consumers.

2 - Uber is not very scalable (this is why they have to burn so much money to
grow)

3 - Self-driving cars will actually destroy Uber's business.

Uber = Driver -> Uber -> Passenger. Self-driving cars will remove the Driver
from the equation. Uber becomes a consumer facing app. Very vulnerable to
Apple and Google should they ever want to get into that business. I think
Google maps and Siri will become the interface to care sharing eventually as
Apple/Google will have far more access to mobile experience that Uber will
ever get.

I had made the above points before and predicted Uber will probably go the
ways of AOL. It seems like more and more people are beginning see that too.

~~~
1_2__3
Could we maybe have a sober conversation about Uber that doesn't involve self
driving cars? Because I hate to tell you, but whatever reckoning is coming for
Uber will come long before self driving cars are viable. I do not understand
why so many HN commenters ignore the reality of self driving car tech and
regulation and think it's right around the corner. It's so far away that the
only relevance it has to this conversation is already in the article (and
completely disagrees with your claim): if Uber is planing to rely on self
driving cars they're already dead. The tech will not be ready in time for
them.

~~~
dnautics
I think self-driving cars are going to be viable, very very fast - but uber
will implode much faster. When it implodes, it will happen much faster than
anyone expects. There will be lots of collateral damage, as the rest of the
current incarnation of the SV insanity will be exposed to the deflation of the
unicorn narrative.

I think a huge part of it will be when it becomes really really obvious that
Uber will never be able to IPO, the employees there will have to leave. The
gravitational pull of the sunk cost fallacy (with respect to any exercised
options the employees have) will be overwhelmed by the need to 'find other
options' faster than their colleagues and it becomes a race to not be the last
one off the sinking ship.

1_2__3 - while I agree with your overall thesis, I think it's reasonable to
bring up self driving cars since they are in the original article, after all.

~~~
VonGuard
Employees are already leaving. I'd wager a few people in here have seen
candidates coming through interviews in the past week. It's been kinda scary
how many ubers are leaving the ship.

------
wwalser
All of these pieces carefully avoid talking about the fact that Uber claims to
have been profitable in several US cities in 2016. In places where they have
had time to figure our their model, pricing and supply/demand, they appear to
be capable of becoming profitable. While most people can understand pricing
and supply/demand being different between cities, Uber's model actually
changes in some cities as well. In some parts of the world they don't charge
using credit cards because no consumers use them, in other parts their drivers
don't use cars because it's impractical.

I'm all for calling out companies for exhibiting abhorrent behavior toward
contractors and employees. That has value and can elicit change.

Doom & gloom pieces on the other hand are a dime a dozen. This one
specifically I find lacking. Uber isn't losing mountains of cash because it's
unsustainable. It's losing mountains of cash because it can afford to and
wants to in order to continue it's absolutely astonishing growth rate. They
may be bad people. You may not want to work for them. I grant those premises.
I got an offer and turned it down. That said, I simply can not understand the
desire to see them fall. The delta between what existed before and what
they've built is vast. I'd happily pay 2x my current rate and the claim that I
would _have_ to pay 5x to cover their costs is laughable.

~~~
jlgaddis
> _All of these pieces carefully avoid talking about the fact that Uber claims
> to have been profitable in several US cities in 2016._

This piece _does_ talk about that:

> _The company reportedly said it wanted to achieve profitability in the
> second quarter of 2016, and it claimed at the time it had reached that goal
> [0] in the U.S. and Canada._

In the very next sentence, however, we learn that:

> _But by December, according to Bloomberg [1], Uber was losing money again in
> the U.S., to the tune of $100 million per year._

 _(links from original article)_

So maybe they _were_ profitable -- in 2Q16 -- but apparently that didn't last
very long.

> _I 'd happily pay 2x my current rate ..._

In order for Uber to become profitable and/or continue to exist long term, you
-- and all other Uber customers -- may have to.

According to the article:

> _... amid findings that rider fares only cover roughly 40 percent of a ride,
> with the remainder subsidized by venture capitalists ..._

[0]: [https://www.bloomberg.com/news/articles/2016-04-14/lyft-
is-g...](https://www.bloomberg.com/news/articles/2016-04-14/lyft-is-gaining-
on-uber-as-it-spends-big-for-growth)

[1]: [https://skift.com/2016/12/21/uber-isnt-profitable-in-the-
u-s...](https://skift.com/2016/12/21/uber-isnt-profitable-in-the-u-s-and-is-
on-track-to-lose-3-billion-in-2016/)

~~~
wwalser
Thanks for pointing out the profitability bit that I missed. That was far
enough into the article that I must have been skimming at that point.

Cheers.

------
nikcub
> A common comparison to describe Uber’s approach is Amazon, which lost money
> consistently over the first several years of its existence. As Horan notes,
> however, Amazon’s “worst losses were $1.4 billion in its fifth year of
> operations, but shrank rapidly thereafter, while Uber’s losses have been
> steadily growing and will be over $3 billion in its seventh year.”

Some key differences between Uber and Amazon:

1\. Amazon's loss in 2000 was $1.4B[0] on $2.7B of revenue[1]. Uber this
financial year will lose ~$2.6B on $5.5B of revenue - so they're doing a
little better

2\. Uber's revenue is growing at more than 100% p.a while Amazon was growing
at 15% p.a at that time

3\. Amazon had to cut back spending to survive while Uber has $10B in the bank
and ready sources of cheap additional capital if it requires it

4\. Uber is growing much, much faster internationally than Amazon ever did.
Amazon even today is only 15 countries while Uber is already at 81 - so they
are growing more in a shorter space of time.

5\. Uber's margins will eventually be a lot larger than Amazon's - there is
potential there for a greater net profit margin and greater multiple. It's
reported that the core business will only lose $100M this year in North
America and should turn to profitable next fy.

6\. In almost every metric Uber is beating Amazon at a similar stage -
revenue, revenue growth, etc.

7\. Uber has the benefit of remaining private for longer, no burst dotcom
bubble, economic downturn or fundraising problems and founder control

The comparison is definitely appropriate, tho - similar loss-leading
strategies to build market share with products that don't necessarily enforce
natural monopolies. You need to outspend and drive down your competition in
the near-term to win the long-term.

There are very few markets where Uber has lost or is losing and their model
seems easier to adapt internationally than Amazon's.

[0]
[http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Net_In...](http://www.wikinvest.com/stock/Amazon.com_\(AMZN\)/Data/Net_Income/2000)

[1]
[http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...](http://www.wikinvest.com/stock/Amazon.com_\(AMZN\)/Data/Revenue/2000)

------
Kiro
I think the impact of all the bad PR has a limited reach outside of tech
circles. Among my friends no-one has even heard about any of this and Uber is
more popular than ever (especially UberEats).

~~~
kbart
Same here. In my town people still feel somewhat more advanced and 'cool'
calling Uber instead of taxi. Funny thing is, that most of them are left wing
'justice warrior'/hipster type. I chuckle every time I see this act of irony.

~~~
bobwaycott
Perhaps if you enlighten them, you'd help people make more informed decisions.
And maybe they'd care about the problems. As it is, smugly chuckling at
ignorance is rather silly. If they don't know, it isn't irony.

~~~
ntelson1s
Ignorance does seem to be the willful plight of the further-leaning left at
the moment, so I have to somewhat agree with him. But I get your point.

~~~
bobwaycott
Willful ignorance is endemic in America these days. I'm rather curious what
specifically the further left-leaning segment of the population is willfully
ignorant of at the moment. Care to share?

------
Animats
The only thing that keeps Uber going is $3.5 billion from Saudi Arabia's
sovereign wealth fund, which allows them to undercut everybody else on price.
Uber is losing $800 million a quarter, and some time in 2018, they should run
out of cash. It's hard to see where they could find a bigger sugar daddy. An
IPO seems unlikely; they're way overvalued.

This isn't going to end well.

~~~
hkmurakami
Suppose a hypothetical IPO in 2018 values them at $100B.

They float 10% of their shares on the public market, requiring their iBankers
to place $10B worth of shares with their clients. Personally I feel like even
with bad numbers, give the iBankers a juicy enough placement incentive and
they _will_ find a way to place that $10B and collect their fee/spread.

Now, Uber may fail afterwards, but if they _really_ need a public liquidity
event, I think they can get it. Directors and C level folks will be able to
shed some shares at IPO preceding the lockup and make out like bandits. ;)

------
oisino
Having friends who have had startups that relied on contractors the death blow
is being forced to treat contractors as employees. The mass market model
doesn't work when you have to charge 40% more just to cover the additional
costs in benefits, overtime, taxes, hr etc. link to good article of friend who
experienced this in his startup [https://medium.com/@kaleazy/theres-no-magic-
in-venture-backe...](https://medium.com/@kaleazy/theres-no-magic-in-venture-
backed-home-care-8f5389528279#.q8mtn2qk1) So the real question from all this
bad press will it sway states and cities to start forcing uber to make this
change? If so it will definitely hamper who they can service and their
valuation.

~~~
xenadu02
> The mass market model doesn't work when you have to charge 40% more just to
> cover the additional costs in benefits, overtime, taxes, hr etc.

Perhaps there was no model to begin with then, no? That 40% doesn't magically
disappear. The cost is borne by the "contractors" themselves. In software
development that usually means charging a lot more than a salaried employee
costs because you aren't guaranteed work all the time and you need to cover
your own benefits.

Building a business on forcing people into slavery would be profitable in some
circumstances. Building a business on finding free gold coins buried in the
ground would definitely be profitable. Doesn't mean you have a sustainable
business.

~~~
seizethecheese
If there are enough people willing to work as contractors, then there is a
business model.

~~~
randycupertino
Oftentimes they're just exploiting uneducated and naive people who work these
jobs because they don't know any better, not because they want to be
contractors.

------
adventured
I understand why all the Uber negativity exists right now (really it existed
since early on), they've earned most of it. However, not a single thing in
that article does a good job of arguing why Uber is doomed. Having an
emotional reaction and a strong dislike to the way a corporation behaves,
isn't an argument for why it must fail. Just wanting something to be, doesn't
make it so, and most of what that article does is want Uber to fail.

Back in reality, once a technology company acquires the kind of market
position that Uber has, they almost never end up doomed. Quite the opposite,
they overwhelmingly tend to go on to dominate their market for a long time. If
disliking a corporation could make it fail, Monsanto wouldn't exist, and
Microsoft would have been broken into pieces by the government (the hysteria
around Microsoft for example, while different from Uber, was every bit as
extreme and angry in the tech world circa 1996-2000; tech people flat out
_hated_ Microsoft and its behavior with a special passion).

~~~
dandr01d
> Back in reality, once a technology company acquires the kind of market
> position that Uber has, they almost never end up doomed.

Most have, though.

~~~
justicezyx
This is an overblown statement lacks substance.

If by technology company, it means doing their business through smart phone
APP, then Uber is one. In this definition, this statement does not hold
strongly.

If it means that the company build their business around proprietary
technology that few can match, Uber is not yet. It's obviously that any decent
technical group can deliver a comparable service as Uber with reasonable
amount of VC money. The proof is that there are many such companies across
globe.

Uber actually realized this, and is strategically focusing on self-driven car,
which is no doubt a correct and necessary move.

~~~
AstralStorm
Except one that can be as well undercut by competitors. What goes next?

------
aedron
Uber is buying revenue. It is straight out of the 90's dot-com bubble company
handbook. Everything they do screams 'pump and dump'.

Problem is that a lot more external parties are in on the scam than most
people realize - media, politicians, other companies owned by the same VCs,
and so on. All of these can help them keep up appearances of being a
successful company and a promising future behemoth, even while the most basic
common sense says the opposite.

------
coralreef
I agree. Uber cannot monopolize the space because principally, there are no
barriers to entry, and no network effects or switching costs for users. This
means profits will simply be competed away until a perfect competition graph
is achieved.

I have yet to see any really solid arguments against either of those points.

~~~
sebleon
To the contrary, there's huge barriers to entry in every two-sided
marketplace. To retain drivers, Uber needs many passengers; and to attract
passengers, they need many drivers to keep wait times low. If you don't
believe me, ask Sidecar.

In an autonomous-car world, there's going to be huge initial capital costs to
buy the fleet.

~~~
kbart
Don't forget that they compete against traditional taxis too. For example, in
my town pretty much anyone can buy a taxi license even with a single car, get
a tablet with SIM card to receive orders, pay some amount to centralized call
center that serves many local companies 24/7 and also provides a user app
(which I like better than Uber due to it's simplicity).

~~~
r00fus
What's the app?

~~~
kbart
[https://play.google.com/store/apps/details?id=lt.etaksi.andr...](https://play.google.com/store/apps/details?id=lt.etaksi.android&hl=en)

But it's local, only useful to few towns in Lithuania. Still worth taking a
look at to see how simple and functional app should be done.

------
Grue3
Once I figured out that Uber loses money on each ride, I started taking it
more. I don't really like this company, and I don't think their valuation is
justified, but me being literally subsidised by SV venture capitalists feels
good.

------
laser
"amid findings that rider fares only cover roughly 40 percent of a ride, with
the remainder subsidized by venture capitalists", Hard for me to make it past
the first and second paragraph where false premise is laid. Addressed this
about a week ago. It's amazing how false information propagates.
[https://news.ycombinator.com/item?id=13682428](https://news.ycombinator.com/item?id=13682428)

"You can't take Uber's cut of passengers payments (~18%) and then divide by
Uber's costs to say 'passengers were paying only 41% of the actual cost of
their trips', as the bulk of the cost of the trip goes directly to the driver.
If you take this into account the rider is actually covering about 80% of the
total cost of the trip"

~~~
aanm1988
Fine, but earning back 80% of your costs is still no way to make money.

~~~
laser
80% means they could be profitable if they chose to, but it would harm their
growth. They're instead incentivized to raise to fuel growth given how
inexpensive private money is.

------
chrisherd
The general consensus seems to be, on HN atleast, that what they are doing in
unsustainable - which economically it obviously is - but how many people would
short Uber?

As far as I see it, if venture continues to fund its expansion Ubers access to
private capital from banks is almost infinite. Ride sharing might be a non-
zero sum game, but I fully expect Uber to buy lyft eventually and then it
becomes far easier to cherry pick any smaller upstarts when they reach a
certain scale.

In fact, Ubers forray into new markets would be far more economically viable
by doing so. Allowing smaller companies to establish in new cities or regions
before purchasing them makes a lot of sense as the business matures.

Additionally, like the deal with Didi shows, there is a massive incentive to
monopolise through partnership. I would imagine this is the route Uber would
go should any of the large tech companies decide to establish itself as a
viable competitor.

------
robryan
India seems like another China for Uber. Locked into a battle against a local
company and I would expect losing money.

Sure the cars use CNG and the drivers probably don't make much but the fares
are tiny compared the western locations.

------
jv22222
One thing I don't understand is, why can't Uber put the price up so that they
are 100% covered by fares? Or at least same price as Lyft.

What would be the knock on effects of that for the company?

I guess my point is, isn't the convenience of always having a ride 5 mins away
enough? And now thy are so ubiquitous no one could have that same level of
service as them.

~~~
lsc
>I guess my point is, isn't the convenience of always having a ride 5 mins
away enough? And now thy are so ubiquitous no one could have that same level
of service as them.

the ride is always 5 minutes away because they get so many fares. They get so
many fares because their prices are so low.

Now, they could go to lyft rates; experimentally, lyft gets here pretty quick,
too. but the point being that "5 minutes away" is a function of their critical
mass, which is a function of their low price.

------
Shorel
As long as the current taxi service is doomed first, it all is OK.

Taxis can improve their service, other companies can compete with Uber, etc.
All these solutions are acceptable.

Current taxi service in most cities is not acceptable. A small number of
cities have good taxi service. Most cities don't.

------
doener
[https://news.ycombinator.com/item?id=13752367](https://news.ycombinator.com/item?id=13752367)

------
viach
To succeed?

------
sebleon
tldr; a doom and gloom piece from someone that's never started a startup

~~~
acjohnson55
If being a startup founder is necessary to analyze a startup, I guess that
discredits almost all of the press. And the funders, for that matter.

A far more useful response would attempt to identify at least one flaw in the
author's logic.

~~~
sebleon
There's no way to prove or disprove this guys' predictions about the future.
His main assertion, Uber is doomed, is not based on fact, instead it's an
opinion based on publicly-available information.

------
mrmondo
Still doing great here in Melbourne, Australia, I'm in one right now actually!

~~~
temp
By "doing great" do you mean "profitable" or do you mean "still price dumping
until everything else dies off"?

~~~
megablast
He means he is getting a cheaper lift, nothing more.

~~~
mrmondo
Do I?

------
dongslol
Secretly, I think Uber _is_ doomed, but not so much because they fail as a
business, or because they maltreat their employees. They're doomed because
they're not truly building the future.

Uber wants to be the world's transportation infrastructure-- the default way
for people to get from A to B. Their thesis is that the way to do this is to
write software to hook up drivers with riders. Essentially, a taxi
replacement. But this marketplace is an artifact of the fact that cars need
human drivers. Without that need, the marketplace disappears.

In the next year or two, Tesla will come out with gorgeous, highly efficient,
self-driving cars, with fabulous software, all talking to each other on a
network that Tesla totally controls. That will put them in a much more
powerful position than the company that owns the software to route random cars
around. When that happens, Uber will be screwed. Maybe they could build their
own self-driving electric cars, but so far they're not doing too well. They're
learning, like everyone else, that it's not a problem you can just throw money
at.

The Model 3 will cost $35,000, and allow drivers to make automated, passive
income by having their car drive people around while they're at work or
something. Why buy an ordinary car and drive it yourself when you can buy a
slightly more expensive car and essentially collect rent?

Uber riders care about two things, the experience and the price. Tesla wins on
both fronts. Teslas are gorgeous, and feel like spaceships. (Take one for a
test ride). And the thing about price is that with self-driving cars, with
each ride you're basically paying for electricity plus a fee to the owner of
the car for its depreciation. The cost becomes less about server maintenance,
and more about who is better at building cars and writing car software. And by
the way, you can't just have self-driving cars. If you want to win the unit-
costs game, your cars have to be electric.

The fact that Uber thinks of itself as a taxi replacement is a sign of their
oldness. The end game for transportation can't be a taxi replacement, because
it'll be unheard of for people to drive each other around.

Tesla will have production limits, of course. But they demonstrate that
building the future of transportation consists of (1) building cars and (2)
getting them in front of people who want them, and that part 1 is _by far_ the
harder and more valuable.

I've been dumping my savings into Tesla stock, and look forward to being rich
in ten years.

~~~
SwellJoe
"The Model 3 will cost $35,000, and allow drivers to make automated, passive
income by having their car drive people around while they're at work or
something. Why buy an ordinary car and drive it yourself when you can buy a
slightly more expensive car and essentially collect rent?"

And...why does Tesla need to sell the car in order to rent it to anyone that
needs a ride? The car could be an autonomous rent-gathering vehicle that roams
the world 24/7 (well, going to a charging station for a few hours each day, or
in between rides). Cars don't need owners, if they can drive themselves, and
if the car maker owns the infrastructure (or makes agreements) to recharge
them.

Presumably Tesla cars already have the ability to detect most major failures
and could thus go to the shop for repairs without human intervention.

Whichever car manufacturer figures out electric self-driving cars can own the
taxi market, if they want it. They won't even need buyers anymore, assuming
they have enough capital to put a fleet on the road.

