
Why Uber Won - realdlee
https://news.greylock.com/why-uber-won-5598a2a66561#.hz33sst9k
======
freyr
This article is built on the premise that Uber "won," but fails to define
winning or back up this premise with facts.

Does winning mean beating its competitors? In San Francisco, at least, this
doesn't seem clear at all. Most people I meet -- both drivers and passengers
-- prefer Lyft to Uber because they claim it has better technology, a better
brand image, better treatment of employees (correction: drivers), and fewer
instances of creepy and offensive behavior from its top management.

Does winning mean expanding faster than its competitors? This rests on the VC
assertion that Uber is playing in a winner-take-all space. The fact that they
can't starve out the competition on their home turf challenges this assertion.
Unless they can put up artificial barriers once they enter new markets, they
might just be clearing the way for their competition.

Or does winning mean transforming from a VC-fueled startup to a self-reliant
profitable company? Once again, no facts in the article, but they did recently
claim they'll be profitable in the U.S. in Q2 2016 (although losing $1B/year
in China) [1]. But unless they can differentiate in terms of price or service
(which, my experience, they've failed at), this isn't necessarily a sustained
win.

[1] [http://fortune.com/2016/02/18/uber-profitable-
us/](http://fortune.com/2016/02/18/uber-profitable-us/)

~~~
danieltillett
Uber has actually created the market for new competition to enter. Since they
can't stop their drivers from driving for a new competitor, all any new
competitor needs to enter the market is an app and a lower price / bigger
split with the drivers. Given any new competitor will not be carrying the
capital costs of building the network in the first place they will be able to
outcompete uber. The eventual winner is going to be the consumer as the market
becomes a profitless commodity service.

I have to say that I am surprised that uber didn't use the driver lawsuits to
lock up their network. If the drivers were employees then they could have
prevented them from driving for other services.

~~~
skewart
> If the drivers were employees then they could have prevented them from
> driving for other services.

This. I feel like this doesn't come up often enough in discussions about
whether drivers should be considered employees or not. A lot of people seem to
think that making drivers employees would be better for the drivers and have
no effect on passengers. But as soon as drivers become employees it's game
over for Lyft or any future competitor, and Uber's monopoly will let them push
driver comp as low as possible. As long as Uber and other companies have to
work to attract drivers and passengers they'll take a lower cut for
themselves.

~~~
mavhc
Surely Uber's reason to exist is to be ready to take over as soon as robocars
are good enough. In a world where taxis are cheaper than owning a car, the
winner is the one with the software and userbase that can organise the most
journeys efficiently, offering discounts to merge rides, running buses and
trains when enough people want to go from the same A to the same B

~~~
danieltillett
This explanation presupposes that running a ride share business is a good
entry point for running a robocar business. On the face of it the requirements
for running these two business appear to not have much in common.

------
devanti
Did Uber really win yet? They haven't exited yet. Their valuation is insanely
high and they are not looking to IPO, as they won't get a favorable price in
todays markets. They are spending billions in China where they are not leaders
yet (and unlikely to be). I don't see how they have won yet. They are walking
a dangerous path with no exit in sight.

~~~
duaneb
Not all companies look for short term profits over long term viability. Why
exit at all?

~~~
adevine
Because VCs want their money back before they're dead.

------
studentrob
Is Uber about to go public? I'll believe it has won once we see some more
numbers.

I am baffled how they operate here in Taiwan. Uber has been declared illegal
here. Drivers and passenger are issued fines when caught. Uber fully
compensates them. Now the laws are more strict; if a driver is caught 3 times,
his license is revoked. Yet there are still 5 cars within 5 minutes of me at
any time of day.

I don't understand how that works at all. It does not seem to be a good way to
get into the good graces of a country. I wonder how many places Uber operates
illegally and pays fines, and how analysts use this to calculate the future
value of the company. Do they assume Uber will one day be made legal in all
these places? That would boost the valuation but I'm not sure it's accurate.

~~~
Bombthecat
They want you to use the app and get the brand out there. They don't care
about fines because the end game is driverless cars.they will later on replace
all the drivers .

~~~
devanti
They'll run out of liquidity long before driverless cars go mainstream. There
are huge legal and logistical hurdles to face.

------
siliconc0w
Maybe I'm misunderstanding the author's point but I kinda disagree that Uber
has created a 'network'. To me, it's more of a commodity service. My use of
Uber doesn't really increase it's value for other users. At least compared to
something like Facebook where network effects are obvious.

I also think it's too early to call the game. They're doing well but again,
with a commodity service, it doesn't take much to fall behind. I see the
logical end game here as more of a marketplace where I can request a ride and
anyone can bid for for the job.

~~~
Dwolb
Your use of Uber does increase value for other users. Every incremental user
increases the probability that someone will need a ride at any given moment,
allowing fewer drivers to profitably service an increasing geography. This
means better service, on average, for the network.

Another benefit is every incremental passenger increases the utilization of
the current assets, spreading fixed asset costs around to more rides.

~~~
stale2002
Yup, I. Economics this is called a "two sided market" network

------
ericabiz
Investors love to spout this stuff. Unfortunately, it really isn't true (even
though as a founder who generally prefers to bootstrap, I wish it was.)

FTA: > If the cost of customer acquisition (CAC) is greater than the lifetime
value (LTV), a startup can grow itself to death.

Oh, you mean like Salesforce? No, wait, they had an IPO and they _still_ only
rarely show a profit. And they hold their LTV very close to their chest, so we
still have no idea if CAC is lower or higher than LTV.

> When investors talk about growth, we’re talking about sustainable growth.

No, you're not, because you continually fund companies that do the opposite.
Salesforce, Webvan, Pets.com from the first boom. Instacart, Uber, Lyft,
WeWork, HubSpot from the latest.

> The period of cheap capital and billion dollar checks has ended.

Same thing we heard in 2001 and 2007.

> In this capital constrained market, buying scale is no longer going to be a
> credible lever for the next generation of startups. ... Companies can no
> longer look to money as a performance enhancing drug for scale-up.

Until it is again. It wasn't OK to "buy scale" in 2001 or 2007, but it was in
1997-1999 and 2012-2014. And now in 2016, it's fallen out of fashion again.

Either we're going to have a raging depression, or the bubble will inflate
again. Hypothetically, _both_ of those scenarios could actually happen--a
depression followed by bubble inflation yet again.

This is why I suggest that founders tune out the idiocy and focus on building
a sustainable business. You probably won't build an Uber as quickly as Uber
did. But you'll be hugely protected against the inevitable downfall, and won't
find yourself cash-strapped and forced to switch gears quickly (notice Uber
now singing the "we plan to be profitable in most U.S. cities this year"
tune.) And, more importantly, you'll have built a life for yourself, your
employees, and their families that are depending on you.

~~~
danr4
Thank you.

I love it when I read an article, generally agree with it, feel like i'm wiser
now, and then read the comments and someone like you shows me I automatically
agreed with the author without thinking about it too much.

Gotta work on my critical thinking. Any recommendations on what to read?

~~~
Taek
I don't know if there's something you want to read so much as just have a
higher awareness of the active processes in your head. When you agree with
something, have a hook that asks why you agree. When you want something, have
a hook that asks why you want it.

This sort of awareness takes time to build, much like building muscle at the
gym.

~~~
danr4
But how to I train to be more aware? When I work out I have a plan of
execution - various exercises. I need awareness exercises.

~~~
a_small_island
Have a plan of execution for every article you read.

~~~
mooreds
Just one? I think you need a plan A and a plan B, and, for some of the longer
articles, a plan C wouldn't hurt.

:)

------
phamilton
An interesting parallel is baseball.

The Yankees are infamous for using money as a tool, buying up as much talent
as they could.

In recent years, the Dodgers have outspent everybody, but in an absolutely
different way. 25% of the Dodgers payroll goes to players not playing for the
Dodgers. Often, it's going to players playing against the Dodgers. Many
commentators have described this in similar terms. They use their deep pockets
a s a weapon. Instead of giving their players huge salaries, they on multiple
occasions have found teams struggling with expensive contracts for
underperforming players. They negotiate to take the player (and the bad
contract) and then require some talented youngsters to be thrown in on the
deal. They then trade away the underperforming player to another team,
subsidizing the contract substantially, and keep the talented prospects. While
some of these trades didn't pan out well, it was a pretty unique way to use
deep pockets as a weapon.

~~~
forgetsusername
> _An interesting parallel is baseball._

It's funny you choose baseball as the sporting example, as it's without a
salary cap.

If you look at hockey and basketball, this has been a strategy for a long time
because teams _have_ to remain below the salary cap. As such, bad contracts
are traded around all the time to make room for payroll. Stars sometimes
change teams for essentially nothing but cap space.

I guess it interesting that a baseball team is doing it in a world where there
are no spending caps.

~~~
askldfhjkasfhd
Baseball implemented the luxury tax system, which operates at a soft cap. So
while it's technically accurate to say no salary cap, there does exist a
financial mechanism by which team payrolls (and by association, player
salaries) are limited.

------
catplexion
I wanted to know if I'm the only one who doesn't find these apps convenient.
I'm in NYC and have been trying to use Uber and Lyft, but I keep finding that
whenever I request a ride, the driver usually takes too long to get to me
(e.g. gets lost and goes the wrong way), and in that time I see like 20+ taxis
drive past.

Why would I wait 5-10 minutes for an Uber/Lyft when I could, in the same
amount of time, be closer to my destination by just hailing a regular taxi?

Surely I'm not the only person experiencing this. I want to love Uber/Lyft,
but so far my experience has just been one of hassle and inconvenience. I was
motivated to try them out because of free credits, and I'm trying to use up my
free rides before they expire, but it's just been too painful so far!

~~~
jastanton
Biggest reasons for me:

1) Driver and I agree on a best route via mapping software, no more getting
lost, miscommunications or malicious route designed to get more money out of
me.

2) Payments are clear and fast. No more getting pressured and hounded for cash
when I only cary my card.

3) It's always a clean nice car. No more duct tape over check engine lights.

4) I know if there is ever an issue I know it's going to get taken care of
instantly by Ubers excellent staff. No more terrible customer service.

~~~
scurvy
#2 is going to change for you soon. As part of a lawsuit settlement, Uber is
going to allow for tipping, and the drivers will be allowed to ask for a tip
in cash at the end of the ride. It's going to be awkward and a real shock to
early Uber users.

~~~
marklyon
Easy solution to that problem: Solicit a tip, get 1 star. Uber is far more
likely to keep me around as a passenger who pays the published rates and uses
them frequently than a driver who continues to generate complaints from users
due to tip solicitation. They can easily replace drivers with ones who won't
do that.

~~~
scurvy
Most people will just concede to tipping with cash and it will be the new
norm.

~~~
regnet
Who on earth is carrying cash? I'll give one stars to any driver asking for
tips in cash.

~~~
what_ever
I think you are still in minority about not carrying cash. Also the drivers
rate you as well. Pretty sure you will be the one kicked off for low rating
before the drivers.

~~~
marklyon
I suspect the risk of a paying customer getting kicked off the system is far
lower than a driver who provides an off-brand experience.

------
kwikiel
Post success analysis have one serious flaw. Theory should explain not only
why Uber won but why Lyft lost. Assuming that some competitor would do the
same as Uber regarding their strategy but without having to change laws/work
on PR needed for drive sharing - why Uber strategy cannot be copied?

~~~
SilasX
Also, it's not even clear that one of them has won or lost yet. Lyft is still
going strong, and uber is now having to make major changes to how it deals
with tips. It's too early to write narratives for this.

~~~
prostoalex
Exactly. As a point of reference, Uber entered Russian market which already
had various competing providers such as Yandex.Taxi and GetTaxi, and did not
gain significant advantage.

------
Animats
The article says Uber "won" by spending heavily to get 5 minute response and
$25/hour driver pay. They no longer provide either of those, because they
couldn't do so profitably. Uber might still be the next Webvan.

------
dc2
Am I the only one who was slightly ticked off by this guy's writing style?

It was riddled with terms like "arb", clearly written for self-satisfaction.
If my life was wrapped around the VC universe, I probably would not care to
read this article, and yet for anyone who isn't so familiar, you need to
interrupt the reading several times if you want to understand what he is
talking about.

The conclusion of the article, hinted at the beginning, seems to run abrupt
without fully explaining itself.

------
msvan
Is capital really getting more expensive? Aren't we still seeing truckloads of
cheap cash still getting shepherded into private tech companies?

It sounds to me like this investor would _like_ to see a return to investments
in profitable companies rather than aggressive investments in growth, because
it was more fun for him when he had fewer competitors willing to throw money
around. Is there any evidence that this trend is actually reversing as opposed
to just being wishful thinking?

------
askyourmother
Has uber won? When? Did the rest of the market get told? Given the fact they
are still embroiled in legal wrangles worldwide, still throwing a billion
dollars a year into a hole in China, had to recently settle a large case with
their drivers, face competition from Lyft as their friendlier rival, from lady
only driver firms to deal with rapey and gropey uber drivers, overall, sounds
like a winner. Or does it?

~~~
tim333
Indeed I'm not sure you can say Uber has won until they maintain market
dominance without having to throw in more investor money. It's pretty hard to
compete with them when they are subsidising fares but when they stop maybe
less so.

------
1024core
I am traveling right now in India, and Uber is a huge boon: no more haggling,
no hassles, no arguing: just call up Uber and go. I've been making it a point
to ask the drivers what they think about Uber. The interesting part is, when
Uber first came to town, they would offer a flat fee: Rupees 60,000/month, as
long as the driver kept the app open 10 hours/day, and didn't refuse rides. So
many drivers signed up, that many of them spent the entire day just hanging
around, giving 2-3 rides/day. So Uber outspent the competition heavily, taking
huge losses. But now, with the glut of drivers in Uber, their payment has gone
down significantly: they pay based on the number of rides a driver makes. For
example, for 17 rides, Uber pays about Rs 3000. The problem is: most rides are
< Rs 100, so Uber is still offering rides at a loss.

So, the answer to the question "why Uber won" is: by spending lavishly.

------
kordless
Uber won because a massive amount of stored trust (capital) was put into it
while users were trusting it would do what it said it would do then, now and
in the future. Being able to change the business model and not violate user
trust, as most software does eventually unfortunately, is much tricker. Saying
they "won" when the game is ongoing is illogical. Post this in 20 years when
Uber is still a brand, the customers (and drivers) are still joyful (and the
company isn't bringing them suffering) and then you can talk about success.

Huge cash inflections into companies isn't helping user experience. In most
cases, the game theory behind the huge cashouts causes user suffering. It's
time to think differently.

------
pbreit
I think the main reason Uber "won" is because starting off with the black cars
was a much more effective launch approach. As everyone knows, 2 sided
marketplaces are very difficult to build. Uber solved this by stocking one
side with a pre-existing, semi-organized group of providers. After hooking all
the riders, UberX became much easier.

Coupled with Uber's more aggressive practices.

~~~
cb18
_I think the main reason Uber "won" is because starting off with the black
cars was a much more effective launch approach. As everyone knows, 2 sided
marketplaces are very difficult to build. Uber solved this by stocking one
side with a pre-existing, semi-organized group of providers._

That's a very astute observation.

Anyone have any ideas of other markets(or potential markets) where such an
approach could be translated?

------
thinkmoore
Does anyone else find the first chart in this post ominous? 2014-2015 is
looking a lot like 1999-2000, and nothing seems to suggest things are that
different this time around...

------
jernfrost
Great explanation of how Uber could get so big. I never really understood why
Uber made it and nobody before, because the App itself does not seem like a
revolutionary idea. There must have been apps like that around already and
lost of people must have thought of it. I mean I certainly thought of this
long before I heard of Uber.

But the missing piece of the puzzle, which this article filled in was that it
was never really about the app. It was about using money cleverly to get this
thing going.

Now Uber has first mover advantage. But I can see many potential problems for
them. They have advantage in name recognition and momentum but I can't see
much else advantage.

The tech should be easy to replicate. So I think what will matter in the
future is who manages to figure out the best way to use autonomous vehicles.

In this regard I'd rather place my bets on Tesla. If they as they hinted get
into doing Uber like stuff in the future with autonomous cars, they have a
clear advantage as they got advantages in more fields than Uber which can
enhance this particular business.

By controlling the cars, they are pulling in more data than anybody else on
autonomous driving at the moment. They are already beating the master data
collector Google, collecting more data then they do in a year on autonomous
driving.

------
hodgesrm
I don't fully understand the conclusion that "the period of cheap capital and
billion dollar checks has ended." Uber won in a unique market place primed by
underutilization of personal vehicles and widespread customer dissatisfaction
with taxi services. There's even an argument that the so-called gig economy is
mostly Uber and its competitors. [1]

So yes, companies in less valuable markets are going to have a tough time
getting funding as VCs pull back. But it does not follow that if you found an
equally valuable market somewhere else you would not have access to funds to
make it big. There's still a lot of money out there looking for good
investments. I don't see a complete downturn as predetermined without some
other externality at play.

[1] [http://blogs.wsj.com/economics/2016/03/28/the-entire-
online-...](http://blogs.wsj.com/economics/2016/03/28/the-entire-online-gig-
economy-might-be-mostly-uber/)

------
etrautmann
In SF the quality of Uber's service has dropped so dramatically in the past
3-4 months that I no longer use it anymore. It's completely commoditized and I
have no qualms about switching to Lyft when they have a better product.

~~~
chambo622
Curious what you mean by the quality of service dropping? I use both Lyft and
Uber pretty regularly (multiple times a week) and have had only positive
experiences in SF.

~~~
etrautmann
It started out awesome but recently I've had:

1) I can't see estimated time but lots of cars around. I then book and it
estimates > 12min wait time. If I cancel, it charges me $2 anyway because
reasons. 2) a number of drivers cancel after 10 min of waiting - this happened
3x in a row a few weeks ago so I finally got a car after 40 min. ...

Friends with similar experiences...

------
tostitos1979
What is an "arb"?

A quick google didn't do it for me :(

~~~
arthurcolle
arbitrage

~~~
tostitos1979
That's what Google returned but I didn't think it made sense in the context. I
guess he means to say you can trade one for the other? That doesn't make sense
to me to be honest. I did like the article though.

~~~
galdosdi
I think the author is using "arbitrage" a bit loosely/metaphorically, as "a
new opportunity that seems low-risk that has only just appeared, and, being
such a great opportunity, will thus likely only exist briefly till the first
few actors exploit it till it's not really an available opportunity anymore"

The looseness comes from the fact that traditionally an arbitrage opportunity
really is theoretically nearly zero-risk while I think the author is using it
here in cases where it's a bit more complex. But the analogy at least works in
highlighting the aspect of these opportunities being temporary in their
existence, like the joke about an economics professor and student seeing a
twenty dollar bill on the ground and the professor ignoring it, quipping "If
that was a real twenty dollar bill, someone else would already have picked it
up off the ground"

------
stcredzero
So many bandied acronyms. CAC?

~~~
jonbishop
It stands for customer acquisition cost.

------
idiot900
Still remains to be seen what the long term costs are to be an Uber driver.
They are probably not that favorable when considering depreciation, insurance,
etc. Most likely there will be a slow exodus of drivers until the market
reaches equilibrium and Uber et al are not so distinguishable from traditional
taxis.

------
dataisfun
I didn't see any comments mentioning self driving cars, which to me suggest a
cleaving of uber's marketplace. If all cars were to suddenly become
autonomous, uber could be easily bested because their liquidity has become
beside the point.

------
amelius
Uber is a simple service, for which competition is natural, in theory.

If in practice this turns out to be different, then this is a failure of
capitalism, and somebody ought to do something about it.

------
ChuckMcM
I wonder if the "easy money" period is over or just resetting. There still
aren't very many ways to get "good" returns on cash at the moment.

------
shalmanese
I think the more interesting story isn't how Uber won but how Lyft lost.

Sidecar was actually first out of the gate with a ridesharing product but Lyft
wasn't far behind and soon clearly dominated the space with their ingenious
pink mustaches. Sidecar suffered from a classic first mover's disadvantage in
that they were overly concerned with regulatory risk which made them too
timid. Sidecar's opinion was that the mustache overstepped the bounds between
employer/independant contractor and that the CPUC would slap down Lyft and put
them out of business (similarly, the bid model that Sidecar used was driven by
similar concerns despite the noticeably poorer user experience).

I've never seen a product achieve such ferocious product/market fit as Lyft
did. During its first year, it was extremely common for there to be hours at a
time when drivers were immediately snatched up as soon as they ended their
last ride and passengers would wait for half an hour at a time, eagle eyed
staring at the screen to snatch up a car. The level of inconvenience that
people were prepared to put up with just to use Lyft's product spoke to just
how much of a radical upgrade in user experience ridesharing provided and a
hint as to the explosive growth that was to come.

Lyft was in the enviable position that they held a near monopoly in this space
for almost 18 months as Uber tried to reconfigure itself and I remember
hearing Travis speak about how the cheaper Uber would be Uber and being
skeptical that he could ever overcome such a huge first mover advantage.

In the face of all of this, Lyft could have made the "standard" startup
decision of prioritizing growth above all else and taking whatever compromises
were necessary to service that growth. Instead, Lyft took an alternate path in
which they placed driver quality as a longer term priority. I remember during
even the most insane supply/demand mismatches, Lyft was still rejecting some
50%+ of driver applicants for not being "Lyft material".

I think against almost any other competitor, Lyft could have made the same
choices that it made and come out ahead but Uber's raw ability to execute is
something that, regardless of what you think of their ethics or culture, has
to be admired. Uber is one of those extraordinary companies that prizes
execution ability culturally in the same way that Apple prizes design. Lyft
should have rolled out into other cities faster, Lyft should have gone
international, Lyft should have dropped its prices more aggressively and taken
the hit on driver quality. All of those are recoverable errors unless you're
facing up against someone like Uber who rolled out an aggressive expansion
plan and then relentlessly executed against it with the wheels barely falling
off.

This is all easy to see with the benefit of hindsight but I remember living
through that time, with friends at all 3 companies and watching them grope
towards an uncertain future while doing the best they could.

~~~
narrowrail
I quit reading Techcrunch in ~2010, and by that time Arrington had already
posted about 'UberCab' many times. So your comment seemed off to me, and I
went to Wikipedia: it looks like both Lyft and Sidecar were started _after_
Uber.

~~~
shalmanese
Uber was offering it's black car service which wasn't really in the same
product category. Uber was having moderate traction with but it wasn't the
same insane demand that Lyft and Sidecar had. It wasn't until Uber rolled out
UberX that it became the monster it is today.

------
known
Why Torrent Won

