
True price of an Uber ride in question as investors assess firm's value - callwaiting
http://www.reuters.com/article/us-uber-profitability-idUSKCN1B3103
======
cs702
It's the true COST of Uber rides that is in question, not the price.

In other words, does Uber have a viable business model?

Some analysts think the answer is no.[1] They argue that Uber will never be
able to charge prices in excess of the level required by a traditional
taxi/limo operator to be profitable, for long enough to recoup the billions of
dollars the company has burned by subsidizing the price of rides. Put another
way, even if Uber drives every competing taxi/limo operator out of business,
as soon as the company raises prices to cover costs -- vehicle, insurance,
maintenance, fuel, credit card processing, license fees, and (at least for
now) labor -- new entrants (and revived old entrants) would quickly come into
the market, preventing Uber from keeping prices up.

[1] For example, see [http://www.nakedcapitalism.com/2017/06/wheels-come-off-
uber....](http://www.nakedcapitalism.com/2017/06/wheels-come-off-uber.html)

~~~
mathattack
This is why autonomous vehicles are so vital for them, no? They can undercut
if they don't have to pay for drivers.

~~~
mulmen
The only way this is an advantage is if Uber themselves are the only ones with
autonomous cars. With the number of other companies working on this that seems
unlikely.

Autonomous cars will be a commodity, I think it's unreasonable for Uber to
point to that as their competitive advantage.

~~~
ethbro
From an article on here yesterday, there are also network effects to consider.

Who actually has continually refreshed map and traffic data from users?
Google, Apple, Uber, Lyft, Tesla, possibly some other auto manufacturers.

Better data allows you to provide better autonomous route planning, which
causes more people to use your app, which gives you better data, etc.

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ProfessorLayton
I've taken Uber Pool rides where I'm the only passenger to Oakland and it was
$8 for 18 miles. There's no way thats sustainable. Its too easy to open Google
Maps and pick the cheaper of the two ride shares.

Many times its cheaper for me to Uber somewhere than to drive + pay for
parking, and I will stop if its no longer the case.

I'm pretty price-insensitive in situations where I'm grabbing a few drinks
with friends etc. and I leave my car at home, and I price that in as part of
that evening's "fun" budget.

~~~
godzillabrennus
Got rid of my car in 2015 since I was living in a big city and working from
home.

Uber and Turo have been great.

~~~
Tepix
A large part of rest of the world has public transport for that and no need
for Uber.

~~~
ryanmarsh
A large part of the rest of the world does not have public transport for that
and needs Uber.

~~~
damnfine
And an even larger part of the world, even a majority of the USA, Uber, nor
public transport are viable. We dont all live in cities.

~~~
Tepix
The original post that I replied to was about someone living in a big city.

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Animats
_In 2015, Uber passengers were paying only 41 percent of the actual cost of
their trips._

Uber is unusual in that, for once, it's the big investors who are the suckers.

~~~
mulmen
Uber loses money on every trip but makes up for it in volume.

It really seems like an underpants gnome situation.

~~~
valuearb
That 41% number has no basis in reality.

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basseq
Scale-able business economics hold that if $unit_profit > 0, growth is good.
It sounds like $unit_profit is negative―at least in some markets. Which would
be a concern for long-term growth a profitability: the old "we lose money on
every sale, but make it up in volume" joke.

$unit_profit = $unit_price - $unit_cost

In Uber's case, the interesting question is market flexibility on price. Or,
another way, can Uber increase prices while maintaining market share, and if
so, by how much?

In personal experience, in my market, I believe there's headroom. I never step
out of an Uber thinking, "Wow, that was too expensive." (Surges
notwithstanding.) Nothing will make me go back to taxis. So the alternative is
Lyft or nothing at all. And I think there's room to grow.

------
Y7ZCQtNo39
Why don't they just experiment to fully determine the elasticity of demand and
then -- if they determine it's not profitable -- cut their losses while
they're ahead?

I think the strategy of trying to maintain a monopoly to starve others out is
daring. There's no guarantee fully autonomous vehicles will be the norm
anytime soon enough for the business to capitalize on it. There was an article
on here -- days, weeks? ago -- about how easy is it to fool the on-board
cameras of autonomous vehicles. Slap some black rectangular bars on stop sign,
and now all of a sudden it's recognized as a speed limit sign. I think we're
farther away from Level 5 than what is led on. Which is a bit of a shame, I'd
love to be in a world where I don't have to drive myself, but I'm also being
realistic.

Ultimately, in my mind, uber is failing at, well, failing fast. Don't dance
around the worry that your business might not be profitable at the price point
you need customers to accept. Otherwise, I think they're just wasting time.
You need to validate product-market fit as quickly as possible...

~~~
xapata
> fool the on-board cameras

Those kinds of situations can be solved by training on adversarial examples.
It's easy to fool them now, but perhaps not after they've prepared for that
possibility. Some years ago, one could fool a web search engine by repeating a
word dozens of times on a page. It's not so easy now.

~~~
Y7ZCQtNo39
If they're not training autonomous systems for these extremely simple use
cases, I'd imagine there wouldn't be much confidence in what else will be
missed by the "autonomous" system.

Out of the infinite number of possibilities one can encounter while driving,
can the systems be trained to apply common sense? You can't program an
infinite number of if-then conditionals for every possibility. The system has
to be able to "think" and apply reasonable interpretation, like any human
would when taking in any visual or audible input and converting that into a
vehicle maneuver.

The data today suggests that autonomous vehicles get into less accidents per
vehicle mile than human drivers, which is promising. But who knows if
autonomous vehicles are being used in complex situations representative of
human driving conditions: poor weather, non-highway driving, etc. If we're
putting them on the 101 in sunny weather, then yes, I'd expect them to perform
reasonably well and definitely better than the average human.

~~~
xapata
> extremely simple use cases

When's the last time you saw someone put black tape over a stop sign? These
adversarial examples are not simple use cases. They're situations that humans
rarely if ever encounter.

> apply common sense ... "think"

Ever seen the "invisible rope prank"? Humans are easily fooled as well.

> if-then conditionals

That's not the way statistical machine learning works. It's layers upon layers
of probabilistic functions.

> who knows if ... representative of human driving conditions

I've read reports that a few of the autonomous vehicle companies are indeed
testing/training on regular roads, which would allow a representative sample
of human driving conditions. Frankly, that's just basic science -- don't
experiment with a biased sample.

------
Fej
I imagine Lyft is subsidizing their rides similarly, if not to the same
extent? If not, how could they be competitive? Lyft's prices in my experience
are at least $1-2 above Uber for the same trip.

------
umbs
"A 2016 study by economists and Uber data experts found that when Uber alerted
passengers that fares had doubled - part of Uber's older "surge pricing"
scheme - ride purchases immediately fell by about 40 percent."

Based on my rough calculation:

1) Say, 100 rides at $2 each = $200 2) Double the price (surging), 40% ride
drop: 60 rides at $4 each = $240

Uber still made 20% gain in revenue due to price doubling, right? That's a
good thing for Uber, isn't it?

~~~
cuchoi
There is also a value on people getting used to your service.

~~~
erdle
especially if you enter that market later with a better service. let the uber
investors train consumer to jump in random cars while you perfect autonomous
driving... save your capital for manufacturing cars... and Uber will be left
with a very nice database... a pretty app... and no cars or drivers.

------
vinceguidry
I'm surprised people haven't noticed the gigantic shift in Uber's ability to
control prices and costs, the ability to tip your driver.

It's already been a game changer in the restaurant world, where proprietors no
longer have to price the cost of service into the menu. Sure, customers don't
like it, but it does the job of price discrimination where it matters.

I submit that the US would not be able to maintain as dynamic a restaurant
ecosystem as it has without tipping. Uber's business model is not sustainable
with human drivers without tipping. Eventually drivers will leave once the VC
money dries up and ridership declines due to price sensitivity.

Tipping is the safety valve that will allow ride markets to clear properly.
Uber wanted a clean, easy user experience, right up until it becomes
unsustainable. Now it is, and the only people who can keep the Uber service
afloat is riders.

~~~
gargarplex
I _hate_ tipping for Uber drivers. It has made the rides so much more awkward,
where the entire subtext of the (verbal/nonverbal) conversation becomes "what
will my tip be".

~~~
MediumD
Yeah, one of big reasons I preferred Uber over a traditional taxi was not
needing to worry about how much I'm supposed to tip. I would much rather the
driver make a fair wage, than have to figure out what to tip in each different
situation.

~~~
cratermoon
> I would much rather the driver make a fair wage

Never in anything I have read about Uber has there been anything more clear
than the fact the Uber drivers make a pittance -- nothing near a fair wage.

~~~
aianus
What do you think a fair wage would be? From personal experience it's a bit
more than minimum wage after all expenses which feels fair because the
alternatives for unskilled labor are so much worse (retail, McDonald's, etc.)

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murukesh_s
Wouldn't the same argument apply to Amazon as well, a company currently doing
very well(4th largest corp), despite not making profit for decades?

------
frgtpsswrdlame
Question for HNers: Do you think we've seen the peak of Uber's valuation?

~~~
Apocryphon
And a follow-up question: is Lyft (or other competitors) any more sustainable?

~~~
krrrh
As another followup, how does the valuation compare to a company like
mytaxi.com? App and service seem functionally equivalent, except that pricing
is done by in-taxi meter. Lots of Berlin cabs run both MyTaxi and UberTaxi.

Another point of comparison is Juno in Manhattan which took a smaller cut from
drivers in order to poach the best ones from Uber and Lyft. I've always felt
that competition for drivers will drive the profit margin down to what's
needed to support a small team of developers pretty quickly.

