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Uber Turns to Saudi Arabia for $3.5B Cash Infusion (nytimes.com)
230 points by taylorbuley on June 1, 2016 | hide | past | web | favorite | 332 comments

I've always been a little confused about uber's capital needs. When I first heard about uber, the part I thought was super-clever was that you wouldn't _need_ lots of capital because all the drivers would have their own cars. Leveraging the latent capital of one side of the two-sided market was the genius of it. (Airbnb too)

Same for the staffing -- hook up both sides of the market. No need to pay anyone out of your pocket -- in fact, probably there'd be some float for you there. Sure, maybe you have to subsidize one side at first, but not forever.

So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)? Is there a moonlander (driverless car) in the works? Are the G&A costs off the charts? How could that be, give that the software does the connecting? Is the software _that_ hard to write? I mean, it's good, but it ain't rocket science. (I'm not sure rocket science is even rocket science anymore.)

If I'm right that all the cash is still going to make the fares cheap to encourage up-take, it seems to me like Lyft (or another/any fast follower) is in a fantastic position. Let uber burn the capital to sell the idea to consumers, and then step in when it stumbles and walk away with the glory and gold. Place your bets.

> So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)?

I was in India recently. The driver said that when Uber started out, they'd give each driver Rs. 60K/mo (about $1000/mo) just to sign in for 10 hours/day, even if they did not give a single ride. Now, Uber pays by the number of rides and not a portion of the actual fares. So, for example, he said that Uber pays them Rs. 3500 for 17 rides. Most of my rides were about Rs 100 each; so Uber was taking a loss on each ride. But their system of paying by the ride is a genius idea: it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare. Now its in their interest to get the ride over with as quickly as possible, so they take the most direct route.

Edit: Sorry, "Rs" is the Indian currency, Rupee. There's about 65 Rupees to the USD.

Surely the length of the ride must also be a factor? Otherwise, the drivers would lose incentive to take on long rides.

There isn't any incentive sadly. Uber drivers absolutely hate taking long trips for this reason. Considering the extreme traffic issues, it typically takes 13-14 hours of driving to complete 15 rides. If a single user wants to go to the airport (50km away from city centre in Bangalore), it becomes difficult to hit that quota no matter how hard they try. They can't cancel a trip to the airport either, because if they cancel more than one trip in a day they lose the 15-ride incentive. So if they get an airport ride and they're short on time to hit the incentive, they request the user to cancel.

The strategy I've seen in response to this incentive scheme is to work 4 14-hour days, ensuring that they hit the incentive no matter what. The money made off the actual ride is peanuts ($1/ride, maybe) so they absolutely need to finish 15 rides to get $75. Working 4 days a week, 16 days a month nets the driver $1200/month. Which is an incredible income by Indian standards considering most graduates from good colleges make a lot less.

> it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare

With GPS, drivers can't do this.

Ask the customer, "you want the shortest route, right?" and wait for yes. Now you have explicit permission to drive anything that's arguably the shortest route. So you pick one that passes the largest number of traffic lights and watch the meter tick as you wait in front of each traffic light.

Padding by 300% is a challenge, but a bit isn't.

They can and they do. The onus is on the passenger to report issues such as indirect routes.

Time for a "taxi driver" firmware for Garmin devices? They're pretty open iirc.

If Uber, at first anyway, pay drivers regardless of rides made, then aren't such tactics philosophically similar to the medallion racket in America? To subsidize some part of the equation strikes me as underhanded, as opposed to purely being innovatively disruptive.

philosophically similar to the medallion racket

This comparison strikes me as bizarre. The medallion racket is lobbying politicians to use the force of the law to prevent competitors from doing business. What discordorama describes is paying people money to install and sign into your app. This is... either a poorly designed incentive system that was then fixed, or a clever campaign that gets a lot of future drivers through the earliest hoops and puts them in a position where it's easy to incentivize them to start driving. (Clever to the extent that that works.)

I can't see why you think there's a similarity, other than that you think they're both underhanded, and that they're both done by companies providing taxi-like services.

My sense of Uber has been a company using technology innovatively to provide a much better user experience, while using currently existing but idle resources (the cars and drivers that serve customers on Uber but otherwise don't for various reasons, reasons Uber has rendered irrelevant, hence the resistance they've seen). But if they need to subsidize their drivers or customers, what does that say about their value proposition? To me, it makes them just another company using mundane, old school tactics to outdo their competition. Medallions and subsidies are old school tactics. One keeps new players out. The other throws old players out. Neither has anything to do with the value you bring to the table.

Winner, winner, chicken dinner. You are correct.

No it's called priming a two sided market. Do you think supply and demand grow in harmonious lockstep?

They do if you don't mind waiting 30 years, but the Valley wants billions tomorrow.

I doubt it would take 30 years. More like 3-5. But when your competitor has the cash infusion, you better have it too.

In addition to this you have the problem of dissatisfied customers using the app for the first time and then never coming back.

They have to ensure supply while they bring on new customers (has associated acquisition cost) if they acquire a customer and that customer isn't able to purchase anything from them due to lack of supply (or in the case of uber the price is too high because of surge kicking in) then that customer will churn forever, and potentially share their negative experience with their friends.

So basically, nail supply, grow customers, don't run out of cash before the whole thing is working.

Eh, what about insurance companies? They "subsidize" those who have emergencies, using money from people who aren't having emergencies. The innovation there comes from evening out the cost of emergencies over time -- always pay a (relatively) flat fee.

If Uber's incentives for drivers result in a better experience for riders (shorter rides), isn't that a good thing?

What happens when there is a surge? There is also Pay by Cash option for Uber now to in India. Who gets the money at these times.

Uber also offers bonuses if they complete a set amount of rides per day. There was a problem recently due to this when a driver fall asleep and the passenger had to drive the car. [0]

I have also experienced Uber drivers asking for a new ride to somewhere nearby using the Cash option after I completed a ride just so that they can increase the number of completed trips.

[0] http://thelogicalindian.com/story-feed/awareness/watchread-u...

Surge is a multiplier. It pays out a multiplied fare to the driver and to Uber. Incentives like the one described are usually applied after the fare is calculated.

Paying with cash has the same distribution of money (more or less), it's just handled differently.

Grab is doing the same here in Malaysia.

What does "Rs." mean?

Rupees, Indian currency. BTW, that is a lot of money.

Rupees, the Indian Rupee. Currency.

I believe that your assumption of insane driver subsidies is indeed the reason they are sucking down so much money. That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

The only strategy I can see with the absurd amounts they are raising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them - much like Standard Oil did. In today's world though, I'm not sure that such a strategy can work.

It will be interesting to see what happens. Perhaps there is a chance of success. But if Uber were a public company, personally I'd be shorting every share that I could.

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

There doesn't seem to be evidence of that.

Uber is apparently profitable in its mature markets (mainly the US).[0]

The money is mostly used to prop up new markets, where you have to give lots of incentives to get both sides of the market in place fast (keeping supply and demand matched is the constant challenge of nascent two-sided marketplaces).

That being said, the fact that they're having to turn to Saudi money (nobody's preferred source) isn't encouraging.

[0] http://fortune.com/2016/02/18/uber-profitable-us/

"Profitable" under non-GAAP measures maybe. Their efforts to hit actual profitability in US markets has led to a lot of driver backlash.

I wouldn't trust a thing that company says about their cashflows until they are in SEC filings.

I got some blood testing machines I'd love to sell you.

While driving home this evening listening to NPR's Marketplace, Kai Ryssdal specifically mentioned that Forbes removed Elizabeth Holems from their list of richest self-made women. Her stake in Theranos is now valued at $0 [1].

Capitalism giveth, and capitalism taketh away.

[1] https://news.fastcompany.com/elizabeth-holmess-net-worth-is-...

It's hard to believe that she didn't take some money off the table during the frothy fundraising years of yesteryear.

According to this article her net worth is $400m. That's still a lot of money.


> Forbes said it has reexamined and revised Theranos' $9 billion valuation in light of recent investigations and allegations against the company.

> Citing conversations with venture capitalists and analysts, Forbes estimates that the company is actually worth a great deal less: $800 million. That takes into account its intellectual property and financing, according to Forbes' Matthew Herper.

> Holmes' 50% stake in the company would effectively be worth nothing at that valuation, Forbes concludes, because her investors would be paid back first (they hold preferred stock, not common stock like Holmes).

I laughed out loud when I read this

Uber and Lyft are paying their largest referral bonuses in the "mature" markets (major US cities, e.g. $750 in Chicago recently). They are churning and burning part-time giggers who leave after the bonus is earned or the incentive expires.

Recent Uber and Lyft drivers in SF have both told me that there are big incentives going out to drivers right now. I suppose it's conceivable that somehow the market is none-the-less profitable, but I don't really see how. They were saying like +$10 per ride if they hit the highest tier of payouts.

The question them becomes, did Uber need to use similar subsidy tactics to become profitable in its mature markets? If yes, then this is just rinse and repeat, no problem. If no, then I'd argue there'll be trouble ahead.

> The only strategy I can see with the absurd amounts of fundraising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them

The taxi company I drove for has contracts with many government agencies to transport poor & unfortunate people around. People have to get to their doctor (Arizona Medicaid) appointments, to the hospital, home from the hospital, foster kids transported to meetings with their parents, etc.

These fares pay better than Uber's non-surge fares.

/methinks "ride share" companies are run by founders suffering from delusions of grandeur. When they run out of venture capital, the realities of transporting people from place to place will reassert themselves.

I've heard that Uber is going after those contracts as well.

But Standard Oil literally bought the refineries, railroad, long term contracts on crude.

That would be like Uber buying every road and every manufacturer.

I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport. The markets with the best scale (esp outside of US) have good public transit. People aren't going to go from paying a £10 uber to a £30 black taxi in London, they'll go back to getting the tube or the bus home after a night out.

> I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport.

Also worth noting: Los Angeles is not like London or Paris or NYC where you can very often walk to a nearby mass transit station. In many parts of Los Angeles, Uber can serve as a useful complement to the public transport system. For example, one can quickly take Uber to a rail station which then travels the rest of your route underground -- thus avoiding traffic jams.

If Uber did not exist in LA, one would be more likely to just get in one's car for the entire journey: buses take too long to get you to the underground station, and taxis are too expensive.

It's also important to keep in mind that, in Los Angeles, Uber cars arrive really promptly by comparison to public transport buses. If your time in, say, the office, is really valuable, then the Uber service offers more value than a bus, because buses require a lot more time to transport you than an Uber car does.

I know this sounds like an ad for Uber, but I have no connection to the company, except as an occasional customer.

I don't know about London, but in my area an UberX ride is 4-5x the price of a bus ticket (~10km). This only gets worse as the distance grows. Public transit is not Uber's competition and it'll never replace mass transit.

You can split an Uber 4 ways but you can't split a bus fare. So if you go out with a few friends it becomes much more reasonable for short trips. If Uber gets more expensive, some people will go back to public transit.

>You can split an Uber 4 ways but you can't split a bus fare.

Like a taxi?

Uber will never come close to moving the sheer numbers that public transit does. You can't do it, not enough road to fit all those cars. Especially in downtown cores.

So Uber competes with public transit as much as taxis compete with public transit.

Yes, like a taxi. The primary benefits Uber has over traditional Taxis are 1. price; 2. they have an app, and it works well; 3. drivers arrive in vaguely predictable times that are less than 45 minutes; and 4. it doesn't discriminate as badly as cabbies.

> Uber will never come close to moving the sheer numbers that public transit does. You can't do it, not enough road to fit all those cars. Especially in downtown cores.

I never suggested anything of the sort. Especially not at commute hours.

> So Uber competes with public transit as much as taxis compete with public transit.

I think we agree. I just noted that if Uber prices rose, some Uber users would prefer to use public transit rather than pay higher Uber prices or Taxi prices.

The only thing uber has over most taxis in Germany is that they’re cheaper. And that they don’t have proper insurance.

2-4 apply to every taxi firm these days too

I wasn't sure if it was just me, but in that case what makes Uber so valuable? Are they banking on putting all the taxi companies out of business and then monopolising the market?

Not in the US. Taxi companies in US cities are terrible.

A great marketing win for Uber here. It became known worldwide as an "innovative technology company" even though outside US, it's only innovation is funneling SV money to lawyers so that they can maintain their illegal business practices while they conquer the local markets. E.g. in Europe we've already had all the other "innovative" stuff. But people don't notice it, instead naively buying the "Uber = innovation" marketing.

The funny thing here is that a couple cab companies have done seemingly irreparable damage to the worldwide taxi industry, merely by virtue of being based in San Francisco and allowing drivers to regularly flake or refuse service to slightly less profitable areas.

Interesting. In my mid-sized town, the local, independent taxi firm has all of them. The app, text messaging when you book, when the driver is on his way, when he's at your front door along with the make, colour and license plate of the car, etc etc.

That only holds true at peak hours. For off-peak uses, ride-sharing can compete with buses; in an electric car world, cost-effectively as well.

Taxis are a kind of public transit. So call me skeptical if Uber manages to sink taxis and this is part of their long term strategy, because unless they have enough money to become the sovereign in their dominant markets, they're going to end up being regulated by the local government should they supplant taxis.

I know what point you're trying to make, but taxis are explicitly not public transit. Busses, trains, planes, ferries, etc., are all public transit, regardless of whether they are publicly or privately owned. For-hire taxis, coaches, limousines, private jets, etc., are all private transport.

Interesting. I think this is a very valid point.

Eventually governments will get wise to the fact that this is not magic. Just a new way to dial up a ride.

Governments didn't allow individuals to install a radio into their private car & drive around making rides. Why should they allow the same just because you have a smartphone?

Nope, but most people who take public transit regularly already have a monthly fixed-price subscription. So that trip is pretty much free already, unless people start commuting by taxi...

I don't think the multiple is the relevant metric. People aren't going "should I buy 5 bus tickets or should I buy 1 uber x ride?" The number of rides is pretty much fixed. The choice they are making is "should I upgrade my ride experience, if it means I have to downgrade an experience in another area?" So you should rather compare the price to other "upgrades" people are buying.

Sample size of one, but I haven't used public transit in probably close to 10 years, and I use Uber all the time. I definitely would not turn to public transit if Uber shut down. I'm sure it depends on the city and the quality of its transit offerings.

I think buying up the whole value chain is an effect of monopolies, not the cause. DeBeers, for example, got their start in diamond mining. I suppose they could have stopped there, but when you're the only supplier, it becomes very easy to buy up those of your customers that are making money so you can capture more of the total cash.

So I don't think Uber needs to buy roads. All they need to do is have a broad enough base and deep enough pockets that they can drive everybody else out of business. Or, possibly better, keep a few sickly competitors forever on the margins. That way they can pretend they're really competing.

I think it's unrealistic to think that Lyft will be a sickly competitor. It has less cash to push toward subsidizing rides but I could foresee it sticking around, especially since many drivers use both ride share apps.

I thought that each network will stop giving you rides if you don't take them & you are in the area without a fare.

Uber's biggest competitor will be an open-source p2p-system, like openbazaar, that achieves the basic functionality of uber.

What advantage will such a system have?

Probably none. By having an open system, prices will invariably get pushed down (better for end users) which will deincentivize drivers (worse for end users)

There may be some equilibrium somewhere, but I don't believe it will be in the users best interest having to wait for cars.

Just my thoughts. I'm probably wrong.

By having an open system, since there is no longer a corporate middleman entity which takes a cut off a profit, and since anyone can compete, therefore prices will get pushed down. But just like any other perfectly-competitive system (https://en.wikipedia.org/wiki/Perfect_competition), the price in equilibrium will approach the marginal cost when marginal cost equals marginal revenue, not get pushed down indefinitely. I guess that would approximately equal to the market price of uneducated labor willing to drive plus the cost of the car+gas usage, insurance, etc. So price won't drop lower than what is needed to get people to actually drive the cars.

Now of course, maybe also need to be concerned about autonomous cars using this p2p app, in which case just need to pay a slave robot with the minimal energy it requires to drive.

In an open system, how do you ensure basic safety needs are met - eg, do drivers have licenses?

I sure as hell am not getting into a car with an unlicensed driver

a reputation system.

Once robo cars are here, it'll be game over. Google wins.

> The only strategy I can see

A more cynical version: they're trying to pump up their valuation, IPO, and dump their stock before anyone notices.

That would make sense if founder/employee liquidity was in the works, but from the information we have it's going straight to the company.

This investment didn't change their valuation.

Maybe it's the old "have some shares, then pay yourself $1M/year" racket then ?

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

It depends what you mean by "actual costs," but I would suspect that Uber's will still be lower than cabs' under any reasonable definition.

What you forget is that cabs also have incentives not available to Uber, such as lower fleet costs and tax advantages in certain cities. If you compare transportation costs without Uber subsidies, cabs are very competitive in some markets.

> I would suspect that Uber's will still be lower than cabs'

What people pay for an Uber still varies a lot by city.

At home in Ohio, Uber is more expensive than taxis in several cases, for example, to/from the airport, and short trips from the city center to the bars (2-3 miles). Taxis are also generally cheaper here for longer trips (maybe 30+ miles).

Similarly taxis can still be cheaper (and are still ubiquitous) in NYC.

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

While price increases do happen, they generally have nothing to do with driver incentives. Incentives for drivers are (usually) meant to build supply, not cut the cost of rides.

Über has enchanted the tech people. It's this golden goose that every conversation turns to. Listen to the Ben Thompson podcast -- if he was reacting to an article about ham sandwiches, he would tie it to Uber.

There's no reality here. No magic self driving electric taxis, no robot delivering your takeout.

18-24 months this thing will be like Groupon (remember they were magically saving writers by hiring thousands of them to copywrite Yoga Studio coupons) -- the insiders cash out, and the dumb money takes a bath.

That said, I thank the Saudis for subsidizing my next black car ride. God knows I've shipped $100k for gas to them over the last two decades.

For those curious... 100k / 20 / 365 = $13/day, at $3/gallon (est) = 4.56 gallons * 20mpg (low gas milage) = 91 miles/day, or closer to 30mpg would be around 135miles/day, which I guess is possible. I was just thinking it seemed like a lot. Now, a fair amount of that is varying levels of taxes... but it's still significant amount.

I'm currently doing about 40 miles/day commute for work, and know people who are driving a lot farther than I am... while I was married, I'd drive about 140 miles to/from home on the weekends, staying in the city during the week, put many miles on my car and truck back then.

You are not counting consumption of plastics, electricity generated by oil, combustible used by construction vehicles building the roads and buildings he uses, etc. But even by that sort of accounting, $100K sounds like it was intended to be hyperbolic ;)

Or have 2 cars (or god forbid, more if your kids drive) and include a few thousand mile trips here and there and it isn't very hard to get there.

Saudis benefit from our 2 mid eastern wars. Total cost of wars? According to Brown U. just the Iraq war is 4.4 trillion. http://watson.brown.edu/costsofwar/ That's a cost of $15,000 per person in the US.

I can't imagine the incessant legal and legislative battles they are fighting are coming cheap. That means hiring legal and policy people, paying a ton of money to outside counsel, lobbying expenses, the hidden costs of building influence.

And it's at a huge, because most of this isn't happening at the federal level (yet)—it's all state and city—which means they don't have the luxury of concentrating on the familiar, well-tread (and very insular) game of DC politics. Instead Uber has to have boots on the ground in a ton of places, and they have to have people knowledgable on the nuances of regional politics and culture. Things like the dynamics of a state's house vs senate, country executives, the port authority, taxi unions, legal systems, initiative systems, local elections, Chambers of Commerce. The list really does go on and on. It's a huge and complex footprint to manage.

Yeah I think that's probably true but as a private company we don't know how significant these costs are. I think it's questionable to have a business plan predicated on suing your way out of being considered a taxi when in pretty much every way that matters, except one, it's a taxi (or limo, or a hybrid) service. And that one exception is that it has a decent Ux in large part due the Uber app and its backend infra (which is huge).

Like spending $8 MILLION in Austin just so they could upset the citizens and lose what should have been an easy battle....

They hired away almost half of CMUs robotics department. That's gotta be expensive. They are building (in the city no less) an autonomous driving test track/facility. That's also gotta be expensive. Human drivers are just a brief stepping-stone.

I can't go into details, but it wasn't that much. The public number for "buying" CMU's NREC is $5.5 million.


That $5.5 million was a gift to Carnegie Mellon, I believe mostly for public relations. It does not include salaries, bonuses, or operating costs for Uber's Advanced Technology Center. The real cost was/is much higher than that.

Just to be clear:

If you spend $1B on actual physical vehicles or whatever (let's say... 500 $2M vehicles), then if you have 200 employees with an average pay of say $500k per year, then you could pay them all for a decade with another $1B, meaning that you'd have spent less than 1/6th of the funding they've taken to date, or still have $1.5B left of the Saudi Royal Family's hard earned money.

More briefly: no, obviously they are not spending their money on an autonomous driving program.

Exactly. They are burning cash to gain market share and will lose that share as soon as they stop. Not many barriers to these apps. Uber is going to implode.

Here's the thing -- ride sharing is the least interesting thing about Uber. Uber's expertise is on-demand logistics which is a totally new field at this scale. Ride sharing just happened to be an easy first step. Once they're able to move things around in real-time at a global scale the opportunities are massive.

This is the oft-repeated argument in favor of Uber ("they're a logistics company!"), and to be honest, it's quite hand-wavey.

Why is the expertise they have built up in car-hailing directly applicable to other logistics problems, and what advantage will they have going in that creates a barrier to entry for newcomers?

I think there is one answer to this for Uber, and its the same strategy Amazon stumbled into: have your "main" business be breakeven, but provide the scale needed for a pure profit business. In Amazon's case, the main business is retail and the profit center is AWS.

In Uber's case, this would look like individual ride-taking customers providing the demand to keep a critical mass of drivers on the road. This business is breakeven at best, likely slightly money-losing (sorry folks, but an increases in ride costs will quickly stamp out demand to pre-Uber days).

Then, with this "infrastructure" of drivers on the road, they can leverage it into nearly pure profit areas like last-mile delivery.

There's a huge catch, though. Amazon just has to buy new machines every 3-5 years. Uber's driver turnover is much much higher, and is absolutely killing them. All the claims of profitability are deceptive, because they assume current demand with current set of drivers; those statements do not factor in driver recruitment costs next month, or tomorrow.

Unfortunately this appears on the surface to be a structural problem. Current pay with driver-owned vehicles is probably not a long-term or full-time possibility for most candidate drivers.

Edit: to save a step, the predictable response to my objection is always, "but... self-driving cars!"

Yep. The reason that's the next predictable response is because Uber is holding off for self-driving cars, so it can become the logistics network for delivery.

That doesn't mean that they will, of course. I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.

> I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.

This is the non-profit I want to invest in.

If you are serious about it my contact is in my profile, the project description is in www.alfiv.org and some of the products already created at www.alfiv.com. Completely bootstrapped up to now. We've got a small prototype api.

They also won’t be able to compete with the likes of DHL, delivering within of a single day across the whole globe for affordable rates, and already – even before Amazon announced their drones – test flying with their own drones first test deliveries in some select cities.

Yep. Uber Eats is a joke, horrible experiences with that, it just seems like a joke they're running almost.

Amazon's profit center is AWS?


> The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, AWS generated about 67% of the company’s operating income in the quarter.

if you know the predictable response then why not answer it?

>ride sharing is the least interesting thing about Uber

That's the only interesting thing about Uber. Sure they have delusions of grandeur and they certainly have no qualms about putting out glossy marketing material extolling how they will change humanity, but today they are a taxi company.

That's the whole point of investing -- you're betting money on the fact that they can make their "delusions" a reality.

"on-demand logistics which is a totally new field at this scale"

I've heard this argument before, but how can this be taken seriously? Take DHL, or UPS - they do orders of magnitude more (in transactions) than Uber does, and I know it's not exactly the same, but I'd even argue that any parcel service is a lot more complicated than Uber. Hell, even the tiny postal service of my country ships the same amount of packages each day as Uber has rides.

The tech side of Uber is (dare I say it!) trivial (well the 'ride sharing' part, not the AV research side). It's the regulatory and plain business model angles that must be costing them.

People say this a lot, so I am not picking on you, but I don't get this argument at all. Amazon does it, so does Lasership and Seamless and Fedex and WalMart and a million other variations. I don't see any real reason Uber is more adept at adjacent non-core market verticals than any other top tier entrant.

Don't forget Domino's. They and others in their business had this whole thing with drivers using their own cars for short notice transportation jobs decades ago.

It's like uber for pizza.

more like uber is domino's for people

Maybe domino's could carry passengers one way. Order a pizza. Get a pizza & a passenger too!

That's a great point. To add to it, as Uber grows, it'll take on weight and inertia and become as rigid, bloated and inflexible as other successful Fortune 500 companies. They'll have departments, and department heads who want good quarterly numbers and will not want to rock the boat too much. They'll have shareholders who'll want a good return and not expensive moonshots. And I mean that all in a good way. There's nothing wrong with that. WalMart didn't miss out by not building a search engine 10 years ago. It's not what they know.

That's what they tell everyone when people start questioning the fundamentals. It's what they told me two years ago when I interviewed there. Linking drivers with riders is not a complex problem. It doesn't even require machine learning. It doesn't require ongoing research. The whole dispatch infrastructure is mostly node and redis running predetermined matching algorithms.

Good point. However, it is a huge operational risk to rely on on-demand hires for logistics. In addition, ride-sharing works because humans are moved with a given market price given by the taxi network. In logistics you compete not only against UPS and FedEx but with Amazon as well. And *mostly free shipping is hard to get cheaper.

Also, you know, Amazon are not idiots. They aren't like, "Hey, you know what would be fun? Being bent over a barrel on last-mile shipping so that our profits can go to justify Uber's insane stock price."

Amazon is investigating Uber-like delivery options [1]. If they decide that there's anything there (and I'm not totally convinced that there is), they'll build the service themselves and not pay Uber for the privilege. And if the service works well for themselves, you can bet they'll open it up to other people to use for a price, as they have for all of their internal infrastructure projects.

[1] Source for this claim: I worked at Flywheel, an Uber competitor. Amazon had a program to have our drivers deliver packages, and got fairly close to acquiring us, before deciding they would rather not. This was a few years ago at this point, information is not current, and I have no idea about the present state of Flywheel, as I do not work there any more.

The scale at which Uber operate is laughably small compared to real logistic companies like Maersk...

This is a great point. UberEATS and UberCats and put our stuff anywhere with an API? I'm starting to see the platform in action.

> Not many barriers to these apps.

Two words: network effect. More drivers means more users. More users attracts more drivers. This is precisely why we have eBay and Craigslist despite them both offering, by modern standards, objectively terrible user experiences. Suffice it to say I am extremely bullish on Uber, Airbnb, etc. sticking around for a whole.

Except taxis also experience network effect. There is no central 'hail a taxi' telephone number(at least in my part of the world, might be different in NY), every company has its own numbers, own dispatch, and own rates. They all compete with each other, and while some bigger companies might ride on the too lazy dont care just come and pick me up tail of the market, majority still chooses their ride based on the rate and previous experience (nice driver, clean car, speed).

In Europe small scale transportation is as competitive as cellphone market. Hmm now I am beginning to see the problem, in US you might not understand what a competitive cellphone carrier market looks like in the first place? :) Here you can transfer numbers freely between carriers, there are usually 3-5 providers to pick from and they all compete fiercely on price, level and quality of service. Changing companies is not a mayor ordeal, merely an ~hour of work to optimize your phone bill.

I didn't say I was from the US. The average EU state is the size of Illinois and has maybe three or four population centers. It's no wonder that there are many regional carriers competing within each country. God help you once you start crossing borders though--evidently there isn't fierce competition on price, or the EU wouldn't have stepped in and capped roaming rates!

The US has 4 major cellular carriers--AT&T, Sprint, T-Mobile, and Verizon. Most of the EU has just three carriers.

> So where's all this cash going?

In Singapore, Uber owns and operates a car rental subsidiary that has singlehandedly driven up the total cost of owning a car. [1] I suspect that this has been the case in some other cities that Uber operates in as well.

[1] http://www.straitstimes.com/singapore/transport/uber-bids-co...

That's an interesting development. Of course, that's how the Certificate of Entitlement system in Singapore is supposed to work: the island's infrastructure can support only so many cars on the road, and they have decided that this shared resources be rationed out by willingness to pay---so that the most economically efficient users get to drive the cars.

Of course, if they are more economically efficient per-car because they drive these cars more, the separate congestion charging might have to go up. Still a net win for the economy of Singapore---since they will be using the national share of capital sunken into the cost of cars more efficiently.

(I am talking about the cost the economy of Singapore has to pay as a whole to import a car. That's net of taxes and CoE which are just transfers within Singapore.)

I hope the government can stay non-populist, and not give in to shortsighted special interests.

In a steady state, the basic business is extremely capital efficient. Pedal-to-the-metal-all-out-global-land-grab stage benefits from lots of capital.

I think fare subsidy plays a large role, but I think it's both driver and customer acquisition across every market in the world. It's gotta be very expensive for them to recruit people to become drivers.

I've had the same though about their initial business plan leveraging latent capital and also can't understand the need for all of this funding but I tend to think that it is in fact being used to keep fares artificially low for the time being. Back in January I believe of this year they dropped fares ~ 15%. There's not many business that can sustain that type of cut overnight. So my guess the cash is needed to sustain them until most of the existing monopolies(local taxi) are out of business.

The other reason I see is China. I've heard estimates that and seen probably at least one story here on HN about Uber spending 1 Billions a year to try to compete in China and it's largely not working.

So the question is how sustainable is this valuation? It's too big for anyone to step in and acquire at this point at least in terms of its current model - cars with drivers, since the long term future is likely driverless cars.

my thought for the last couple years has been they are an information arbitrage/market maker probably similar to AMZN. I also have to imagine they are working on a self driving car.

On top of engineering spend they are basically at war with every single place they move into and refuse to go public. They can't continue to be just ride sharing when self-driving cars come out, so they need to capture that market (or some market) another way

> On top of engineering spend they are basically at war with every single place they move into [...]

You mean with every single jurisdiction they move into? (Customers and drivers seem reasonably happy. At least they are not at war.)

Correct, city, state and to some extent federal law. As well as various international companies and the international regional equivalents

Without knowing any inside info, my impression is there are large fixed costs entering a market. Once the double sided market is built there is a large cash flow, but it takes effort in each new city.

Additionally if they are doing R and D beyond this (autonomous cars, universal delivery service, whatever) then they need lots of cash.

I would imagine it's to put out the first driverless fleet. How else could this valuation be justified.

They need lower prices to subsidize costs and exterminate the competition, then the prices will go up.

Lobbying is my primary guess.

They are disrupting one of the most heavily regulated markets where government is protecting special interest groups. I would not even have bet any money that Uber could have taken off the ground. But they have done well.

Maybe Uber needs much more cash to fend off the alliance of Lyft (US) + Didi (China) + Ola (India) + Grab (SEA). Grab in Singapore just announced that you can now use the Grab app to book Lyft drive when in US.

apparently clever initiative from Uber+Lyft

Folks... How many years was Amazon not profitable? And what is that stock worth?

On the other hand, Amazon continued to improve operating margins and expand offerings which led them to profitability. Every indication is that Uber is selling rides cheaper than they cost - and the things they can do to reduce cost also disincentivize their drivers.

Secondarily, Amazon was public for years - which means they were required to become profitable. Uber doesn't yet have that pressure in place- and a new round of cash delays that requirement even further.

Sincere question, can someone explain to me a plausible scenario at this point by which early investors actually receive a payout even slightly commensurate with their supposedly incredible investment?

For example, how can someone in the seed round genuinely be able to cash out given the unbelievable amount of dilution that has taken place. What are the plausible scenarios where this occurs?

EDIT: Specifically asking in the context of a valuation that seems to way outstrip any plausible IPO (or complete takeover) valuation, and almost certain liquidation preferences that accompanied these later institutional rounds.

As long as the valuation of the company is going up more than the dilution, the value of existing shares goes up.

In an early stage company that might mean raising a Series A where the valuation of the company goes up 100% and shares are diluted by 35%. Value still going up.

For an ultra late stage company like Uber that means ~5% dilution in this round and the total value of the company might go up 10-20%. The value of your shares is still going up.

For simple back of the envelope math, assume you invested 10k into Uber's seed round valued at 3.5 MM. Then we'll simulate some excessive amounts of dilution, so let's say our 0.28% stake is diluted by 30% 10 times (which is a ton of dilution and way more than would have reasonably happened).

You are now down to 0.007% of Uber. 0.007% of 65 billion is $5.1 MM. Not bad for a 10k investment.

Based on more reasonable dilution estimates my guess is a 10k investment in Uber's seed round is worth somewhere between 25-50 million.

You aren't taking into account multiple liquidation preferences, ratchets, and profit guarantees on a downround IPO that are in the term sheets for this round.

Warning of such "dirty term sheets" is Benchmark's Bill Gurley. http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/


Did Uber accept any such preferences when taking investments? I thought only clueless entrepreneurs fell for such trickery.

It is widespread suspicion that Gurley's post was directed at Uber's latest fundraising round (as an early investor, they take a hit from these dirty terms)

How did you calculate the 5% dilution figure? I didn't see where in the article that they mentioned what percentage of the company the would give for that 3.5 billion. Different sourc?

I haven't worked out the specific numbers, but $60 billion is reasonable if you expect Uber to become a global near-monopoly on hired ride services and related logistical services they're branching out into. Whether that scenario is reasonable, is itself an open question, of course.

It seems divorced from reality to me, though I claim no real special expertise. They seem to have no more ability to be a monopoly than any other logistics or transportation powerhouse. The market cap of UPS is ~$90bn, and FedEx ~$40bn. And those companies have a lot of real actual assets* and (arguably) much stronger network effects than a local taxi replacement company.

It's not that it's so implausible it couldn't happen, it just seems to insert some very serious risk for a large swath of the equity holders, and makes me wonder why the company is so keen to assume that risk.

[* UPS has over $40bn worth of stuff like airplanes, trucks, land, and buildings on their books.]

Wow, you're right, hadn't thought of that. When you account for the (large) risk of Uber not reaching that stage, that should put them at $20 billion optimistically.

In fairness, though, neither FedEx nor UPS count as a near-monopoly either, but the probability of a real one is correspondingly less probable anyway.

> In fairness, though, neither FedEx nor UPS count as a near-monopoly either

True, but look through their annual reports to see their capital spending to compete against them. There simply is no other way then spending that money.

For example, Amazon leased a fleet of cargo planes:


One thing I'd like to know (and I am sure someone has answered this somewhere) is the amount of people using Uber in their own town vs. people who travel and use Uber.

If in their own town, it seems entirely possible for a local strong competitor to offer a better product or service. For travelers that is less of a risk since you go with the brand you know (which traditionally has been a taxi cab).

In particular some markets are so large that it would be a juicy target to attack just the one geographic area regardless of whether you planned to compete elsewhere (NYC for example).

Now of course someone could argue that this could have happened to opentable and it hasn't. But that is a much harder thing to knock off with the tie in to reservation systems.

In my experience this is actually happening. For example many of my friends are now using Dial-7 to get to and from the airport these days for business trips. It's just more predictable than wondering if there will be surge pricing when you need to leave, they actually are slightly cheaper, and you know what you're going to get.

Uber's user experience has a lot going for it but it's very, very far from flawless or unbeatable as a product.

For getting to/from the airport in my own city, I still use the old limo driver that I was using before Uber took off. Literally the same guy, not just the same service/company. When friends or family members fly down to visit I sometimes book him for them as well.

It's about the same price as Uber (I voluntarily pay more because I tip him generously), but it's a 100% guaranteed fantastic experience. With Uber, you never know who your driver is going to be. I've had some pretty bad ones and some pretty unfriendly ones who made me or someone with me feel uncomfortable.

Normal people don't take limos to the airport.

"limo" may be a reference to what is sometimes called a black car -- a scheduled livery service -- and not what we generally think of as a large limousine. Still, though, most people don't use those either.

They do. A "limo" is just a towncar. It's no different from something like UberBlack. Go to any major airport and you'll see a bunch of them lined up waiting for passengers nearby the taxis.

I started using this service before Uber because taxis were extraordinarily unreliable and this service was always spot on. And as time has went on I see no reason to switch to Uber for this particular well-defined and scheduled-in-advance ride.

I think you view of the world is rather skewed if you think "normal" people take a town car to the airport.

Even as a well-paid software engineer, I never use UberBlack—only UberX.

It's very location-dependent. In Pittsburgh, a taxi to the airport can be $55, and a towncar service $75. More importantly, you can make a reservation for the towncar in advance, and know that they'll be there, instead of playing 6am taxi roulette, which often does not work well. A lot of the faculty at CMU use towncar services for that reason.

Pittsburgh's monopoly taxi service from yellow cab is remarkably terrible, though, so this may not generalize. They're famous for simply not bothering to show up after you call them.

It's the same deal for me. I stopped using taxis for getting to the airport years ago when they simply failed to show up even remotely on time (either not at all or 30+ minutes late).

UberX is showing that it would cost about $60 to get to the airport with no surge pricing. With even 1.5x, though, that'd balloon to $90, and I've seen it as high as 2x during some times when I've needed to get to the airport after work.

I just looked up a fare estimate and UberBlack is about twice as expensive as what I pay. So I suspect you're just as abnormal as me if you pay anyone at all to drive you to the airport instead of driving yourself. That actually drives home my point of not using Uber in this case. Why bother when I'm getting the same service for 50% of the cost with someone I know, trust, and have actually become friends with?

If UberBlack is 2x the price you pay, what you pay is close to 2x what UberX costs (depending on the market).

It's fairly normal to take a taxi to the airport (particularly at your destination), but paying 2x the cost of a taxi for a private car service is definitely "luxury."

4x is not the ratio of the prices that I'm seeing from the fare estimator. Regardless, if you want to believe that I'm not normal, that's your prerogative, though I'm not sure what benefit you derive from insisting on this. Additionally I am highly suspect of your implicit claim that you're more "normal" than me if you regularly take Uber to and from the airport. I rarely even fly. If you fly more than twice a year and take Uber each time, you are spending more than me on rides to and from the airport.

Your choice of words is curious to me as well. For instance, you distinguish the limo service I use as being "private". What does that mean in this context, and how is Uber not private? You've misunderstood me if you think I have a personal chauffeur who exclusively works for me. That's not how towncar services work. It's basically just a guy and a few friends who have a tiny company where they drive people to and from the airport.

By the way, I want to point out that Uber's surge pricing could easily make UberX cost more than what I pay. And surge pricing is fairly likely to be in effect any time I'm trying to get to the airport.

Limo can just mean black Town Car.

No normal ( :) ) person cares about getting a fantastic experience when taking a taxi. They just want to get from A to B reliably and safely and without messing about with tipping.

Geez, yes, they absolutely do care. That's the entire reason why Uber took off to begin with. Taxis suck and entirely normal people hated them because of that.

"Normal" people are going to get upset when they need to be at the airport and their taxi that they called 30 minutes ago is still not there, so they call again and are informed that there are no taxis available in the area, then call again and suddenly one is right around the corner, but the driver's in a bad mood, demands a big tip, and berates you if you don't want to use cash. That was my typical experience with taxis before Uber, and that's why almost everyone I knew avoided them at all costs. It's also why I started taking a towncar to the airport instead -- because they were actually capable of being on-time and were only barely more expensive.

Now almost everyone I know uses Uber at least occasionally and many use it quite a lot.

We're mis-communicating, sorry. I agree with you. I really like Uber, hate old taxis for the reasons you say, and don't like Lyft because they force me to think about tipping and I think tipping is a nasty way to give everyone people a little moment of power where they can judge someone else's monetary worth.

By fantastic experience I meant bottled water and stuff. It seems that we agree that the main things are: reliable, easy to book, no messing about with money or tips.

My guess would be 90-95% locals in most/all towns.

You're talking about current market size, but world markets of such goods and services are growing, especially in developing countries.

There are no monopolies in this business. In NYC, Juno already has lots of drivers aboard. All the drivers here just keep all the apps open.

That's what an Uber driver told me the other day. He also works for a local taxi firm and uses Uber when there's little business from his firm.

I guess they're trying to put local firms out of business by subsidising fairs.

Uber has apparently raised $12.5 billion[1] and is valued at over $60 bilion. So seed investors are in fat city as long as the valuation holds. If the valuation goes down, it all depends on the preference multiples (which are likely greater than 1), and how low the value goes.

Uber has very significant revenue and growth (see the new Mary Meeker presentation), so they are a very valuable company. It may not be wise the way they are burning cash in China but hey we're all just spectators.

[1] Crunchbase says $9B and hasn't been updated to add in this money), https://www.crunchbase.com/organization/uber#/entity

It's only Fat city if there's an exit at that valuation. We're talking Theranos style valuations here that can disappear at any time. They better find an exit scenario before the music stops or it's a world of hurt, especially for the later stage investors.

The only thing that can ''take out'' Uber is widespread adoption of autonomous vehicles, whereupon ride sharing becomes a physical-capital intensive business (cars) rather than the current human-capital intensive business (drivers/their driver network). Autonomous vehicles (and the infrastructure to support them) significantly reduce the amazing network efforts that Uber has enjoyed to date. An investment into Uber at these valuations is a bet that this future adoption (to the point where it would disrupt the massive revenue Uber realizes from places like LA, NYC, and SF) is decades further out than some futurists predict. Even transitioning into this brave new world Uber still has a lot of brand value, although there will be a ton of competition (all auto makers such as Tesla, GM, Ford, and new entrants such as Apple, Google, and Amazon), ultimately benefiting consumers: enjoy your $12.50 ride (est. 35% of which will be local and state taxes) from SFO to 3rd and Market.

>The only thing that can ''take out'' Uber is widespread adoption of autonomous vehicles

Or their customers losing interest as driver/fare subsidies are slowly dialed back. I've already begun planning on Uber with hesitation as I have now twice been left "stranded" for ~30 minutes without an active driver available in my city.

I'm fine with the surge pricing which comes along with that but Uber is becoming increasingly unattractive to drivers and that's a real problem alongside increasing fares. Most of the casual drivers who fuelled Uber's early explosive growth are long gone now that the true costs of using your personal vehicle as a taxi became clear. Even the dedicated drivers are staying in on weekdays because Uber oversaturated the driver pool in small markets while cutting back on payouts. There aren't enough riders on a Tuesday evening for more than 1-2 drivers to dedicate their time and when those 1-2 call it a night, there's no one willing to stay up for a single $7 fare.

What city do you live in? I've traveled all over the US in the past year and haven't experienced this. I can imagine in a relatively remote, low-density city with sub 50k population it could become an issue at the most off-peak hours.

> The only thing that can ''take out'' Uber is widespread adoption of autonomous vehicles

That's ridiculous. It's not even a little hard to imagine that they could be overtaken by a similar competitor such as Lyft given a plausible sequence of events. In fact it's basically a certainty that they would be if they ever abandoned competing based on price. Which defeats a hell of a lot of the point of paying to acquire a monopoly in the first place.

Agreed. They wouldn't even need to be overtaken. It seems that a lot of the valuation is based on the premise that this is a global winner takes all market. If it turns out that's not true and there is in fact space for multiple competitors then the valuation could turn out to be a lot less.

If Uber has a moat of any sort to protect itself from competition, I'm not seeing it.

Once Uber has executed a tactical blitzkreig in a new city and incited a pogrom against the cab drivers, and fought the legislative battles with resistant city councils; the door is open for any rideshare company to glide in on Uber's coatails and take advantage of all that costly trailblazing without paying a dime.

Cynically: that's why Uber doesn't want to win that kind of war.

They want to get in, and then work with the locals to establish some `sensible regulation'. Regulation that just happens to be cumbersome enough to deter new small-scale entrants.

This is not true in Austin. The city passed a fingerprint and registration requirement and uber and lyft both left the following weekend. Smaller competitors are growing fast. I miss the nice apps and cheap prices but the alternatives are ok.

Oh, I didn't say it always works (or even that it works most of the time.) Just that it's an obvious strategy for Uber to pursue.

I didn't mean to imply they had a Windows-like monopoly. I do think there are some real network efforts around driver and rider density (especially if pool takes off). I think they settle somewhere in the middle between monopoly and commodity, and the fact that the transportation market is so huge helps them carve out a nice valuation so long as they have only a handful of competitors. I spend around $100/week on Uber and I haven't switched to Lyft even though I heard it would be a bit cheaper. On the other hand if Tesla offered me 50% cheaper fares to ride in their autonomous vehicle fleet, even if it was just available in my city, I would do it in a heartbeat.

There is also a definite risk that legislation will hit them hard. I'd say that's much bigger than the risk posed by autonomous cars.

I agree but I think it's more along the lines of ''we will tax you'' than ''we will shut you down''. Once the Gov starts to make money from you then you've turned them into a business partner with a vested interest in keeping you alive (see Airbnb).

>> Autonomous vehicles (and the infrastructure to support them) significantly reduce the amazing network efforts that Uber has enjoyed to date.

Still there might be a political play(using million of drivers, etc) to delay the entrance of self-driving-cars until 2 competitors are about equal, and than it might be better for one company to cooperate with UBER and get some advantage than to try to go alone.

True, but those are the obvious risks you take as an investor. And late stage investors often negotiate downside protection in the form of liquidation multiples or ratchets.

You can ratchet your way all the way to 100% of zero, but getting a greater percentage of negative is not the way to positive. I think what we're all sensing here is there's a colossal infusion of cash that's not supported by the business model and at some point, there won't be any more cash available. They better find a business model that's not so negative quickly.

Yes precisely. But early stage investors almost never get those kind of protections. How can they possibly not be getting wiped out just a little more with every sky-high valuation round with a preference attached?

It's possible to sell those shares on a secondary market, i.e. seed investors might have already cashed out by now.

Except in Uber's case where they are famous for keeping tight control on secondary sales.


I can't find the link because the huge media churn makes it impossible to find anything that isn't the most recent story, but didn't they ban Chris Sacca from the Uber office for hanging around and buying secondary shares from people?

I think the lockdown happened after that.

You're probably thinking of Sacca and Twitter:


He may have done the same for Uber, but I haven't heard anything about that at all.


"the Uber CEO got upset with Sacca for trying to repeat his Twitter move of buying up secondary shares in Uber from other initial investors."

I wonder why management would want to keep anyone from bidding up the share price?

It starts to create a secondary market for the shares, which means over time a price gets set. So the next time they try to raise money, this price becomes an anchor point rather than whatever arbitrary price Uber tries to set based on perceived supply & demand.

Yeah, probably. Even though at first the secondary market props up the price, it is indeed a price.

Ah good eye, thanks, hadn't heard anything at all about that.

Since I don't have Uber shares, I wouldn't know. But that's how it usually works.

Can someone who does have Uber shares chime in anonymously here?

Doesn't matter for Saudi Arabia. As long as their investment in Uber starts paying out before their oil runs out they'll be golden.

>plausible scenario

Uber becomes the cab of choice for 2.5bn people, the rough number who have cell phones. Value those at $50 each and you have a $125bn valuation for the floatation.

Not sure it'll happen but that's probably the kind of thing the investors are thinking.

"Uber becomes the cab of choice for 2.5bn people, the rough number who have cell phones."

I don't think they'll get anywhere close that number.

- First, it assumes that Uber has no competition, but there's Lyft, Didi (in China) and lots of local cab companies, some of which even have apps of their own.

- It's much easier to afford a cell phone than it is to be able to afford taking cabs on a regular basis. Many of the 2.5bn people who have cell phones live in poverty.

- Many of the 2.5bn people who have cell phones own their own cars, and would only use a cab if they were on a business trip.

- These 2.5bn people live in many countries, not all of which will agree that Uber drivers can be independent contractors. Uber might not want to enter markets under those conditions (they left Austin merely because of a dispute over background checks[1]).

[1] https://news.ycombinator.com/item?id=11652614

Google Play Store says between 50 and 100M installations...

Sure there is dilution, but the overall valuation has increased faster. I.e. the share of the pie is smaller but the pie has gotten a lot bigger, so you end up with a bigger piece.

Plenty of people can envision a $100B to $1T valuation at some point.

I don't understand your point about seed round investors since they are sitting on some of the biggest returns ever in the history of investing.

>Plenty of people can envision a $100B to $1T valuation at some point.

$100B sure. $1T ... maybe if you wait a while to let inflation catch up.

Alphabet, Google's parent and briefly the most valuable company on the planet has a market cap of 510.2B USD right now.

And no debt to speak of, I think. Normally you need to add the equity market cap and the debt to get the total financial structure of the company. (I just googled, and I think that sum is called the `enterprise value', if you subtract any cash holdings.)

See http://arstechnica.com/apple/2011/08/does-this-metric-make-m...

You're talking about one of the most successful companies in the history of business, in Google. Their speed to their present scale in terms of profit - from founding to now - is unprecedented. Add to that that they make most of their money from operating a hyper-margin software service in terms of costs (with nothing at all similar to Uber's drivers and regulatory problems), one that has been almost entirely unregulated (until now) and that also happens to be a quasi-monopoly. Using Google as the standard for what Uber could achieve, is extremely far fetched.

Perhaps I was too subtle. That was exactly my point.

(And if you discount my need to look smart, I think I got it across---you had exactly the thought I was intending to create in the reader.)

I really think that this isn't the place to be playing rhetorical games. I think discussions would be much simpler and clearer if people state their points clearly and unambiguously.

Presenting the evidence to help people come to their own conclusions can be more effective than hitting them over the head with a hammer.

My point was ambiguous to begin with: yes, Uber might very well grow to a trillion USD in valuation, but doing so would give it twice the market cap of any other company so far.

Nuances are important.

You can use a lot of superlatives to describe Uber's ascent. For starters, much faster revenue and valuation growth.

Putting aside whatever you think about Saudi Arabia or its government, it is inarguable that this move will be highly controversial. It makes me wonder why Uber pulled the trigger on this knowing there will be a backlash. Wouldn't it have to be because of pricing? I wonder if the leadership of Uber simply didn't want to see any dip in the valuation and Saudi Arabia was the only one out there willing to meet that price. It makes me think that $62.5 billion value is completely unrealistic.

First, public backlash has not stopped Uber from doing things before.

Second, all the smart money is either sitting it out and/or can't invest at these levels, and Saudi money in a tech startup is definitely dumb money.

"Excuse me driver, can you pull over for a minute? I need to beat my servant."


Do you know what came out of the investigation? This was in 2013.

Rumor has it they're working on an on-demand servant beating service called Uber Beats.

Funny...lol. I flew past this post and then suddenly started laughing.

What I find particularly interesting is Uber now has someone on their board who thinks women should not be allowed to drive? It will be interesting to watch this play out and take note of their policy and public statements. I can see many sources of conflict in such a decision.

Women are not allowed to drive in Saudi Arabia, but that doesn't mean that the particular official given a board seat believes that they shouldn't be allowed to drive (or even that the monarch believes that that's the way things should be, generally; just because its not a democracy doesn't mean that Saudi government policy isn't shaped by a desire to appeal to particular constituencies.)

I agree with your statement completely. The thing I notice is he works for the government and I would think he would never be able to say that openly. A competitor could instantly draw that into question and make them defend the point and use it as a propaganda tool. If he says women should be able to drive he goes against the kingdoms laws and those constituents, if he says they shouldnt or stays mute the propaganda one could spin is legion. "Uber board member thinks women shouldnt be able to drive for them"

I think you're overthinking the likelihood of that becoming a controversy.

Sovereign wealth funds routinely invest in companies which run contrary to government official policies. Their foremost duty is as investment managers, not politicians.

I dont think it will turn into a controversy at all, but a smart competitor versed in propaganda could easily hit that attack vector. "Ride with Uber and help raise money to suppress women!" "How do you feel as a Uber driver knowing board members dont think women should be able to drive and your actions help support that?"

SO if a woman does not drive she is suppressed? So far no woman was elected as a President either in US. Guess women are oppressed there?

not being allowed to do something is oppression.

The KSA had never had exporting Islamic law policy; they aren't al-Qaeda. There would be nothing against the government's policy about Uber having woman drivers in places that aren't KSA.

They just fund radical wahhabi madrassas all over Asia and the Middle East and provide support to terrorist groups like ISIS and Al Quaeda, no biggie...

Nonsequitor. The crown itself has no interest in spreading Wahhabism, but they do have an interest in keeping Wahhabis happy to avoid religion turning into an enemy of the state, or even worse, the state itself.

It's very well-known and documented the co-evolution of Wahhabism and Al Saud. Maybe now they're cutting back and distancing themselves but the damage has been done.

Uber has a higher valuation than actual car manufacturing companies (GM, Ford, Honda, etc)


Uber wants driverless cars and Saudi Arabia is already half way there...

“Of course we think women should be allowed to drive,” said Jill Hazelbaker, an Uber spokeswoman. “In the absence of that, we have been able to provide extraordinary mobility that didn’t exist before — and we’re incredibly proud of that.”

Of course we think women should be able to drive but we have no problem doing business in and with a backwards repressive society that doesn't believe that women have the same rights as men as long as they give us money. Besides such inequalities are a business opportunity since those repressed women need rides. Hey Uber how about "disrupting" the farce that is the Saudi Royal Kingdom.

Latest Uber worry: When the Tesla 3 comes out, Uber drivers clogging the fast-charging stations. "Free power for life" is a great deal when you're a cab.

I was going to speculate that they will charge for access, but Googling to get the Supercharger name right lead here:


Announced today, they will charge for access.

Wow, based on the access fee for the early lowest power Model S, along the lines of $2500, if not more?

That's what, more than two years of fuel for an economic petrol car?

I certainly hope they don't charge a flat fee, that'll just make the problem worse, not better. Once you pay the fee you'll be inclined to use it as much as you can, "just to get your money's worth". Sort of like how most people overeat at all-you-can-eat restaurants.

They need to make sure they charge more than the retail rate for electricity. Make sure it's cheaper to charge at home. It'll still be almost an order of magnitude cheaper than gas.

Sure, but it also carries a $15,000 premium over a car that at least matches it on various utility comparisons.

There's already a problem with people who live near superchargers using them for everyday charging. Tesla has already been sending angry letters to owners who do this, reminding them that the superchargers are supposed to be only for people on long road trips. They can't actually threaten to cut off someone's supercharger access, because the purchase agreement for every Model S specifies irrevocable free access to superchargers for life, so all they can do is send letters and try to talk them out of abusing it.

And as somebody else linked in this thread, they're going to start charging new customers for access when the Model 3 comes out, which will either fix the problem or make Tesla a lot of money off it.

Elon has always said "access to supercharging". Never said free. Supercharging is a high speed charging process via their stations (I think 440v). The price is completely separate from whether or not you can perform the action.

Hmm. How about a supercharge on demand service?

I know this isn't new, but if companies have the abilities to raise money from international entities like this, at these kind of sums. All the while, people are locked to their country of citizenship for working rights... is globalization in its Capitalistic form not claiming as prisoners its own citizens?

Uber needing 3.5B is a huge negative sign IMO. Clearly something is broken with their business model.

> Uber needing 3.5B is a huge negative sign IMO. Clearly something is broken with their business model.

If someone is willing to give you $3.5 billion dollars I'd argue you've got a solid business model. Either that you're just really good at raising capital.

Let's revise "solid business model" to "solid ability to sell the company's value". A solid business model doesn't require this sort of continuous cash infusion.

> A solid business model doesn't require this sort of continuous cash infusion.

Where is this assumption that this cash is required coming from? A very common use for investment is to accelerate plans which would otherwise unfold over long/impractical timelines. Another common use is to get ahead of competitors.

I know much of HN is very eager to see all billion dollar valuations deflate so as to prove that extremely conservative risk profiles are the only strategies worth considering, but there's nothing inherently troubling about a highly-valued, late-stage company raising so much money.

>but there's nothing inherently troubling about a highly-valued, late-stage company raising so much money.

Maybe not troubling, but interesting. There's definitely something interesting there. For one thing, nobody wants a representative of the Saudi government to sit on their board and yet they took their money. Clearly they didn't have a lot of suitors willing to dump money on them and clearly they had some (major?) need of capital.

> For one thing, nobody wants a representative of the Saudi government to sit on their board and yet they took their money.

Says who? If you want to expand in the Middle East then having high level officials with skin in the game is a plus. I wouldn't put it past them to ban the competition and pressure their allies accordingly.

> For one thing, nobody wants a representative of the Saudi government to sit on their board

I think there is a faulty assumption here; I don't see much evidence that the Saudi government is treated as some kind of pariah investor that everybody wants to avoid being represented on their board, such that they have to offer substantially more favorable terms or be the only player around before people accept their money.

> For one thing, nobody wants a representative of the Saudi government to sit on their board and yet they took their money.

Why do you assume that? It guarantees them favorable treatment in a growing market.

Loans are vastly cheaper than selling stock. Companies sell stock when they are overvalued, they take loans/issue bonds when they are undervalued.

> much of HN is very eager to see all billion dollar valuations deflate

where do you get this from? HN is news for the people building startups and I would imagine they like high valuations :)

> where do you get this from? HN is news for the people building startups and I would imagine they like high valuations :)

Nah most of us are getting the popcorn ready.

uber's got a solid ability to sell the "driverless car fleet monopoly" dream to possible investors. thus valuation = dream selling while acquired invesment = subsidizing current transportation. all those in uber dominant countries, you should enjoy cheap transportation while you can. all other should pray that uber gets significantly big yet still not all powerful so that there is some competition left to keep the prices in check.

require != want

That "someone" in this case is a notoriously poor investor, so maybe scale back that optimism.

There's a perverse logic in your statement, the fact that someone is willing to give you money does not mean that you have a solid business model. It does say something about the other party's risk tolerance however.

In my simplistic mind, their business model is to spend a lot of money today in order to create a monopoly tomorrow.

If you look at the Uber blogs and public statements, the company is far more ambitious than simply being the ride sharer with the largest market share.

The company's vision is to make transportation as seamless and reliable as running water. They have other projects going on right now, such as delivery truck automation and self-driving cars. I would consider them to be competing not only with Lyft but also with Hertz, Budget, and Enterprise.

Please, this is all hype to capture investors. What does Uber have other than money that gives them an advantage in self driving cars? Having users doesn't matter either. Google could add self driving taxi summoning to Google Maps overnight and we'd all be using it.

On my Android phone, when I look up directions for something, it shows something like this in Google Maps:

    Drive | 10 minutes
    Bus   | 35 minutes
    Walk  | 75 minutes
    Bike  | 25 minutes
    UberX | 13 minutes
This could be some add-in from having the Uber app installed; I have Lyft installed as well and it doesn't appear.

I agree that this "like running water" tag line is a bit over the top.

Its a standard feature on mobile, it does require the providers app installed, and there are a limited number of supported providers:


To me it seems like they're realising that there aren't actually that much money to be made by taxiing people around. Now they need another infusion of cash to transition or expand the business, hoping to find some other source of profit.

In what way is the ride-share market any sort of monopoly when there's little barrier to entry. In fact, I see new entrants in this market all the time. Hardly any chance to be a real monopoly unless they can somehow carve their way to exclusivity in a market, which is never going to happen.

Their long-term play is driverless cards--buy or lease fleet cars, then charge people a subscription to commute or use the cars a certain amount per month. The current business is building brand awareness and inertia.

I've seen this idea but can't understand it. By owning or leasing a fleet of driverless cars Uber only increases its operating costs

Well, for Uber it's do or die.

But for the manufacturers of autonomous vehicles- why would they sell cars Uber at a ~5% margin per car when they can offer the robotaxi service themselves and command a ~25% margin per trip?

That's easy. Because don't have to worry about finding customers, fighting off competition, and competing with their customers (like Uber). They just have to worry about building cars.

Further, they're also collecting massive amounts of data about commuting patterns that will give them an edge over new entrants once driverless cars are a thing.

Ahem. "cards" = "cars", "inertia" = "momentum"

I wouldn't be surprised if Uber and Lyft start lobbying for legislation that will make it difficult for new entrants in the market.

The ride-sharing market stops being a free-for-all once many people start to share a car and it's critical to find the most optimal route for them. Than having large masses of users become critical.

The only thing i find curious - why is UBER/LYFT so slow in attacking the true sharing market ?

Because people don't actually want to share a cab with a stranger, and wait while that stranger is dropped off.

At least, that's my bet.

Yep. I've been creeped on by drivers before. Not many, but it's enough that I've taken to cancelling more rides than I would have in the past (generally: male driver I don't know + low rating + nighttime = cancel). Having to deal with sharing a car with not just one stranger, but two or more strangers? Nuh-uh. At least most drivers won't creep on me because they want to keep their jobs; fellow passengers, on the other hand, don't have that incentive.

Sorry if I was not clear. I meant that it sounds to me that this is their plan. I didn't say they will succeed.

I tend to agree however its completely plausible the raising is used just to chase after new markets.

I don't think UBER has finished discovering their business model, and they probably knew so all along. their end model might be something like via(ridewithvia.com, just raised $100 million, an in-depth user review here[1] ) - shared transportation, filling each vehicle with 3-7 people at peak times at much lower costs.

The question now is: can UBER go from here to there ? and how fast ?

My answer is yes, i think they can. Assuming via has some unique software/skills(maybe), they can just buy them, and scale that service(drivers will be happy for more business, taxi users will share a good deal letting UBER reach non-taxi users fast).

[1]"I took Via to work everyday for a month. Here's what I learned" - http://www.brickunderground.com/live/commute-via

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