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Why I don't believe in Uber's Success (benjamin-encz.de)
314 points by Ben-G on Jan 19, 2017 | hide | past | web | favorite | 398 comments

The commercial airline industry has lost money over the whole of its existence. If I'm flying from NYC to DAL, I'm flying the cheapest carrier (with a slight nod to Frequent Flyer programs).

I'm not sure how Uber, Lyft, etc are any different than Southwest, American, etc. Cab companies (which I hate) and airlines saw this years ago and promoted regulations to protect their fees (and, thereby, wages). Airlines lost those regulations under Reagan.

To wit, I had dinner with a few friends in SF and it was raining when we left: "I'll call an Uber and we can share. ewww... 250% surge pricing or $90. Lemme check Lyft. Sweet, Lyft is about $50. Our Lyft will be here in 3 minutes." There was zero friction switching from Uber to Lyft.

Winning in this market seems to require a Level 4+ autonomous car [1] monopoly. Level 4+ autonomous cars are not going to be here anytime soon and Uber's not going to have a monopoly. So it's going to continue to be a gnarly pricewar, made worse by Level 3 (in which the "driver"/pilot is a student doing his homework for $5/hour, taking over driving once or twice per hour).

Not sure I agree so much with the body of TFA but I certainly agree with its conclusion.

[1] http://www.techrepublic.com/article/autonomous-driving-level...

TFA and a lot of commenters here don't seem to understand that Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers. That's their dream. They even admit this in public. [0]

The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry, they'll open up the biggest transport market ever created (the intentionally-inefficient American built environment). They're taking all this VC money and expanding so aggressively not because they like the scale, but rather because that's the only way to compete with private car ownership.

[0] https://twitter.com/travisk/status/564065776005808128

I can believe that's their goal: I see little reason to believe they'll succeed in it, beyond making the market a bit bigger than the current taxi/minicab market.

Just because they're very good at supplying an unlicensed minicab service (apparently subsidised by VC money in many areas) doesn't mean they can (i) run a minicab business at a profit so much more efficiently than every other minicab business in history that the average American decides they can sell off their four-wheeled status symbol and commute in a surge-priced Uber or (ii) compete with the manufacturers in supplying self driving cars on demand, whilst likely operating at a huge disadvantage in vehicle acquisition and maintenance costs

I just signed up for the 4 weeks of flat rate uber pool in NY. $89 and you can use Uber Pool as much as you want for free between 6am and 8pm inside Manhattan.

Previously I would spend $117 in a monthly metrocard.

As the article explains, that $89 is heavily subsidized. If you had to pay $200 for that same monthly pass you would probably reconsider.

Isn't the subway subsidized as well?

I know several friends in San Francisco that got rid of their cars for Uber. They spend about $500/month on Uber. Owning a car in SF is more expensive than that: monthly parking, insurance, parking where your destination is, gas, etc.

I know of whole demographics who don't even get cars because they can take the bus.

I know of whole cities who don't even get cars because they can take the subway!

I know of whole cities who don't even get cars because they can ride their bikes!

at the very least their drivers will still own cars.. if buying a car is all of a sudden not normal, then it would cost A LOT to become an Uber driver.

Car ownership is already not necessary. Both Uber and Lyft offer a car "rental" or leasing program where you will be given a car to use for the job for a fee which will be waived or reduced if you drive enough and do enough business with the car. They profit off of this or at least recoup money if you fail to hold up your end of the contract or in certain cases, you pay for the mileage you drive outside of work hours. This drastically reduces the capital necessary to start driving for these companies.

So, in this aspect they operate exactly like a crappy, unlicensed cab company. Why don't they just make their logo the Jolly Roger?

either way this drives up cost because it raises the amount a driver must make a month. obviously we dont have concrete numbers but if people are switching to uber only they probably would want to save a lot every month versus owning a car.

But when the driver is a computer those wages become effectively zero.

Yes, because offshore tech support is free...

yeah so they have to wait until then which is god knows how long.

Can't say I speak for everyone but I mostly walk to get to places and drive when I have to. I live close enough to an ALDI to get most of my groceries by walking and I can walk to work too.

Owning a car means always needing a parking space, going out to get gas, paying for insurance, inspections, etc, having to be capable of driving (because when I'm sauced on a Saturday night I really want to get greasy food, but I can't drive soooo...).

If an autonomous car-share program cost about as much as the car payments and gas alone for the the amount we would use it, we would sell our car in a heartbeat. A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.

The thing is that this is really only true for people in dense urban environments. For instance, parking is not an issue in suburbia. There are use cases, like getting from your home to the train station, but it's not nearly as universal as it is for people who can currently get by with no car at all.

I think you're being too kind to the parent. This is true for a very small subset / archetype of people. The majority of the country has much different situations and desires than just walking to ALDI.

Had to lookup ALDI on youtube. Their logo looked familiar to Hofer brand, then I found the wiki explanation. Aldi Süd operates as Hofer in Austria and Slovenia.[1]

[1] https://en.wikipedia.org/wiki/Aldi

They're a different branch of the family that owns Trader Joe's. In the US they're a super-discount food store--think in terms of a strategy for a limited inventory of canned goods and things in that vein intended to undercut Walmart.

I agree - car ownership is expensive. So we get by mostly on our bikes. Reasons we still have a car:

- Moving big things - Shopping for big things - Camping - Driving out for the weekend to visit family 1.5 hours out of town - Baby in baby seat

None of these things can easily be targeted by Uber. I rarely use taxis and uber, and my friend's that do, use it as replacement for public transport and not their car.

- Moving big things, Shopping for big things.

Van rental (with driver) are a thing, at least where I live, where personal car ownership isn't really a thing.

See for example: https://www.gogovan.com.hk/en/

Big place to shop (e.g.: IKEA) offer delivery.

> A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.

Isn't that exactly what makes it a status symbol? Keeping up with the Joneses, and all -- it's one thing to not play the game, but that doesn't mean a lot of people don't, and this seems to just be agreeing with what makes it a status symbol.

Most American cities are sufficiently un-dense that things like "always having to look for parking" aren't big deals. Laws ensure places have enough spaces (these policies are very pedestrian-unfriendly, but such places are more car-friendly than the dense coastal cities). Traffic is slower at rush hour but a non-issue any other time in these places.

The average car these days lasts 10+ years. Perpetually renting cars is going to be seen as disadvantage for a lot of people who take out ~5 year loans and then can keep the cars for quite a while after finishing off their payments. Anecdotally I'd wager that people buy new cars more for the status, or for the change of having something new, than to replace something that just doesn't work anymore, nowdays.

> > A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.

> Isn't that exactly what makes it a status symbol?

To be an effective status symbol, something has to be of higher status, but not too high a status. Gold chains are just gauche, despite how valuable they are. So too, once upon a time, having a cell phone.

I think the tricky part there is social context. There are social groups where gold chains are absolutely status symbols. You'd be hard-pressed to find an NFL receiver without one, for instance.

Conversely, there are groups where being able to afford _not_ to own a car is a status symbol. Think "I live in a neighborhood where everything is walkable", or "I just throw money at Uber because it's easier and I can afford it".

Anything is a potential status symbol, if a group subconsciously agrees that it is. If your group doesn't value humility then too-high-status isn't really a thing.

New cars and executive cars and ludicrously thirsty sporty models sell well enough and secondhand Korean superminis badly enough to suggest manufacturers don't have too much to fear from people switching to alternative modes of car use on the ground of price. (I'm sure you could find a cheaper-to-run vehicle if you really wanted to too)

And for commuters that need a car to get them to work at 8-9am and home around 5-6pm, the chance of a car sharing scheme working out cheaper than ownership is minimal, whether the cars drive themselves or not.

What about when your commute, without any concern for parking, is 10 minutes, max? I doubt it would be that expensive. Besides, I would only opt for transport if the weather was shitty or I was tired (which is the current case today).

> What about when your commute, without any concern for parking, is 10 minutes, max? I doubt it would be that expensive

If you want a car at the precise time everybody else happens to be commuting and commuters are the principal users of on-demand car services, it doesn't really matter whether your commute is shorter than some of the others. It's one extra car needed to be available every day at the time when all the other cars happen to be in use and (like most of the rest of the cars in the commuter pool) it'll spend the rest of the day sat in a parking spot, costing little in mileage but plenty in depreciation.

Of course if commuters needing to be around for the start of a normal work day aren't the principal user of the service, then cars can be used more efficiently throughout the day, but then they're not "competing with private car ownership" to any significant degree.

For edge cases like you whose car use consists of occasional ten minute drives, it might already be cheaper to just take taxis/Ubers

In a self driving world, peak traffic will be served by buses. (Or subways in cities that can handle it)

Like everything - high bandwidth vehicles will do the bulk of the work, and seamlessly trade off to "last mile" self driving small vehicles.

I'd think self driving cars would kill busses. I'd much rather nap / work / watch TV / do hobbies in my car (where I'd keep stuff for doing all that), then in a bus.

If the car is electric, it isn't so bad on the environment, and it can park itself in a no humans allowed garage (so little chance for breakins). As for rush hour, I'd hope swarm scheduling lowers congestion substantially (though this and making longer commutes tolerable really just means I'll live further from work).

Lol, that is highly unrealistic. Where is this magical secure garage going to come from? Underground parking costs $40k per spot to build, above ground is similar. Add in the cost of security and the long term costs of parking are extremely high. The parking minimums in most places force parking to be heavily subsidized, which isn't a sustainable model when it comes to long term matienece of suburban areas, unless we can heavily increase taxes to pay (5x to 6x) for road, water, sewer, and all other maintenance needed.

Self-driving cars will replace buses? And who, pray tell, will pay for expanding our roadways?


> high bandwidth vehicles will do the bulk of the work, and seamlessly trade off to "last mile" self driving small vehicles.

Still doesn't solve the problem - just moves it. If everyone in my office complex needs a ride to the bus around 5pm, and everyone at the other end of the bus line needs a ride home at 5:42pm when the bus arrives in SuburbTown, there will still be unmanageable shortages of self driving small vehicles - unless you own your own.

You can fit 4 people in a self driving car pretty easily. Most people currently drive by themselves because it's too difficult to arrange on-demand carpools on your way to/from work.

Space on the road is the limiting factor in this scenario, not number of vehicles. What would the point be of making another vehicle available, if traffic is bumper to bumper all the way?

> In a self driving world, peak traffic will be served by buses

Huh? If suburban Americans aren't opting to share rides into work now and don't have or want bus services now, particularly not connecting bus services, what difference is non-human drivers going to make?

>what difference is non-human drivers going to make?

That's really the key point. Not that roboTaxis are on the near horizon but, if you believe they'll change everything when they arrive, you basically need to point to all the cases that today are almost (but not quite) enabled by Ubers driven by minimum wage drivers.

Do Zipcar and Uber make a difference on the margins? Sure. I know people in fairly dense non-NYC urban area that probably would still have ended up with a car 10 years ago who can get by without one today. But there's a big difference between change at the margins and fundamental shifts.


Unfortunately most of the US isn't like Chicago or NYC.

Personally, I see very little unfortunate about it.

I agree; I moved out of NYC for a reason!

This is a good point, but it doesn't change the prognosis. Uber will run out of runway long before that vision can be realized. And even if by some miracle it doesn't, it will find itself in a low-margin commodity business. Unless it can muscle its way into a monopoly, it can't win. Which explains the company's aggressiveness and anti-competitive nature.

Amazon is in a low margin commodity business with massive amounts of competition, but they're still massive and becoming even bigger because they do what everyone else can do just that little bit better that there's no real reason to switch away.

Amazon actually didn't have much competition at a key point in it's growth, i.e. just after the dot com crash. Amazon survived, many did not and Amazon then had a few years to cement their dominance in the online shopping space.

Amazon is also very different from Uber in that it a) went public earlier and b) didn't need huge outside cash injections like Uber and c) Wasn't making a huge gross loss on sales like people claim Uber is.

I believe Uber has already lost more money than Amazon has in it's entire existence!


> Amazon actually didn't have much competition at a key point in it's growth

Except for every single brick & mortar store -- which has always been Amazon's biggest "competitor".

Brick and mortar stores were (and still are) extremely weak competition. That's why Amazon utterly crushed many of them and continues to do so. Not just small mom and pops either. Borders, which at one point was one of the largest bookstore chains in the nation, shuttered its doors because it didn't switch to an online model fast enough. Barnes and Noble at some point was in deep trouble as well.

Last numbers I saw had online sales across all categories at less than 10% of total retail sales. Hardly "weak competition."


(Note: that growth is still a good reason to be bullish about Amazon!)

If you look into the indicators that fall into the Retail and Services sales category, there are extremely big ticket items and high-volume items that aren't sold in high volume or at all due to regulation.

All auto sales, gas purchases, alcohol & tobacco, heavy industrial equipment (commercial farm equipment, etc) are included in that category.

Online sales only being 10% of that still probably looks massively outsized if you're drilling down to B&M clothing & electronics purchases. I haven't made a B&M retail purchase any more times than I can count on one hand since 2004.

Your spending habits may not be representative of the greater population.

And that last statement about my spending habits is tangential to everything I said previous to it.

> I haven't made a B&M retail purchase any more times than I can count on one hand since 2004

> (Amazon) didn't need huge outside cash injections like Uber

Amazon and Uber are very different companies, but this wildly oversimplifies the financing of Amazon. Amazon has taken on many billions of dollars in debt over the years in order to operate. If you add it all up, Amazon has taken (in very different terms) about as much money as Uber.


Also a good point. Low margin doesn't have to mean unsuccessful. But it's taken 20 years for Amazon to get where it is. Uber's valuation seems pretty premature. Amazon lost money for years because it was building infrastructure. Uber is losing money because it is subsidizing its sales. Amazon may have been low margin, but I don't know that they ever took investor money and gave it directly to customers in the form of price subsidies.

Great contrast – and you're not really saying that Uber is not building infrastructure but that one is happening faster than the other one:

1) Uber: a) subsidize sales b) build infrastructure 2) Amazon: a) build infrastructure, b) grow sales at a sustainable rate even if it takes 20 years.

I think Zappos had the same business model. But we'll see.

Zappos is an Amazon subsidiary even if it does operate quasi-independently (and quirkily from a management perspective). It looks a lot more like Amazon though with generally far less emphasis on building out infrastructure. Ultimately it's sort of a niche because of the nature of selling shoes online.

Zappos is now an Amazon subsidiary. It grew sustainably for a decade before Amazon acquired it.

Yes. In many ways they grew more in the vein of many traditional mail order catalogs than Amazon.

Amazon also has crazy AWS profits to subsidize major investments. Uber lacks such a super profitable but tangential revenue stream.

People seem to underestimate just how much money AWS makes.

AWS makes almost no money compared to their core business, it's around 10%, maybe a little bit more. The profit from AWS, however, is something like 50% of Amazon's total profit. That said, it's not hard to occupy a huge percentage of profits from Amazon since they purposefully run almost every other facet of the business at razor thin margins.

3.2 billion of revenue in one quarter [1] is is nothing to scoff at. However the more important point is without the profit from AWS, Amazon would still be posting huge deficits [2] and would probably face much higher shareholder pressure to produce.

[1] http://venturebeat.com/2016/10/27/aws-reports-3-2-billion-in...

[2] http://www.geekwire.com/2016/amazon-without-aws-online-retai...

Isn't that an invalid assumption that Amazon would do nothing else differently if they didn't have AWS?

I always understood "make money" as referring to profit, not revenue. A business with $1 trillion in revenue and $1 trillion in expenses makes no money.

"I have a trillion-dollar business: I take dollar bills from one person and give them directly to another and repeat that a trillion times a year."

Maybe there can be profit to be made from this business too with a bit of _delay_ in between receiving and giving. I'm trying here just to imagine this company. I think it will work because of the scale. I'm thinking: I take dolar bills from one person, I keep them 10 days and then I give them to another one. And I repeat this for 1 trillion dollar value. Even if the profit in 10 days is 0.1% then you will have 1 million dollar remaining to you. What I am trying to say is that it seems to be a value in being so big, because of how big numbers math works but also because people are impressed by it (think going to a bank asking for money)

This is how Amazon benefits from free cash flow in their retail business. With payment days of >90 days to their suppliers but almost immediate payment from their customers they get 90 days to reinvest that money at a profit before paying it back. Essentially an interest free loan from their suppliers.

> almost immediate payment from their customers Isn't there a gap between customer making the credit card payment and the bank transferring the actual money into Amazon's account?

Probably. And they also won't always sell an item as soon as they receive it, which eats into free cash flow. But generally speaking, they get paid for goods by customers before they need to pay the supplier, which creates free cash flow.

And now with them having become an online-only warehouse club [1] with Prime, there is even less reason to switch away.

[1] https://en.wikipedia.org/wiki/Warehouse_club

As a long time Prime user I've recently considered dropping my prime subscription. I need to spend a lot of money (even more than I already do) to make the P&P work and the film offering is getting worse and worse.

Since Amazon seems to have shifted to generate profit instead of subsidizing prices, it went downhill (at least in Berlin). Amazon Logistics is a huge pain (several lost packages, Saturday and 8pm delivery to business) and the prices of most goods at Amazon is mediocre.

As a very good and Amazon customer for a very long time, I've reached the point to jump to something else should it materialize.

While I haven't experienced this sort of thing very often in the US, whenever it does happen Amazon has either sent another package, refunded the cost of the order, and/or offered a free month of Prime. And it usually only takes 5-10 minutes in an online chat with customer service to figure out. There are definitely plenty of meh things about Amazon, but customer service is certainly not one of them.

YMMV, I'm not happy if paying for Prime and 50% of packages get lost, I call, and get them some days later than expected or get them later as expected and payed for next day delivery in the first time.

Amazon got kicked by Zalando for Fashion at least in Germany and despite heavy investments and promotions for fashion can't compete with Zalando.

If someone starts an electronics site on the same professional, data drive, aggressive level as Zalando, I'm sure Amazon is in trouble here in Germany.

It's a business with natural network effects. The service that has the most cars on the road has the most liquidity to clear the market, and will have the shortest wait times. People pay for rides in both time and money, and you can be "cheaper" by getting a car to show up faster.

Network effects don't accumulate to a natural monopoly in this case. Yes you need a fleet large enough to get to a sweet price / waiting time optimum, but each new car in your fleet has a diminishing marginal effect.

You could say exactly the same for airlines: there's network effect. Each new plane allows your to fly more rotations, have more frequent lines, open new routes... The reality is that most people take decisions based on price.

We know most people are pretty bad at valuing their time, and even so, waiting a minute more for a cheaper service is something people will do for sure. As long as you're below an acceptable waiting time for your car, you can compete on price.

I'm curious about how Uber will avoid being a commodity just like airlines are.

Each new car in your fleet has diminishing marginal effect to a passenger, and has negative effect for the other drivers. And you need to compete for both drivers and passengers.

This is why Uber and Lyft end up in driver subsidy cost wars.

Interestingly, the negative effect part is wrong for carpools, but that is not Uber's primary business (I'm assuming carpool drivers would rather be passengers)

That inflection point happens after you have a _lot_ of cars on the road, much more any new entrant will commit. It's equivalent to saying the power company gets diminishing returns from additional supply after they've built enough capacity to meet current demand. No one but the natural monopoly actually gets to that point.

That's a possibility. I'm not sure it's true. Both Uber and Lyft have good waiting times right now. The hypothesis that they will replace privately owned cars supposes that the market will grow immensely.

Waiting time is a function of: number of cars, size of the city, number of customers (to ignore congestion for now...) To have a good start as a new entrant, it's just a property of the size of the city. Then, you need to grow your fleet with your number of customers to keep waiting time constant. That number of cars to start with, the barrier to entry, is a tiny portion of what you need to add to keep up with demand.

If you don't have to compete with drivers, with autonomous cars, it's not that hard to meet and start a price war.

Again, I don't see how Uber will avoid being squeezed out of their margins the way airlines are. It's not cheap to start an airline, yet many people have done it. And all you need is 3 competitors to drive prices, and margins, down.

The problem is that in this case, Uber doesn't own the car network. It's trivially easy for a driver to shift between networks, or even work for multiple networks simultaneously. Uber not only has to talk a rider into giving them the fare, they also have to talk the driver into taking that fare. There's just nothing special about Uber for either party unless Uber can be the one that performs that matchmaking service at the lowest possible transaction cost. Welcome to Uber's low-margin world.

>Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car

...which is exactly what cabs are. In major cities cabs exist because it's cheaper and easier to hire a cab than to drive yourself. That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.

> That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.

yes, it tells us that human cab drivers are prohibitively expensive. robot drivers don't need to paid by the hour though. the real disruption to your car isn't a ride-hailing app on your phone. it's robot driven cars. ride hailing apps are necessary piece of predecessor infrastructure for that transportation model. it's the beginning of it, not the end.

In my opinion self driving cars are a shiny object to distract VC's from Uber's massive operating losses. When they start making money with self-driving cars on a large scale then I'll take notice.

Uber won't even be necessary. If it becomes cheaper to "rent" the service of the car (i.e. Uber/Lyft with autonomous vehicles), then car manufacturers can just cut out the middle-man. Uber/Lyft would serve no purpose anymore unless they somehow make it cheaper (which would be practically impossible).

The landscape of the future is car manufacturers offering their own "Uber" like service and that service replacing the traditional ownership model. That doesn't mean Uber doesn't have a place before then though. Like good little capitalists, the VC's will cash out and make a ton of money while the real innovation and lasting impact happens elsewhere. So, yeah, Uber should blow up when self-driving cars become a thing but they'll eventually fade away. Unfortunately, that won't be for a long time.

EDIT: Oh, and yeah, people are also going to still be buying a shitload still anyway.

wait 5-10 years? there aren't any self-driving cars in commercial use right now. VC investors often have long term timelines (depends on the fund and it's objectives). It's not exactly a distraction tactic to say "our timeline projects out for a decade and we expect to be operating in the red until the technology and politics aligns and comes to fruition, at which point we make infinite money forever."

Yes but most funds are marketed as repaying in 10 years and, even if some take longer, the VC presumably does not want that (since it, presumably, prejudices their chances of raising their next fund).

Expect an even bigger fund raise where they hope some other idiots, with even deeper pockets, will keep picking up the tab.

Can Uber make it 5-10 years losing $3 billion per year?

Removing the driver reduces the price significantly, so the business model of cars on demand is probably viable outside of dense areas with self driving cars.

That being said, for Uber to win the self driving car race they have to beat Google, Apple, Tesla, Didi and the automotive incumbents as Sarah Lacy has been pointing out for at least 12 months.

they don't have to beat those companies, they have to negotiate good rates for vendor services with those companies.

What does Uber have that would not be feasible for any of those companies to build?

Uber doesn't lock in customers or create any switching pain whatsoever so their current customer base doesn't given them much of an advantage. Their software is slick and robust but it's not so technically advanced that a competitor couldn't create their own ride-calling and dispatch system (as evidenced by Lyft).

Have you seen how bad and outdated the software is in even high end, expensive cars?

I wouldn't hold my breath that any auto maker besides Tesla could compete with Uber.

> What does Uber have that would not be feasible for any of those companies to build?

usage data. they know where people that use their app actually go on a daily basis, and how much they're willing to pay for that service.

There other ways to get traveler data, people have been modeling this for decades.

Or be acquired by one of them.

The article and your parent poster are basically saying:

"They lose money on every ride, and they have no way to ever turn that around (outside of a monopoly on driverless cars which they won't have), because any time they gain money on a ride, they'll attract indistinguishable competition."

Your response is: "Yes, they'll lose money on every ride, but they'll make it up with volume."

I believe the argument, though, is that transportation is a commodity product and, therefore, pricing is a race to the bottom.

Say all cars are autonomous and on-demand. You need a car. Uber costs $20. Lyft costs $15. Who do you go with? What happens to overall pricing over time?

What I seem to never hear people mentioning is that it's nice to have your own car.

I have my car all set up how I like it, with a nice aftermarket stereo and amp and hundreds of gigabytes of mp3s because music is important to me, the seat is exactly set up how I like it, etc etc. I specifically bought a car that I actually enjoy driving.

I have an umbrella in the car in case it rains, and a jumper in there if it is cold outside, so I don't have to carry those things with me all the time.

Also, I know that there was no smelly/dirty/messy person in the car before me. Public transport is a yucky experience overall so why would a super cheap Uber end up being any different?

I will personally pay a premium for that comfort and convenience, and I can't be the only one, can I? How much cheaper can an Uber be compared to owning my own car?

I guess it all depends on how much the premium is...

I'm right with you. Buses, cabs, and subways are all disgusting, smelly, unsightly, uncomfortable and inconvenient compared to one's own car.

I live in Singapore and this is already happening here. In Singapore to own a car you've to get a certificate of ownership that can cost around $70-$100k and you've to bid for this. Ever since Uber began to get popular here we've had rental companies (who only rent if you become an Uber driver, essentially partners of Uber) try to undermine the bidding system by artificially boosting prices.

It has never been easy (or cheap) to privately own a car in Singapore but the situation right now is exactly like you mentioned in your comment.

However I'm also a resident of the US and I don't think it's gonna happen over there anytime soon.

That's a weird market where the government artificially inflates the cost of car ownership. Like you say, that's never going to happen in the U.S.

Singapore is doing it because the alternative would be to use much more of their tiny island for car-related infrastructure. The total cost of that infrastructure would be much higher than what the sum of the COE's[1] would cost.

Are you sure Singapore is artificially inflating the cost, or that where you live isn't artificially subsidizing the cost of car ownership?

1. https://en.wikipedia.org/wiki/Certificate_of_Entitlement#His...

Warren Buffett's famous lesson is that in a competitive commodity business, any cost savings will get passed on to the consumer and investing in such a business is value destroying in the long term.

Monopolization doesn't seem to be happening really in the business Uber is competing in and it seems as likely that any of the half a dozen other players in self driving car business will succeed as Uber.

I think that market is smaller than you may think. There are lots of factors that will drive people to own their own self-driving cars rather than rely exclusively on Uber/Lyft/Tesla Mobility, etc.

In addition to what others have mentioned, there's also the mobile storage locker aspect. When traveling for example, there are any number of occasions when I will end up renting a car rather than using other transportation because it means I don't have to always be carrying with me all my stuff for a whole set of activities.

It happens at home as well. I don't need to bring a bag for evening activities into work because I can just leave it in my car. And I don't need to bring my computer bag to an evening activity for the same reason.

Sure, all this stuff can be worked around when it has to be but there a lot of advantages to having a mobile vehicle you don't have to empty every time you arrive at a destination.

That's definitely a habit you've formed, that you can grow out of. Given no choice, you'd quickly figure out optimized way to do the same things without a personal car.

Given proper public transportation, I did. Not owning a car is not only a lot cheaper, it's also quite liberating: - I don't fear I'll wreck it, or worse, I'll badly injure someone in a car accident - I don't have to drive and be angry about other people on the road, like a lot of drivers - I'm not owned by my car, that requires maintenance and cost beyond just running it. - Not fighting for parking spots!

Cleaning is one factor I think. If you have a pet or kids you don't want to risk destroying someone elses car, but you know your own car will slowly look worse.

You mean parents won't want to constantly move their car seats from vehicle to another on a regular basis?

Yeah, that's one big one. It's really anyone with a dependent that has equipment needs (car seats, hockey gear, etc.)

"But, but, you can rent a car with a car seat!"

That response ignores the fact that there are 4 different major categories of car seats, most kids need a specific one at different times of their lives, and if you have multiple kids you need the specific combination of seats. And of course, car seat installation is hard and takes time, even with LATCH, and I wouldn't trust a random Uber driver just handed a seat to install it properly.

A car seat that can be adjusted into different sizes sounds like a minor part of the R&D needed for Ubertopia.

Nah ... Ever met a parent before? Many of them are pretty serious about their car seats and brands.

So buy one car for the 10 years in your life where you have kids that need cars seats and then rent for the other 50 years of your adult life. It wouldn't need to cover literally every use case in the world to have a major impact on the economy.

> they'll open up the biggest transport market ever created

And others will see the opportunity and jump in to compete on a market Uber spent all it's money to create. And there will be very little Uber can do to stop them.

Perhaps, Uber may be able to be a few percent more efficient if they have more cars around and more data to use for predictions. The question is can uber be materially cheaper with it's data in the long term?

I agree that Uber is trying to replace private car ownership, and I expect ride-sharing services like Uber/Lyft to succeed at this. But given those assumptions, is there any reason to expect them to be massively profitable? The current market seems to involve Uber & Lyft (& other competitors in different locations) competing on price, do you expect that to stop?

Presumably the (publicly) unacknowledged plan is to severely wound private car ownership and then collude with Lyft to fix prices, similar to how it worked with Didi in China [0].

There will likely be some regulatory capture on the side to discourage other competitors.

[0] http://www.wsj.com/articles/china-opens-antitrust-investigat...

Airlines used to collude on price, too.

> The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry

Car makers have falling commodity prices (when they're indeed falling) and rising automation working in their favor. What does Uber have working in its favor?

It seems that scenarios with rising car ownership costs involve mainly cost of parking or general low ridership pattern. Those specific scenarios are associated with dense urban environments, which also have a competitive vector of public transportation, frequently already subsidized by the taxpayer.

I will admit though that Uber has a very attractive offering in LA, with $5 UberPOOL downtown to West side or a UberX ride cheaper for 3-4 people than the cost of metro/bus. Don't know whether LA market is profitable for them or subsidized.

Is there a reason to believe that Uber will be able to beat a Toyotas On Demand service that Toyota will inevitably launch?

Seems to me that the manufacturers will always be able to undercut on price once cars are fully self-driving, eliminating the value of the driver network.

Considering Toyota's publicized software problems with relatively simple embedded systems, I wouldn't be surprised if they are culturally unable to field a competitive on-demand driving service at all.

>culturally unable to field a competitive on-demand driving service

Or, they could easily decide that that's not their business model. Being a car manufacturer is different from being a fleet operator is different from being a finance company is different from (for that matter) being a car sales and service organization.

A company may decide to do one or more of those connected things and they frequently do in ways that are more direct or less direct. Culture's part of it. But it's also about focusing on capital requirements, core competency, etc.

if they succeed at this, then no one will own a car. therefore to become a driver one would have to buy one instead of already having one. This makes it not worth it to drive.

I’ll imagine that scenario when I can imagine the day car interiors are manufactured out of one seamless, waterproof plastic that can be hosed-out in between rides, but are still more comfortable than a commuter subway or bus.

Uber is going to make a market for but car manufacturers are going to eat its lunch. When Ai becomes good enough which I think will in the next 5 years they will flood the market with their own cars and taxi services.

> It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers.

It's close to competing with my own car. I'm in West LA and use Uber daily, but only use my own car once or twice a week.

Thats the level they are already at in São Paulo - people here are giving up their cars as it no longer makes financial sense to have one.

> Airlines lost those regulations under Reagan

Actually it was under Carter -- he pushed for it, spurred by Alfred Kahn whom he appointed to the CAB: https://en.wikipedia.org/wiki/Airline_Deregulation_Act

Carter was also the one who chose Volker to head the fed and squeeze inflation (to kill stagflation). This cost Carter the election because it also squeezed the economy...but ignited a recovery that Reagan got credit for.

It's fascinating how many things that started under Carter people misremember and attribute solely to Reagan. We really do reform our memories to conform to simple stories

Carter's decision to do this reminds me of Johnson's comment about "losing the south for a generation" with the civil rights act.

Despite the stereotype, typically the economy sucks under republicans and is repaired by democrat (Eisenhower is an exception, and Roosevelt took a while to figure out what to do, but I did say "generally"). Remember the concern under Clinton that the national debt might be retired and what a disaster that would be?

Since I'm in the realm of gross generalizations it's often under Democrats that wars have ramped up: well, Roosevelt again, Kennedy and Johnson Vietnam, and, yes, Obama on the secret side) while republicans can close them off: Nixon (Viet nam & the cold war with China, Reagan/Bush sr Cold War with Russia. But this link is even more tenuous.

perhaps but if you look at per capita growth over the past hundred plus years in the US, aside from the great depression, you see pretty uniform growth no matter which party is in office. Also, the Clinton debt thing is overblown (my opinion) all that happened was a shift from public to private borrowing and I don't see what positive effect that had, temporary though it was. The whole Clinton miracle was a combination of coming out of a recession into an investment bubble.

Indeed, I was making a gross generalization to point out the inanity of the stereotype "Republicans strong on defense and good for business". Thanks for looking up the statistics.

> Also, the Clinton debt thing is overblown (my opinion)

Well I think it's creditable that there was a willingness not to increase the debt simply because it was easier to service (different under Reagan and Bush jr). Though it's congress that borrows, not the executive, right?

Iranian hostage crisis comes to mind.

Really? I was alive at the time and the hostage crisis remains indelibly linked to Carter in my mind (aside from the belief of many on the left that Reagan cut some kind of deal with Iran to hold the hostages until after he won).

Do younger people recall it differently?

Well, there's a conservative effort to re-write that history:


> Airlines lost those regulations under Reagan.

Not really relevant to the main discussion, but I think it is important to make sure readers are exposed to accurate (though perhaps overly detailed) historical information.

According to [1] and [2], talk of US airline deregulation began during the Nixon administration, and picked up speed in the Ford administration. In 1975 the US Senate began pushing towards airline deregulation, under the leadership of Sen. Ted Kennedy (not the first politician who comes to mind when you think of reducing government regulation).

The Airline Deregulation Act was signed into law by Jimmy Carter in 1978, who already in 1977 had appointed a well-known proponent of deregulation, the economist Alfred E. Kahn, to head the Civil Aeronautics Board (the government agency in charge of regulating airline routes and prices).

The Civil Aeronautics Board indeed lingered on until the Reagan administration abolished it in 1985, but the 1978 Airline Deregulation Act is when it effectively lost control.

[1] https://en.wikipedia.org/wiki/Airline_Deregulation_Act

[2] https://en.wikipedia.org/wiki/Airline_deregulation#Introduct...

The commercial airline industry has lost money over the whole of its existence.

That is clearly not true. See, for example: http://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx

If I'm flying from NYC to DAL, I'm flying the cheapest carrier (with a slight nod to Frequent Flyer programs).

It's true that many people bargain hunt, but the people that don't (primarily business people who need to fly on short notice and on fixed schedules) subsidize lower fares for those who do.

At the moment, it is the investors who are subsidizing lower fares at Uber and Lyft, to the tune of billions of dollars per year. You're right about the autonomous cars. At this rate, Uber will run out of money before autonomous cars can save it. And even if they do, Uber will be a low margin business.

    That is clearly not true. See, for example: [Industry publication]
A clarification: I meant that if you would show a net loss if you summed the net income of each airline in the industry since inception.

To be fair, while it definitely isn't clearly not true, my statement certainly is not clearly true... ;) Some non-industry pubs backing my not-clearly-true statement:




OK... Using that approach I would assume that software has also lost money over the entirety of its existence. Perhaps not completely "untrue", but a silly way of looking at it and not what anyone would assume you were talking about.

Why would you assume that software-as-a-whole has lost money? The industry is full of un-subsidized, non-cyclical, high profit companies... Microsoft, Apple, Google, Oracle, Autodesk, IBM, EMC, CA Technologies, Saleforce.com, etc.

Not sure why it's a silly way of looking at an industry's long term performance. It shows that, while occasional profits are made, the industry is prone to brutal, un-differentiated price competition...

So you're saying you believe the Delta CEO when he says "Industry May Never Again Lose Money"? [1] Considering the above, I'd be skeptical they're experiencing more than temporary, cyclical profitability.

[1] https://skift.com/2016/06/14/american-airlines-ceo-says-indu...

How much VC money has been pumped into failed business?

It's all rather irrelevant. I don't know if software has actually been a net loss, but I know that looking at failed airlines and extrapolating out to the successful ones is silly.

Maybe so, since it would include a lot of government-owned and government-controlled airlines whose fares were subsidized by tax money in the interest of the public good. In that sense, they're a bit like Uber, which is subsidized by its investors in the interest of...well, attracting even more investors and keeping the whole pyramid scheme going.

Even if you leave out the government-owned and government-controlled airlines, there have been a lot of massive bankruptcies associated with the airlines even if you just limit the field to the US. Indeed, large bankruptcies were almost the norm. Even relatively recently, the statement that commercial aviation had posted net losses through its entire history was indisputably true. It may or may not be true given recent consolidation and considerable profitability.

I doubt the same "never made money" statements could be made about most industries.

That is a very unfairly misleading metric, then.

I'm not sure why a Level 3 needs to be a person in the vehicle?

Uber may time their IPO just before they start having growth problems. That seems to have a high probability.

The contrarian side of me thinks that the more negative people become about a tech company the more likely it is to succeed (assuming a real product and not elaborate fraud.) Markets become far more favorable when all of your competitors believe what you are doing is a joke. The paradox being, perhaps the more people become convinced Uber will fail, the more likely it is they can pull this off.

It definitely is not as clear cut as starting an airline -- and it is a dynamic game. Is Uber/Lyft the starting point for calling a car or is it Android/iOS ; or is it Google Maps/Apple Maps ; or may be it is Siri/Alexa/etc.

I've suggested in other posts a ride sharing company may be able to get exclusivity contracts for a large metro area. This would be a step towards a lock in/monopoly. Earlier gen self driving vehicles may actually even need this.

Whatever behaviors Uber has created, I think they are going to survive in some form for a long time. Whether Uber goes belly up may be more about how carefully they hedged their financial risks.

"Is Uber/Lyft the starting point for calling a car or is it Android/iOS ; or is it Google Maps/Apple Maps ; or may be it is Siri/Alexa/etc." - This is an extremely good and often overlooked point. With Apple, Google, and Amazon now offering AI-powered smart-home devices (i.e., Google Home, Alexa) as well as mobile assistants like Siri and Android Assistant, they will increasingly own the first point of contact for a user when they need to hail a car. You could hail a ride without even having to open the Uber App at all, meaning that from a consumer perspective the relationship has shifted upstream to the phone OS or connected device, and Uber now becomes the behind-the-scenes middle-layer that runs the dispatch logistics. Right now, Google/Apple/Amazon operate under the guise that they are "integrating" with Uber's services, but when Google and Apple roll out their own autonomous vehicles (which they already are working on) and Amazon starts rolling out autonomous logistics (i.e., trucks and drones) then they will own both the upstream point of contact, as well as the downstream supply of cars/trucks/drones. When they have built the user behavior of people ordering directly from a phone OS or in-home device, what's to prevent them from connecting directly to their self-owned fleet and cutting out the middle layer (Uber) completely? While everyone is focused on Lyft...Uber's real competitor is one or all of the above situations. Piggy-backing off Uber in the connected home / OS integrations is as classic of an example of a trojan horse maneuver as I have ever seen.

Uber is not even the middle layer here. The middle layer is an as-yet nonexistent aggregator that will search all of the services (Uber, Lyft, Google, Amazon, whoever) to get you the best price for your ride at that moment.

The Airline Deregulation Act of 1978 (to disestablish the CAB) was passed during the Carter administration, not Reagan.

Also, while the 2001 recession meant that the airline industry lost more money then they had made in profit from the Wright Brothers up to that point, since then they have become net positive again, which seems to have been largely from mergers reducing capacity and so driving down supply.

Let's forget about aviation flag carriers and the 'orthodox' legacy US airlines for a moment. How do 'low-cost' airlines make any money, especially in Europe where they advertise fares for paltry amounts? Even with charging extra for bags, food, early boarding, decent seating, etc., does the money they make per passenger cover fuel costs and landing fees alone or is profitable in any sense of the word? What are the business incentives in entering this market, then?

A hypothesis is that low-cost airlines often fly to lesser-known airports further away from popular cities and extensive hub operations; airports which have a difficult time attracting orthodox airlines for these reasons. Therefore, such secondary airports compete against each other to attract carriers, because without a commercial carrier the utility of the airport greatly diminishes for the residents of the immediate area, who may demand to redirect government funds to other expenses.

But if an area can retain its airport with commercial service, multiple fringe benefits result: local businesses will be patronized by air travellers even if just to get to the major city of their choice, and the area's profile will be raised on a national level which may make it more attractive to businesses and discretionary residents.

Therefore, we can assume that some amount of government subsidy finds its way into the pocket of low-cost airlines that choose to serve a particular airport. I posit that local governments face similar pressures with regard to improving accessibility to metropolitan points-of-interest and a large-network provider like Uber may be able to offer a solution at a price the government is willing to pay. This has already happened in New Jersey [1], and I expect to see more of this in the future.

[1] http://www.theverge.com/2016/10/3/13147680/uber-new-jersey-f...

In short:

I propose that Uber's long-term business model is to win lucrative government contracts and absorb subsidies, by operating a transportation network big and elastic enough to meet criteria and provide the requisite level-of-service.

It's essentially a purpose-made PPP (public-private partnership) company, the transportation equivalent to Skanska, Fluor, Strabag (if you're familiar with large-scale infrastructure projects), or, an automobile-based version of school transportation contractors, charter services, and the like. This is irrespective of whether they have human- or self-driving vehicles.

Airlines lost those regulations under Reagan

Under Carter.


>Airlines lost those regulations under Reagan"

It was actually Jimmy Carter that signed the Airline Deregulation Act, this was in 1978. 3 years before Reagan took office. The transition was complete by the end of the Reagan's first year in office in 1981.

I'm not trying to nit pick but for some reason Reagan always gets credit for this.

>The commercial airline industry has lost money over the whole of its existence.

Wait, what? How can that be possible? Wouldn't the airlines cease to exist if they never generated profits?

Not saying this is the case here, but the answer is by bankruptcy and continual capital investments.

Let's assume that some small number of airlines continually make small profits (or at least break even). That creates a non-negative balance.

However, let's assume that a number of other airlines are frequently being established and receiving capital investment, before ultimately failing and declaring bankruptcy.

If the losses those airlines represent outweigh the positive balance from our successes, then the industry loses money, despite some players continuing to exist.

To take it further: if you assume people keep making capital investments with capital drawn from other industries, it's possible that the industry continues to exist even whilst no company generates profits in the long term.

This is possible thanks to Chapter 11 bankruptcy.

In most countries when you go bankrupt, you go out of business. In the US you usually go into Chapter 11. This lets you default on some of your debt, renegotiate contracts, and then come out of bankruptcy stronger than before.

The problem with this is shown with airlines. They would all make a profit if they could just lose some of them. Unfortunately whenever that looks like it might happen, the loser goes into Chapter 11, enjoys a competitive advantage, recovers, and comes out of it stronger. Then someone else goes bankrupt.

That... Doesn't match history at all. Mergers have been far more dominant in recent years than bankruptcies, but you ignore them completely.

It is a very large piece of the long-term puzzle for how airlines are still in business despite having lost money consistently.


That said, consolidation through mergers has happened recently. We will see how that plays out going forward.

There are subsides, and there is a difference between "losing money most of the time" and "losing money on average".

I'm not sure where the parent is drawing that claim from but I imagine they could continue to exist with government subsidies.

> 250% surge pricing or $90. Lemme check Lyft. Sweet, Lyft is about $50. Our Lyft will be here in 3 minutes." There was zero friction switching from Uber to Lyft.

That's not zero friction.

Zero friction would be if you routed the directions under "Public Transit" in Google Maps and scrolled to the bottom where you can see both Lyft and Uber pricing (and clickable links) next to each other.

Technically you are correct, but you are just nitpicking. We understood exactly what he meant.

My point was the meta-search engine will eliminate the friction and eat the whole pie.

A corollary of this is that whilst meta-search engines didn't take very much of the pie for themselves, the fiercer price-competition they imposed did take a much bigger chunk out of airlines' margins, and particularly the margins of travel agents reselling airline tickets.

Uber at present is a travel agent, not an airline

Just as they have, interestingly, in the airline industry. Most people go to kayak, hipmunk, skyscanner, monondo, etc. The existence of meta search engines are a hint that the service is a commodity and margins will be slim.

In the iOS Maps app if you have both apps installed that is exactly how it works. You just have to click "ride" instead of "transit."

I don't think Uber necessarily needs a monopoly to win, if Lyft wants to compete on price it's free to due so, but if Uber has thin margins as it is, undercutting them is just a shortcut to death.

I might be unreasonably optimistic about self-driving cars, but it is important to note that the rollout will accelerate itself. The more SDCs on the road, the safer they'll be, and the more data they'll gather. On the legislation side, my sense is that once one company bears the brunt of the legal pushback, the rest will have a relatively easy time.

Not that BI has a crystal ball, but their prediction seems at least somewhat reasonable. [1]

[1] http://www.businessinsider.com/report-10-million-self-drivin...

Uh... Airline deregulation came to pass under Carter, not Reagan. Yes, that breaks some of the left/right stereotypes that drive modern political discourse... But what can I say? It was a more pragmatic time.

>>The commercial airline industry has lost money over the whole of its existence...I'm not sure how Uber, Lyft, etc are any different than Southwest, American, etc

That's not exactly true. Southwest, for example, has had only a single unprofitable quarter since being a public company. They have never had an unprofitable year.

American has had stretches of bad times, leading to bankruptcy, in the past. But, more recently, are making money. $7.6 billion in profit for 2015, $4.2 billion in 2014, and so forth.

Airline regulations were totally different.

The point of those regulations were to ensure universal service and stability of service. It was an outgrowth of passenger rail regulatory frameworks, which emerged after the abuses inflicted by the railroads in the 20th century.

The absence of regulation has been good & bad. Prices are cheaper, but the service levels are horrific and the airline businesses aren't very sustainable.

I think they will start making money when they will stop fighting and figure how to do "price fixing"

southwest is profitable. anyway uber does not have to deal with pilots' unions and the faa regulations: http://philip.greenspun.com/flying/unions-and-airlines

Airlines appear to have turned that around in the last few years. Full flights and profit.

Airline is a classic case of an industry that has too much competition. All these airlines cause inefficient routing, and they're continuously forced to cut prices to compete. This results in bad margins and bad service. Literally no body wins.

Uber / Lyft could be profitable as duopolies though. As in the case of Pepsi and Coke, both can happily carve out their niche and don't rock the boat too much.

Except for consumers who can fly around the world for insanely low prices.

Can't upvote this enough. It's a rigorous analysis showing that Uber is running a VC-funded ponzi-scheme in their current iteration.

It is possible that some future Uber innovation will make them profitable, but their current operation is smoke and mirrors.

Here's a table of Uber's funding rounds.[1] What's keeping Uber going is Saudi Arabia's sovereign-wealth fund, which put in $3.5 billion last summer. They also took on $1.15 billion in debt last year. That's real debt at 5% interest, not some convertible deal.

Bloomberg says Uber is losing $800 million per quarter.[2] Unless they can find a bigger sucker than the Kingdom of Saudi Arabia, they run out of money in 2018.

[1] https://www.crunchbase.com/organization/uber/funding-rounds [2] https://www.bloomberg.com/news/articles/2016-12-20/uber-s-lo...

$800 million / quarter = $103 / second. Wow.

Wow, indeed. They're lighting 445 kg of $20 bills on fire per day. That's probably enough to stay warm at the South Pole.

Thanks for this. Knew they took on debt but didn't know the arrangement. My biggest concern about them is if they run out of runnway. People think money chases after these deals, but there's only so many companies able to do billion dollar rounds. People that are looking for 10x returns will be looking elsewhere.

Bigger sucker would be ipo

For an IPO, Uber would have to publish real audited GAAP financials. Those would look terrible. Uber's over-valuation would not survive.

Sure it would. People would buy in, it would pop, etc.

Because UBER.

You're naive if you don't think Uber already has audited financials. Investors wouldn't dump billions in if they didn't.

JP Morgan Chase and Deutsche (not exactly the model for integrity) have recently opted not to work with Uber because of its lack of disclosure.[0] Besides, take another look at that table above: not a confidence-inspiring list.

[0] https://www.bloomberg.com/news/articles/2016-11-07/banks-sai...

There's also several links to sites that already have the financial data from Uber. Either you believe that those leaked financial data is real, or you believe they are fake.

If you believe the numbers and the scope of the loss, are you saying that they would have that data and allow that data to leak, but they wouldn't provide it to JP Morgan or DB?

There's financial data out there, but Uber won't provide official financial data to banks for their customers to scrutinize. That makes it hard to assume that everything is both on-the-level and healthy.

Edit: Anyway, what I believe is irrelevant. I don't have the option to invest (aside from getting a job there) or short.

GAAP : non-GAAP :: post-IPO : pre-IPO

In my opinion, giving large scale subsidies to customers seems like a business anti-pattern, and is surely gonna kill a lot of startups in near future.

I have been sold to the Idea that Investors are killing any Internet "Business" by advising Founders against simple & straight-forward business plans. They constantly ask founders not to monetize earlier and wait until founders have no choice but to trash out the company/app to advertisers. The End Result is that founders get more and more scared of asking their customers for money.

If It was upto me, I would take 1000 paying customers over 100k free customers any day. Also this would mean free customers(subsidized customers in Uber's case) not hogging company's valueable resources and company could better serve lower number of paying customers.

Edit: I don't really know how to spell "customer".

Amen! VC's favor this approach because this is the only strategy that requires their scale of money. If you just go out and make a useful product and sell it to people you may do very well... but there isn't room for the kind of huge returns VC's need. Through massive subsidies the VC's are trying to buy monopolies in entire markets... and it may be that transportation is such a large market that no amount of private capital can deter competition indefinitely.

> Through massive subsidies the VC's are trying to buy monopolies in entire markets...

And there you have it, the core of the Silicon Valley concept, the ideal startup, the business model of VCs.

1. Create a new product.

2a. Create a new market; have first mover advantage

or 2b. Use Predatory Pricing or Anticompetitive actions to gain advantage

3. Establish monopoly

4. Cash out big.

5. Use money to fund new business ventures, see 1.

I think a lot of investors and founders try to replicate the model that worked for Paypal. By accepting a high customer acquisition cost (in the form of literally giving away money) at the start you can scale up phenomenally quickly. It's a proven model. The problem is that it's hard to know if you can still attract new customers without that artificial appeal, so actually stopping is a huge risk. Your growth figures could collapse. Uber have managed to amass such a ridiculous warchest of cash that they won't need to stop for a really long time. And I suppose that's the point - if they can get to profit even with the subsidies before they run out of money they won't ever have to stop giving away money to new customers.

How is it possible to get to profit with the subsidies?

The same way that free mobile games make most of their money from 1‰ of the 'whales'.

Nom mobile games. Let's say team fortress 2 or other games subsidized to make game free for all. When a small portion are buying crates and skins.

Uber could do same with black car. Delivery services. Etc.. And then offer discount /free for the (multiple independent ride share or other) to those that want to be cheaper.

I assume they meant reduce and eliminate the subsidies without having raise prices.

Investors, early stage in particular, are optimizing for exits, not profitability. I know that's not what's on their mind when they're advising (I assume the best of intentions), and they do provide the best of what they have, but if that's what gets rewarded, that's what'll get optimized for, and there's nothing the "Good ones" can do about it if they want to be/remain successful.

Very few people other than those pesky customers, seem to care if a business is actually making money on its own these days.

Bing might be 90% as good as google, but when people are trying to search for something they are just going to use google. I really started to realize how useful Uber was when i was traveling internationally I just pulled out my phone and a car came. I didn't have to worry about what the rate was going to be. It might have even been above what a taxi might charge, but at least I knew what the cost was going to be. It just kind of works.

I'm not sure how usefulness-when-traveling-internationally is relevant when the vast majority of the market for Uber, Lyft, etc will never board a plane more than a handful of times in their lives...

EDIT: typo ("irrelevant" -> "relevant")

I touched on this point in the post. If there's a significantly cheaper local competitor, most people will be happy to use that service when they're home. Then they'll use Uber (or some other globally operating competitor) while they travel.

Especially if Dobrindts "A single app to book all taxis, carsharing companies, car rentals, train or bus tickets, in all of Germany" takes off.


At least he is consistent.

Put snarkily: Paid subscription models don't lead to hockey sticks. And investors are only interested in hockey sticks.

There's so much in our world we could do if we only demanded profit, rather than 20+% profit YoY from every corner of our existence.

Novice here, why don't subscriptions lead to hockey sticks? Which business model does?

Hockey sticks come from low friction. Subscription models are just plain tougher -- people have to put in a credit card and pay real money for the service. You just don't get exponential increases in that type of a situation (cue counter-example).

The business models that lead to hockey sticks are anything where the initial use is free to the user. Essentially, how Google, Facebook, and Twitter all started. They can use advertising to monetize that growth, and eventually ancillary paid services (Google Drive storage for example).

two words: amazon prime

Amazon prime is a major profit center for Amazon. http://www.fool.com/investing/general/2016/03/25/how-prime-m...

I live in Singapore and Uber is a little cheaper than the excellent cab services which operated here even before Uber. There is a big competitor to Uber here called Grab. I switched to Uber because their service is good, drivers are gracious and cars are nice and they give me good offers. Last year I took 300 Uber rides, never once taking the usual Comfort Delgro Cab because their drivers suck. If prices were the same, I would pick an Uber over the traditional cab over 90% of the time due to nicer drivers and service consistency across geographies. The rest of the 10% is when I urgently just need to hail a cab.

I don't think you meant to say that Uber won't be a success. You probably meant that you feel it's over valued. Uber is a success. People love it. They pay surge prices for it. I do it all the time. It MAY be over valued but it is already a success. wake up.

It lost 2-3 billion dollars last year and shows no signs of improving its margins anytime soon. How is that a success?

They created a product that people love. I live in Mexico City and my experience is similar to the one described in Singapore plus the fact that, so far, nobody has ever been kidnapped while hailing an Uber.

Riding a cab has gone from slightly dangerous and more often than not displeasing experience, to having a private driver that knows exactly where I want to go and how to get there. Besides, not having to use cash is a great plus as well.

So there you go, maybe not in the US, but in many countries where the taxi industry totally sucked, Uber has already succeeded big time.

> I live in Mexico City and my experience is similar to the one described in Singapore

same in brazil. my parents never took cabs and now they are using uber for everything (since they are getting older and don't want to drive everywhere).

So there you go, maybe not in the US, but in many countries where the taxi industry totally sucked, Uber has already succeeded big time.

Succeeded at making money? Or, failing that, succeeded at building a business that someday may be able to make money?

They could double the price of a taxi ride and most people would still use Uber. So, I don't know if they are losing money in Mexico, but even if they are they could turn it around today.

So then Amazon is not a success either?

First off, Amazon never lost a billion dollars in a single year.

More importantly, Amazon could have been profitable for much of the time. Amazon was losing money because they were taking the profits from they successful ventures and pouring it into new ventures.

With Uber, what change do they make right now to switch to a very profitable company? Amazon had that option, Uber does not.

...Increase prices?

Amazon's position in the market is so weird that Matt Levine calls it a charity for the American consumer sponsored by the stock market. But it's at least clear how Amazon could generate money long-term; if it wasn't, nobody would invest in it.

I think you mean Yglesias?

Can you explain what Amazon's end game will be?

Amazon's endgame is to become the retailer, the only one.

It's customers are fucking g happy. What's the end game you're talking about? Have you invested into them? As a customer I LOVE them. As a student, I studied them in HBX.

In 2015, Amazon made $596,000,000 on revenues of $107,006,000,000, or a profit margin of 0.6%. In 2012 and 2014, it lost money. How long should investors wait to see a real profit? Should they expect revenue growth to continue indefinitely?

How much profit should they make?

If there was a machine where you could insert a 20 dollar bill and it spit out the 20 and an additional 12 cents, would you not use that machine?

How much would you pay to buy one?

Except that if you buy the Berkshire Hathaway machine you'll put in $20 and get back a dollar.

I dunno, how much money would you keep in a savings account that yields 0.5% APR?

I have lived in both the states and in Singapore (current). I've taken approximately the same amount of Ubers as you but it's also because its prohibitively expensive to own a car here. For the benefit of others: it can cost upwards of $100k to own a car, and that's for a cheap ass car and you've a maximum tenure of 10 years on that.

I've to agree with you on the other points however, traditional cab companies have shitty drivers who would mostly refuse to take you to your destination. Grab car drivers are usually rude (relatively) and unpleasant to deal with. I seriously wonder why this is so, in an island as small as ours and with both companies marketing to the same pool of potential drivers.

If my business is standing on the street corner handing people Saudi gold, people will love me. For a while. That doesn't make me a successful business.

I lived a short while in Chiang Mai Thailand. At the time Uber was just getting started and Grab was WAY better than Uber. I really wanted to like Uber there, but after about 5 times of the drivers 1. not finding me (yes, even with GPS), 2. not showing up at all after a long time waiting, or 3. not knowing where they were going.. I gave up. It seemed that they lacked training and that they were mostly trying to get the bonus that Uber was offering in the introductory period. Grab was much more established and worked really well.

That said, the past few times I've landed in an airport and need a ride to my hotel, I didn't bother with Uber or Grab (in Thailand and various US states), because it was just so much more convenient to walk to the curb where the taxi mafia was congregated, tell them my hotel, and be on the way.

I was in Chiang Mai for most of December and I wonder how Uber can be successful there. The songthaews and tuktuks are so cheap that I almost always took those. The only time I took Uber was to go to the airport, since I carefully planned my money so that I wouldn't have any cash left over and Uber would charge my credit card and all the other options would require a variable amount of cash.

That said, the Uber was reasonably cheap, quick and friendly, so their service seems to have improved there.

That's weird, I was there from October through just a few days ago. So we had a much different experience with Uber.

But yes, I loved the songthaews there.

> but it is already a success. wake up.

Your statement depends on what people define as 'success'. Is Uber a product people love? Yes. So, by a product measure it's a success. Is it currently or will it be in the future a profitable business (without VC money subsidies)? We don't know, so therefore people have differing opinions on whether it will be a successful business.

People also loved products like Napster and The Pirate Bay, but does it mean they were a success? I'd say that they're not successful businesses, but were successful products that many people used.

> excellent cab services

> their drivers suck


a lot of people use uber here. I think they've got a better hold on the market than grab.

if only the uber drivers will stop driving by gps because their mapping software is always wrong.

I live in India and Uber / Ola (Uber's domestic competitor) are a godsend! In India we have Autos(https://en.wikipedia.org/wiki/Auto_rickshaw) And the drivers were (are?) ill mannered, demand exorbitant fairs. But Uber changed that. Since the drivers know that the ratings matter, they are nicer. Yes, one in a while you still get a negative experience, but as a whole. it's whole lot better.

For most of the Indians, cars rides are expensive. But I wouldn't mind if the Autos operate the same way Uber for cars work. Ola is already offering Auto rides in the same manner.

Even though I own a car, I don't enjoy driving because of traffic conditions and use Uber and Ola just because I don't feel like driving on a particular day.

I desperately hope that the Uber model succeeds in India, going back to what it was before is too painful to think about.

I haven't taken that much taxi in SG but never had a bad driver. Always polite, speak excellent English and knows where to go. Unlike in MY. They are however often very hard to find. So many taxis but whenever I seem to want one they are all occupied.

But the OP is arguing that it is unsustainable because of subsidies. If I created a business where I give you $100 a day for being a nice person, you would think it's great. But that will not be a successful business most likely.

I know Singapore has very high car taxes, but is 300+ rides really less expensive than owning a vehicle yourself?

300 rides x average of approx. $15 per ride = $4500.

Cars here require a certificate of entitlement that cost around $100k and only last for 10 years if im not mistaken. So if he continued taking 300 rides every year for 10 years it would still be half as expensive.

I don't understand his point. Maybe I'm dense (today, ha).

If Uber has a (simplified) split cost per drive consisting of vehicle (+maintenance) and/or fuel & driver. If subsidised part is generally covering the driver part. When you replace driver with autonomous vehicle and you remove subsidies, you're left with a sustainable (presumably) model on a certain margin that is already rolling. Rolling in a sense that it is already an established business - people know it and use it. You've used subsidies (well, investors cash) to build a business.

Of course, this relies on a presumption they will build a sustainable model on replacing drivers with autonomous vehicles. It also presumes they will not venture into other, (potentially) more profitable business like logistics.

One thing is certain. They are positioning themselves for a great catch which relies on few key components working in the (near) future.

I think real hazard for Uber is regulation (autonomous vehicles for example) and market regulations (see taxi debates in Europe).

The Uber we know right now will probably transition into the self-driving car-based company for freight, passenger transport and ride sharing. It'll be a bit unsettling to see what'll happen to the drivers they're using right now.

I personally think that Uber is not an ethical company (I do live in Europe). They are exploiting tax and legal loopholes to profit off of both drivers and countries, simply because regulation for a taxi company that would be set up like Uber is does not exist yet and most countries take their time to regulate.

When Uber is put up to the same scrutiny as taxi companies are (to ensure their drivers are up to the same standard), they refuse to compete and instead of paying the same tax everyone else does and abiding by the same regulations everyone else does, they just leave the market.

Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.

When Uber is put up to the same scrutiny as taxi companies are (to ensure their drivers are up to the same standard), they refuse to compete and instead of paying the same tax everyone else does and abiding by the same regulations everyone else does, they just leave the market.

Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.

I have to agree with this. Uber is its own biggest enemy. Market regulation comes along with it. This is the real danger for them, for now. At least here in Europe.

>Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.

I don't really understand this mentality. You don't want to let them exploit the situation by profiting off of making things better for consumers?

I do believe that I as a consumer am entitled to receiving good customer service for the money I pay for. I do understand that sometimes people can have bad days and I don't mind that, consistently horrible service and a bad system irritates me and I think it's not fair, but it is kind of a one-sided world view, and I personally don't permit that to myself.

On the long run this is a financial equation, it might be more comfortable for consumers at the moment to hail a cab with their phones and use their credit cards to pay, receive better service, et cetera, but let's take into account the long term price paid by them. Letting foreign companies exploit both tax and regulatory laws to take as much money out of the country as possible before getting shot down is not a good strategy on the long term. Start-ups can get away with it, because at the end of the day the only thing that matters is that they seem "exciting" and "booming".

The same way we aren't especially happy with the people who got exposed in the Panama Papers, or Donald Trump publicly admitting that he doesn't care and will abuse the system, we kind of have to draw a line. If we all decide to do the same, because laws and taxes are not convenient to our short term goals or let other entities do it, it's just gonna backfire at the consumer on the long term, when infrastructure and lives depend on a government having money. Let us not even mention the whole international tax situation, it being as problematic as it is. (Just look at what's going on with Ireland)

In the UK uber is set up like a local Minicab firm, drivers and cars are licensed. It's still by far the best form to take as I can just get one from my phone, not worry about paying, or receipts, are exactly where the taxi is before it arrives, and get an itemised bill at the end of the month to claim on expenses.

I only want to point out, UBER isn't profiting from anything. They are literally burning money to subsidize their growth.

Travis Kalanick is probably taking home a hefty paycheck, though.

The author's not making the point that there is no margin, but rather that with self-driving cars it'll be a quick race to the bottom against competitors, thus eroding whatever margins Uber is left with after replacing human drivers.

Question is, who are competitors with same scope as them? I don't know any. They are already in position to just switch over. Others would have to build their network first. It's a running start that depends on them playing their cards right.

> Question is, who are competitors with same scope as them? I don't know any.

Presumably traditional car manufacturers (GM, Ford, Toyota, BMW, etc.), upstart car manufacturers (Tesla), and even other large tech conglomerates (Google, Baidu, etc.).

> They are already in position to just switch over. Others would have to build their network first. It's a running start that depends on them playing their cards right.

Uber won't have a monopoly in self-driving tech. Their running start will get eroded (some would argue quickly) by new challengers (probably regional upstarts rather than a global competitor) that have easy access to self-driving tech (think car manufacturers).

Also, Uber's network is mostly on the software and human (drivers) side of things. If self-driving tech becomes a reality, they'll have to quickly pivot to purchasing and maintaining a large fleet of cars. That's not an easy task at scale and not something that Uber necessarily has an advantage over others.

Why aren't car manufacturers already in logistics business? Or are they? I'm trying to find sources. I see VW has its own logistics group, but only for their own use.

In the US at least (I haven't ever bothered to look at how branded car dealers exist outside the US), they already have a network of physical locations where they can ship anything and service anything they sell. There are also the rental agencies and the people that manage fleets of private vehicles that work directly with the local dealers on behest of the global organization- Uber doesn't have this and would have to build it. Right now they are pushing that part of the logistics of their organization on their drivers since it is their own personal vehicle.

This is something you can see Tesla having to do the hard way in comparison with their coast to coast supercharger network. There was no physical infrastructure to support their product so they had to build it, and established car dealers already have it which is part of why Tesla overcoming that was such a challenge. If I have a US make car in the US and I am in a moderately populated area I can make a reasonable assumption I can get to a dealer in an hour or two wherever I may be, and Uber would have to overcome that.

They have been. Between 1987 and 2005, Hertz was owned by Ford and Volvo. They spun it off to private equity in 2005, but it has happened in the past.

Google may be a competitor, but it may be more of an enabler of competitors to Uber, by way of, e.g., it's ridesharing feature in Maps.

Any larger car company is a competitor at the same scale. And you don't even need a competitor of the same scale: It's enough if every city has a local competitor.

Yep, that's exactly one of the points I was trying to make.

What is scope for Uber-likes? What is network? They're simply leveraging a brand - it is almost no moat versus a competitor, especially if they have a structural advantage.

An example advantage would be an autonomous car manufacturer entering the market - they can simply blow Uber out of the water on cost alone.

No moat? Do you think brand recognition is worthless or I'm missing something? They have a large user base (I presume) already. I'm not sure one could build one from scratch just like that. It would need a big player to enter the game.

I imagine a company like Ford, Chrysler, or any other large car manufacturer would have equal if not greater brand recognition compared to Uber.

These would be the biggest threat to Uber's market share since they could easily compete on cost and distribution alone.

As far as war chest goes, Uber basically has no competition. As far as their routing and vehicle management algorithms go, there already exist companies with more sophisticated routing systems than Uber. Uber's routing algorithm is basically nearest neighbor search at a massive scale - which is perfect for the on-demand nature of their business; the companies that I'm referring to can support on-demand routing as well as scheduling rides days and weeks in advance.

More knowledge of future rides -> better optimization -> better margins.

Once self-driving cars finally come around, it's going to come down to fleet size and routing optimization, and while Uber can win in the first category, there's no guarantee they can win in the second category.

> As far as war chest goes, Uber basically has no competition.

Google has more money coming in half year than Uber has ever raised, and it's from profits.

The major car companies also have billions of dollars of revenue and collectively they hold hundreds of billions, possibly trillions, of dollars of fully depreciated assets.

You're right about the cash available, but how much is Google (and its investors) willing to lose to compete with Uber? Are Google's investors willing to put up with another [vastly more expensive] Google Plus?

Because when I say war chest, I mean Uber is willing to lose it all. Rides are Uber's only revenue source, whereas Google has never made a cent in that industry.

Google's investors don't have a choice. Brin and Page have voting control.

In any case, it's hypothetical. Uber's unit economics are made of losses and there is no structural moat around their business. They'll run out of money and that will be that.

Is Uber really willing to lose it all? Investors have put money in it expecting 10x return. Google can just right it off as their moonshot project while Uber as as a company goes poof and burns

I think building a network is very much in the bailiwick of auto manufacturers or anyone with capital to purchase the cars and built a simple app with a marketing campaign.

He argues that self-driving cars will likely be commoditized so that they will not have a competitive advantage there. Combine that will low switching cost for users and their debt will be more of a competitive disadvantage than their network effects.

I don't necessarily agree with the above, but I think it's what he was trying to communicate in the piece. I think that network effects will provide a huge advantage for Uber. The larger your market share, the more predictable your demand and the more optimized your service can be. Uber is more like Adsense for Content than like cabs. They are doing a lot of intention matching/prediction in real time and that is very hard to compete against without scale.

Does Uber have a competitive advantage over its competitors?

Existing user base?

You mean brand recognition? (What prevents a user from using more than one service?)

What prevents a user from using more than one service?

Customer inertia, among other things.

The same inertia that prevented them from switching to Uber in the first place?


This qualifies as drive-by snark, which we've already asked you to please stop posting.

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