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.
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.
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.
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.
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.
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.
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]
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.
> 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
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.
> 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.
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!
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.
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.
> (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.
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.
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.
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.
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.
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.
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.
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).
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 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.
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?
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.
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.
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.
> 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.
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?
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).
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.
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.
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.
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.
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.
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.
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.
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.
> 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.
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.
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.
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]
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.
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.
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.
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...