There's a painful math error in this piece. Uber's financial losses currently amount to about 10% of gross bookings. Details are here: http://www.businessinsider.com/ubers-losses-grow-in-q3-but-b... Ergo, Uber could operate at breakeven by raising prices slightly more than 10%. (Not every dollar of extra revenue would benefit parent Uber, but let's assume that most of it would.) Uber could be highly profitable by raising prices 20%.
Author Stephen Hill, a "journalist in residence," makes a rhetorical point by implying that today's $5 Uber fare really ought to be $10 if Uber weren't subsidizing passengers, and that today's customers are "only paying half the cost of the ride."
Uber's willingness to incur losses in the name of growth is still quite astonishing, and a measured analysis of its growth strategy would be worth reading. But the gap between 10% and a rhetorical 2x is huge. Many other journalists are taking time to do the math. I'm not sure why this math-impaired version found itself a big headline.
> Uber could operate at breakeven by raising prices slightly more than 10%. [...] Uber could be highly profitable by raising prices 20%.
No, because the demand would be different at those price points, and lower demand might not compensate for high fixed costs.
I got a timely reminder yesterday in (newly Grab-monopoly) Singapore, taking a Grab for $15 that used to cost me $3-6 on Uber.
I took public transport back. One ride was enough to shake me out of my years-trained habit of taking Uber/Grab everywhere when it cost only twice the MRT or bus ride, never really looking at the price.
Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work, in the same way that Standard Oil's massive facilities dropped the price low enough for Rockefeller to bankrupt all his competitors.
"Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work"
Difference was you were in Singapore, where they have clean and reliable public transit. Many people would definitely pay $10 to $15 more to take a private car rather than public transit in the US.
I can tell you right now that 10% wouldn't shift demand meaningfully in cities like San Francisco. I don't think most people would even notice a 10% increase to be honest.
Of course, they're probably already profitable in major cities like SF and pricing is probably already adjusted to reflect the maturity of the market.
People need to start talking about these companies on a per-market basis. The broad 10% number doesn't make sense since every market that these companies are in is at a different stage of adoption.
Cab companies have been raising fares for a long time without losing much business. Bus companies, too. Yes, a 30% or larger price increase vs. the competition will cost you a lot of business. But existing transit providers get away with smaller increases with impunity.
If Uber is 10% away from breakeven, it can probably close that gap in stages without ruinous consequences from demand elasticity.
I agree that a 10% price increase may not make a big difference, but as far as the comparison to cab companies raising prices, I think that Uber has a fundamental difference in that many people use it far more frequently than they ever used cabs in the past.
I now own two cars (between me and my wife), but there was a period last year where I was living relatively close to my office and using uber relatively frequently instead of owning a second car. I did the math and it boiled down to Uber/Lyft being cheaper than a second car, even if I used it relatively frequently. Five or six years ago this wouldn't have even been an option, and I would have just bought a car, since traditional cabs just aren't as convenient.
My point is that many people use uber in their day to day life, such that they pay close attention to pricing. Traditional cabs are something that I used almost exclusively on vacation (and still do in places with uber), so I am much less cost conscious on those.
The link you provide is only for the first three quarters of 2017 and the add up to $25.9B. The NYT article indicates Uber's 2017 losses are $4.5B. If their losses amount to 10% of gross bookings that would imply 2017 gross bookings of $45B, which implies 2017 Q4 gross bookings of ~$20B, is that correct?
Where does the author make this "math error"? I don't see it. I think the error he makes is just asserting that the "real cost" is $10. I have no idea where the author gets the notion that $10 is the real cost and Uber is charging half of it, but it doesn't appear to be backed out of the financials as you imply.
And no, it's not at all clear that Uber could breakeven by raising prices by 10%. For that to be true you would have to assume that the price increase wouldn't affect demand, an unlikely outcome in a market where Lyft is competing aggressively.
Stephen Hill's article is a joke, it's poorly reasoned and has scant supporting evidence, but I don't think he made a math error, I just think he didn't do any math at all.
I’m pretty sure by ‘math-impaired’ he meant that he didn’t do the math, not that he tried and failed. His use of the word ‘rhetoric’ implies the author knew he was pulling them from his arse and was using those numbers to make an argument.
> Uber's willingness to incur losses in the name of growth
What a delightful euphemism for predatory pricing!
Supposing the $10 value in the article were changed to $6 or $8 or $12 or whatever the correct value is, do you dispute the author's overall point that a huge corporation burning investor money to secure a monopoly and undercut more efficient municipal transport is a bad thing?
This makes all the more sense as the journalist explicitly considers New York, or at least a city with extensive and reliable public transport option, where I would expect Uber to be profitable.
There certainly are places where Uber subsidies rides by half, but those are generally new territories or places where they have closer competitors.
Author’s vision for Uber: regulated, price-controlled (“can’t charge less than a true cost of the trip”), number of cars not to exceed government mandate, with unionized and minimum-wage-guaranteed drivers.
The part where it goes off the rails is limiting the number of cars. This is why taxi's are so expensive, it's not a truly fair market.
Also, I strongly disagree with the author's sentiment that more people using uber vs public transit is bad. Shortening people's trip time sometimes as much as 1 1/2 hours to 20 min is a huge benefit. Transit could be better, but it won't be if it doesn't have to compete with a genuinely good experience.
Additionally, consider the number of people who have not driven drunk because uber is cheap enough that they are willing to do it. Transit doesn't run as much at night, and people are not willing to either wait the 2h to take night transit if it exists, or pay $50+ a ride for a taxi. We can argue all night about whether or not people should do these things rather than drive drunk, but the cold hard reality is that services like uber have actually reduced the number of drunk drivers by making efficient transport affordable.
I don’t think this is given - e.g., in NYC, Chicago, and SF, most cabs are driven by poor immigrants[1] and most rent (in economic terms) is extracted by medallion owners.
[1] Nothing wrong with being an immigrant - I’m one myself, although not poor anymore. I’m just pointing out that pre-Uber system didn’t offer much protection either. Since driving is an easily obtainable skill with no differentiation whatsoever, driving for hire - be it a cab driver, truck driver, or Uber driver - will always be a low-earning job.
Drivers don't have that now. They have extremely little control over what rides they can turn down, and most drivers barely break even.
As for consumers, yes, it's generally felt as a blow when they have to start paying the actual costs of things, instead of coasting by on VC subsidized things.
The current solution benefits drivers sufficiently to entice them to do it over a different job. I’m not sure why people feel that the current situation must be changed.
I haven’t been to Paris lately but my friends there describe it that way: Uber drivers there now need some hard-to-get and I believe limited license, so the drivers there are a lot less abundant, prices are higher and wait time longer.
I wouldn’t be surprised if city hall economists publish some impact study on drivers’ revenue, or on congestions: both are hot topics there.
Sounds lovely and pithy, and Id love to agree with you. But is it, really? Didn’t Uber replace exactly this system, meaning it was, in fact, reality for decades?
I am waiting till someone builds a taxi app that would work exactly as IRC servers worked 20 years ago and Uber dies in it's own monocultural misery. Now that's capitalism.
They tried that in Austin. I think they had a year to grow market without Uber or Lyft, and once the ridesharing companies came back, the companies were decimated.
All of it? It's not like the VCs aren't expecting a return on investment. They're literally Venture Capitalists. You don't seem to equate investing (which this is) to capitalism, but you're mistaken.
Reality is what we choose to make of it. In the case of the US, reality is crony capitalism running a yearly trillion dollar deficit, billlions wasted on military contracts like Zumwalt, and overspending-underperforming healthcare. Let’s leave the buzzwords and ideology aside.
Sounds pretty good. Charging less than the actual cost of a trip is just anti-competitive, so everyone here should be against that. Unionized and minimum wage guaranteed drivers sounds good to me, as I fail to see any reason why the drivers shouldn't be making at least minimum wage.
The author sounds like a caricature out of an Ayn Rand novel. "Traditional taxis already have a sensible limit to minimize congestion"? "Fairness fees"? wew.
Very clickbait headline. The leadership change was done because of a toxic culture that led to a lot of bad behavior, which is why new leadership was brought on board.
The title would imply that this leadership change hasn't changed the bad culture, but instead it goes into discuss how Uber and other companies are congesting cities which is what the problem was with Uber all along.
However, that wasn't what the leadership change was about.
In terms of congestion, that's relatively simply, just limit the number of TLC licenses that are available and you will solve congestion. Then go get that passed without having voters revolt.
Interestingly despite years of negative pieces on Uber from journalists who have never liked Uber, its net favorability is still very close to Apple's:
It's because of all those startups like Airbnb pushing the "sharing economy" when it's really the renting economy. It's not sharing if they're charging you for it.
Completely reasonable to expect a new CEO to fundamentally change the culture and practices of an 8 year old, multi-thousand employee, multi-billion dollar company in 8 or so months.
Further, he uses the statistic that there may be 5X as many Uber on the road as taxis. That's not a problem! That's a solution. Taxis were clearly not addressing the full transportation need, not nearly! Only 20% of potential customers were being served.
Public transit can work for predictable, regular trips. But most busses I've ever been on have been nearly empty. The theatre of supporting public transit (busses anyway) is expensive too.
To replace cars significantly, busses would have to run on most main streets in a regular grid pattern over the entire city over the entire day. Nobody does that. Instead they run irregularly over favored routes (hotspot to hotspot). Which gains some riders at some times of the day.
I'm not sure busses are even an ecological gain in most cases.
Public transit isn't a solution: it's slow, filthy, relatively expensive (for the value received) and public (I'd rather not sit next to someone who hasn't bathed this week). Uber, OTOH, is fast, clean, cheap-for-the-value & private.
Am I really stoked on Uber-the-company? Not really. But I love Uber-the-service. It's far better than taxis and buses.
I've gotta be honest, I feel a bit clickbaited. This piece just provides the standard resolutions to a misbehaving company with a few specifics about Uber but doesn't mull too long on it's title. Why is it that we even expect a leadership change to substantially alter a company? We've created a system where there is no real accountability for the direction of a company, even it's leaders are bound to shareholders[1] and it's shareholders are dispersed with their demands either hidden from the public eye in the case of VC/PE or mostly abdicated in the case of the public. In our system a corporation with shareholders is just an automaton marching towards profit and nothing else, leadership won't make much of a difference.
[1] they aren't really but the popular idea provides cover for them to maximize their own gains via the portion of their pay that is comprised of stock
Agreed. When they make a title like that, people assume they're talking about Uber employee culture, not their business model. And the NYT knows what they are implying, and they know it will get more clicks.
The market had already set the cost of a private ride long before Uber: cabs. Uber has taken a huge market share by subsidizing their passengers with investor money, undercutting the cost of traditional cabs. One could argue that Uber is more efficient, higher quality, has a better UX, etc., but in the long run the cost passengers have to pay for a private ride with a human driver will return to yellow cab levels. Drivers need to eat.
The key phrase there is human driver. It's no secret that Uber is betting on autonomous rides in the near future, which completely changes the economics of ride hailing. It looks likely that they will be able to limp across that finish line with their dismal human driver financials, into the world of real automation profitability.
> a business model that harms drivers and the environment, and drains away passengers and revenue from public transportation.
It's disingenuous to complain about how public transportation is being undermined and to propose regulations that would force more people to use it without even mentioning the sorry and stagnate state of public transportation in many cities. It is simply unfit and unsafe to use in many places (including parts of NYC and SF) due to congestion, cleanliness, delays, discomfort and many other reasons. No surprise that many people have given up on it.
"Most customers who love Uber don’t realize that the company subsidizes the cost of many rides"
Amazon used this technique for over a decade and is now one of the largest companies in the world. I think it's also telling that the author admits that users love Uber, but he doesn't, so things need to change. Guess what, people are happy with the service. If you're not, stop using it (and I guess publish negative articles in mass media publications).
As a massive Uber customer I'm really glad that nothing changed with the new leadership. The service does what I want and doesn't need massive tweaking. I'd also happily pay more for Uber when the subsidies end. The user experience and value for me is far too great to switch.
There's a bit of a difference between those two examples. Amazon was making a per unit profit but taking losses overall due to fixed costs, Uber is taking a per unit loss. Amazon was able to eventually overcome those fixed costs with volume, but by taking a per-ride loss, Uber can't ever outgrow that subsidy without raising prices or lowering per-ride costs (and drivers are already not exactly flush with cash).
Good point. As a consumer, I'd be willing to pay higher prices so I could see how once you get "hooked" this strategy works. I also would love to see the self-driving dream come to fruition which would presumably lower costs.
You're correct that both those strategies differ from Amazon though.
The CEO tweets that people he disagress with are "incompetent". Of course new leasership hasn't changed Uber, they hired selfish, hateful, spiteful people as leaders again.
Author Stephen Hill, a "journalist in residence," makes a rhetorical point by implying that today's $5 Uber fare really ought to be $10 if Uber weren't subsidizing passengers, and that today's customers are "only paying half the cost of the ride."
Uber's willingness to incur losses in the name of growth is still quite astonishing, and a measured analysis of its growth strategy would be worth reading. But the gap between 10% and a rhetorical 2x is huge. Many other journalists are taking time to do the math. I'm not sure why this math-impaired version found itself a big headline.