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Uber Is Headed for a Crash (nymag.com)
61 points by cribbles 6 days ago | hide | past | web | favorite | 34 comments





Uber is a technology company with a taxi service attached. I don't know if everyone investing in Uber, or writing about investing in Uber, appreciates that and the resulting risk.

Investors should be hoping for a pay-off from developing technology rather than profiting purely from taxi fares.

A company that was primarily a taxi service would probably realise sooner that to be profitable by paying humans to drive is much more likely than developing, building, maintaining and improving self driving cars for themselves.

The company gets valued like many others: on their user numbers and potential future earnings, but not profits. (See also Tesla.) I don't think that's right but that's how the system works these days.


> I don't think that's right but that's how the system works these days.

That's not how "the system" works, that's what the investment climate is like at this point in the business cycle. Money is cheap and investments are equally unwise.


I think Uber bets on autonomous driving arriving sooner than later and I think they have miscalculated.

Yeah, seems like "well, we're getting rid of all the drivers ASAP" is the unspoken premise of all Uber arguments. They're currently happily running a deficit to gain marketshare under the expectation that before the bank busts they'll be able to cut all those costs and go driverless.

(And I think you're probably right that they've miscalculated how far they can stretch the patience of investors and how quickly they can achieve reliable self-driving tech)

> ...they have miscalculated

Yes, if by 'miscalculated' you mean 'lied'.

Driverless train technology has existed for decades, and is battle-tested in production.

Yet no place uses driverless trains today.

Figure out why and you can move on to driverless cars.


Well firstly, there are autonomous trains. The DLR in London is autonomous, there are plenty of train systems that are autonomous. But here's a key to why autonomous trains are not important and autonomous cars are: A traditional train requires 1 driver. An autonomous train requires 0 drivers and 1 guard (generally). In both cases trains have a capacity of around 1000 people.

Autonomous cars won't need guards, and have a capacity of 1 driver per 4 passengers. So the saving per person is 250x higher for autonomous cars than autonomous trains.

That's not even taking into account that the technology for autonomous cars is almost identical to autonomous HGVs - who have huge problems due to the limits of how long they can travel before the driver can rest.


> a capacity of 1 driver per 4 passengers

Most rides are 1, maybe 2, passengers.



The Skytrain does in Vancouver.

As does the AirTrain for JFK. They happen to be built from the same system: https://en.wikipedia.org/wiki/AirTrain_JFK#Rolling_stock.

The author doesn’t cite growth rates, customer acquisition costs of lifetime value of the customer and without that it’s not clear they know what they’re talking about. If CAC << LTV and you have a high growth rate and your cost per ride is coming down then they should be doing exactly what they’re doing. The investor around the table are not dumb. They’re probably some of the smartest people around and they can do the math themselves.

There’s a reason I don’t even go to Lyft anymore—Uber is way better than it was a few years ago.


> The author doesn’t cite growth rates, customer acquisition costs of lifetime value of the customer and without that it’s not clear they know what they’re talking about. If CAC << LTV and you have a high growth rate and your cost per ride is coming down then they should be doing exactly what they’re doing.

If, if and if. There's no reason to believe that costs come down with significantly with (even larger) scale, or that people will prefer Uber over competitors or ordinary taxis, once they raise prices. The main reason why Uber has so little competition is that it's simply a bad business model, but massive growth in todays environment attracts enough investors to keep the ship above water for a long time.

> The investor around the table are not dumb.

That's not implied, the idea is that enough greater fools will be found once the stock goes public.

> There’s a reason I don’t even go to Lyft anymore—Uber is way better than it was a few years ago.

Uber simply has more money to burn. Enjoy your rides while it lasts.


The true cost of an uber is some multiple of what their charging. If that multiple is around 2 or 3, taxis suddenly become better for a lot of people.

Buses too. Uber and Lyft have been killing bus ridership. It's a simple replacement when ride-share costs increase.

I'll tell you one thing: I really don't appreciate an article that just continually asserts investors are idiots. High end retail! They're stupider than Saudis!

I'm sympathetic to the idea that Uber has lots of headwind. As mentioned, the majority of costs scale with revenue in a way that isn't true of real tech companies and the autonomous driving thing is basically dead. But there's lots of reasons companies could fail - it's not enough to list them.

One glaring hole I see in this analysis is the monopoly view. Uber is establishing itself as a monopoly in some markets and pulling out of the ones that it's failing to achieve that. A pretty straight forward step would be to start jacking up prices in areas they have a monopoly whilst simultaneously driving out the competition. That would be profitable and it addresses the problem the article proposes.


> A pretty straight forward step would be to start jacking up prices in areas they have a monopoly

But what's to stop someone like Lyft or any other cab company coming into that market and undercutting them?


Capital. Assuming the article is right and there's no fundamental efficiency saving of any particular taxi company then to challenge Uber's monopoly in a market you need to sink money into subsidizing fares until you drive Uber out of the market to establish your own monopoly. Why would someone do that? It's far more effective for Lyft to put it's capital into where it can establish itself rather than just having a cash burn contest.

This is why Uber left South-East Asia to Grab in exchange for a stake.


> sink money into subsidizing fares

This assumes there is no way to undercut Uber's costs. If Uber wants to be a 100 billion dollar company then someone could be happy with being a 100 million dollar company and aim for a much smaller market.

They don't need to win every city, just take a slice of the most profitable city from Uber. Suddenly your 10 million per year profit is costing Uber 10 times that as they can't undercut you and still be highly profitable.

After that either the small guy expands, or someone else aims for the 2nd most profitable city. Eventually, Uber is left with a monopoly on the least valuable markets and steady competition on all the profitable ones.

And that's assuming they can kill off Lyft, and all other significant players which already have network effects and cash on hand.


>They don't need to win every city, just take a slice of the most profitable city from Uber. Suddenly your 10 million per year profit is costing Uber 10 times that as they can't undercut you and still be highly profitable.

If Uber is operating in 100 cities and you turn up in their most profitable one, they can just drop the prices and make a loss in that city until you leave.

I agree with you, maybe they don't kill off lyft and don't get to the point that they have the scale to implement their strategy, but that doesn't stop it being a decent strategy to aim for.


> If Uber is operating in 100 cities and you turn up in their most profitable one, they can just drop the prices and make a loss in that city until you leave.

That gets insanely expensive in their most profitable city as you not only forgo profit you also need to drop the pice enough that people pick you. And it’s never going to be just one company in just one city that tries to compete. The might be able to pull it off, but not while being a 100 Billion dollar company.

Remeber, long term their options are be profitable or fail. They can’t continue to attract money if they had a monopoly and still can’t be profitable.


You don't have to establish a monopoly though - your simple presence in the market (relatively low cost since it's not like drivers are loyal to a particular brand) will give you a cut of the profits that would otherwise go to Uber - why forfeit an entire market when you can participate at low cost?

And require Uber to continue subsidizing fares in that market. If you assume Uber operates at a loss everywhere they subsidize then smart competition will compete everywhere.

no mention of Waymo's announcement today - that's the bigger threat IMHO.

Is Waymo's announcement even worth mentioning?

https://mashable.com/article/waymo-one-self-driving-taxi-lau...


Yes, even though it’s the same early testers, they are confident enough to pull the NDA and allow additional riders. I think you’ll see them progress pretty quickly in adding more users.

Stripping everything away, the basic question is how they will make money. Raise prices? They have local competition pretty much everywhere, there’s no moat around the rideshare business. Food delivery? Maybe, but will that be enough to justify their valuation?

Autonomous trucking is the only thing they're currently working on that I can see being a game changer. Everything else is a highly-competitive, marginal cost business with no moat.

I don't know the last time I read an article so snarky and without substance as this.

Just a few points below:

> After nine years, Uber isn’t within hailing distance of making money and continues to bleed more red ink than any start-up in history. By contrast, Facebook and Amazon were solidly cash-flow positive by their fifth year.

Amazon was founded in 1994 and reported a quarterly profit in the fourth quarter of 2001 and, at $5 million. It then went back into the red for several years. [0]

> The app is not technically daunting and and does not create a competitive barrier, as witnessed by the fact that many other players have copied it. Apps have been introduced for airlines, pizza delivery, and hundreds of other consumer services but have never generated market-share gains, much less tens of billions in corporate value.

So its easy to copy, is regularly copied, but none of them made any market-share gains? Maybe it's not so easy to copy?

> Nor, after a certain point, does adding more drivers. Uber does regularly claim that its app creates economies of scale for drivers — but for that to be the case, adding more drivers would have to benefit drivers. It doesn’t.

For drivers the economy of scale is that they are in a market. They can be in their own market, a market of 1, and alas, they'll have no competition. But saying that a market adds no value to producers as it grows large is backward economics. The benefits of economies of scale for the passengers is more obvious and completely ignored by the article.

> Unlike digital businesses, the cab industry does not have significant scale economies; that’s why there have never been city-level cab monopolies, consolidation plays, or even significant regional operators.

There are no benefits to scale economies in taxi markets, that's why one never existed. Oh, except Uber, which does exist and is worth a lot but is stupid.

> Uber has never presented a case as to why it will ever be profitable, let alone earn an adequate return on capital. Investors are pinning their hopes on a successful IPO, which means finding greater fools in sufficient numbers.

This is just a cynical view of anything financial. I believe something is stupid. If others agree, good. If others own it, it's just because they know other people are stupid and they'll pass it on to someone stupider.

[0] https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-...


1) Profit != cash flow.

Amazon was cash flow positive significantly before they became profitable. They made a conscious choice to not be profitable (the cynic’s take on this is that they didn’t want to pay taxes).

2) Lyft has made market share gains in the US. Other companies have made market share gains in other countries, to the point that Uber has had to withdraw from several countries.

3) A larger market does not necessarily provide economies of scale for the individual driver. The larger market does not help an individual driver reduce their costs. A larger market adds some value to the drivers, but the actual fact is that the value added so far has been consistently outweighed by the downsides. This is clearly evident in the significantly less money they are making.

4) Your argument that Uber is worth a lot is exactly what is being contested. You can’t use that assertion (whether right or wrong) to prove the assertion. And Iber is hardly a monopoly anywhere. Yellow cab services still exist. Left and other competitors still exist and are growing.

5) Has Uber presented a case showing how they will be profitable? How is it cynical to point out this obvious fact?

Also, with the IPO market they don’t need to sell to someone stupider. They just need to sell to an entity whose decision makers’ interests are not aligned with the owners of the funds they are investing. In other words, pension funds, mutual funds, investment banks, etc. But yeah, there are enough stupider people as well who could lose money on this.


1. Uber could be profitable by not expanding. They stated that there are a number of markets in which they're profitable. It seems to be a decision as well to aggressively expand. These arguments seem to be backing into an argument why Uber is not like other things.

2. I'm commenting on what the article wrote. Of course there are competitors. I was pointing out the logical fallacy in the article. Easy to copy but no one successfully copied it.

3. So the market doesn't benefit drivers but the market is growing in drivers? Apparently the downsides of joining the market is less than the upsides evidenced by the fact that it's growing

4. The article claims there are little or no benefits to markets in Cabs. The fact that Uber has grown to this size questions that assertion. And your statement that there are other competitors also questions the articles assertion. So we're in agreement here

5. No idea but I assume the skin in the game that has invested billions has reason to believe so. Or maybe everyone else is stupid.


> So its easy to copy, is regularly copied, but none of them made any market-share gains? Maybe it's not so easy to copy?

In Uber's case there are a lot of successful copies of the app based taxi service, some of which have pushed them out of markets completely. e.g. Lyft, DidiChuxing, Grab, Ola, etc...

Plus many local cab companies now have apps that mirror Uber's functionality. In cities that I know well I find those companies are better, quicker and cheaper than Uber, which I now mainly use as a backup or in places that I don't know.


"The app is not technically daunting and and[SIC] does not create a competitive barrier, as witnessed by the fact that many other players have copied it."

I would say the app and and [SIC] its server-side framework is one of the most sophisticated in computing history. The companies that have something similar can be counted on one hand.


Many of the sillier criticisms of the New York Magazine article have already been properly addressed but here are a few more. <Dominicr> “Uber is a technology company with a taxi service attached.” Complete utter nonsense. Uber has not developed any “technology” products except what’s needed for its taxi service. It doesn’t sell any “technology” products on open markets. Its “technology” is a tiny portion (probably around 5%) of the total cost of providing customers with taxi service. As the article mentions, its dispatching and pricing software is trivial compared to what airlines had decades ago. Since no other consumer product app has ever had meaningful competitive impacts, it is ridiculous to claim that any meaningful portion of Uber’s $70 billion value is due to its wondrous technology. <rdlecler> “The author doesn’t cite growth rates, customer acquisition costs of lifetime value of the customer and without that it’s not clear they know what they’re talking about” You obviously didn’t read the article. It emphasizes, based on published financial data, that Uber’s costs aren’t coming down, except to the extent that they can push driver compensation to (or below) minimum wage levels. It any of the points you raised were actually important, Uber’s losses would not have ballooned to $4.5 billion in its eighth year of operation. <traster> “I'll tell you one thing: I really don't appreciate an article that just continually asserts investors are idiots” At no point does the article say (or suggest) that the investors are idiots. Obviously the vast majority of VC funded companies fail to produce returns for investors. It does clearly suggest that their original vision of outsized returns on the $20 billion investment base won’t be realized unless the IPO succeeds in finding a lot of “greater fools” willing to bail them out. And you fail to provide any logical basis for why Uber would ever be able to produce these outsized returns if the investors hang on. Or why anyone should invest in next year’s IPO.



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