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Yeah. And while this says a lot about Lyft, for me it really really says a lot about Uber too.

It has never been impossible to run a company by injecting money into it to cover the difference between how much customers 'value' the product versus what it costs to provide the product. But the dot com days showed that without a point in the business model where the value exceeds the cost by enough margin to keep the business going, such businesses don't survive.

What neither Lyft, nor Uber, has yet provided is a credible 'size' at which they would be a going concern (covering all their costs), nor a really good idea of how being larger scales revenues more than costs in sufficient measure to become profitable.

I would love to see a document that describes the 'per driver' costs that these companies incur on a location basis (so costs per driver in Los Angeles CA, and per driver in Minot ND) vs revenue expectations per driver vs total available livery miles (how many people would have to want to go somewhere to support those numbers). Then you could at least see if there were any islands of profitability in that solution space.

So far, I've yet to see anything where the answer is net positive. Worse, any positive solution will be very fragile by definition because the barrier to entry is zero and so a third party can unilaterally drain profits out of a ride share company by starting up an unprofitable competitor and funding it out of pocket until it has done the required amount of damage.

(disclaimer: I work at Uber, but opinions are my own, etc)

On my employee orientation a few years ago, we were shown charts from the finances team with breakdown of gross income vs the various cost centers and they were talking about how established cities were profitable and new cities were not due to various reasons (see my other comment downthread)

My personal take on this is that eventually the world will run out of cities for Uber to expand into and every city will either be profitable or deemed not worth entering.

I don't really buy the argument that any fat slob willing to burn money can displace Uber in an established market in any significant way. The stealing marketshare strategy only works while all parties are still growing in a given market. Once the growth stops, it's a race to the bottom, and I don't think any investor wants that.

Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale, and at some point, the law of diminishing returns will probably make it not worth for someone else to try to be the third or fourth competitor in a given market.

At that point, if I were investing, I'd be pressuring those companies to either partner up, be acquired or cut some sort of exclusivity deal, giving Uber a share of profits.

And from history, that's exactly what has been happening. Uber left China by cutting a deal to take a cut of the pie, it partnered in Russia, and now there's the rumour about the Careem deal.

Profit in a city is not enough to ensure a high valuation. They can clearly survive as a ~1 Billion dollar company, but that would represent huge investor losses.

The risk is not an unprofitable competitor it’s a lower margin competitor. Large cities have long supported multiple cab companies which caps Uber’s profit per city, and worldwide their are not that many large cities.

Really, they would need to be making 100+ million in profit just in just NYC to avoid that crash. But, those kinds of profits would clearly attract competitors long term.

That's a good point. Unfortunately I don't have much information on how the current valuation was calculated (and I wouldn't be allowed to talk about it even if I did)

Where I think Uber has a competitive advantage is the multitude of spin-off services it provides. Cab companies only compete on a fraction of the transportation market. Uber has its hands on a lot of different segments and it's a household brand at this point. We'll see what the market thinks when the IPO happens, I guess.

Any idea how much revenue & profit all those NYC cab companies we're bringing in?

It would have to be tons, based on market prices for medallions before Uber.

That was a result of a huge economic rent (caps on the supply of medallions in order to prevent competition) that Uber crushed.

Rides are a bit like diamonds: The only thing keeping the prices up was a cartel.

All of this talk sound surprising similar to airlines.

I don't see how being a "fat slob" is relevant to the discussion in any way. It's just toxic for no reason, and it doesn't belong here.

Sorry, I was thinking of fatness as the symbolism for having money, but yes, that was poor choice of words on my part and it seems I can no longer edit it out. s/whatever bothers you/unicorns and rainbows/ and let's not derail on nitpicks.

> Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale

So, the end-game is driving competitors out of local markets, by using profits from other markets?

This sounds like a great argument for Uber getting broken up, as a monopoly - if it actually achieves this endgame.

How is that different from any company using profits from one product to build another one?

Using the profits is OK (not considered monopolistic). Using a large marketshare in one area to gain an unfair advantage in another area is monopolistic.

They using profits from one area to reduce their prices and grow their driver fleet in another.

That's dumping and the source of funding is irrelevant.

So a startup shouldn’t try to gain market share with a free product?

Is Linux dumping on Windows?

Dumping is about selling at a marginal loss. For example if it cost you $7 to make a widget but you sell it at a loss for $5 because you’re trying to drive a competitor who can make a widget for $6 out of the market. Linux (like most software) has no marginal cost so unless you pay someone to use it dumping doesn’t really apply (Google did do that with Android). For Uber and Lyft I think a reasonable case could be made that they are dumping if they take a marginal loss on each ride to force a lower cost provider out of a market, but companies get a lot of leeway for money spent on “marketing”, eg the losses can be structured as “new driver bonuses” and “new customer discounts” rather than a cost per ride.

Microsoft is spending X per year on engineering. So Windows has a marginal cost.

Because I am overcompensated and have spare engineering time I can dump it into a free Linux product to force Windows out of a market.

Redhat is actually taking my free engineering time and monetizing it! The villains!!!

Local markets aren’t different products, to start.

But different products are often different markets. An author of science fiction could write a romance novel with 0 overlapping readers.

With that particular analogy example, you'd be surprised. Not really relevant to the real discussion, but I find the romance novel market pretty fascinating.


I think we are getting close to machine generated pulp fiction :).

Eh, they're written by real humans, trying their best to write something that an audience will enjoy, same as most "pulp" (ie commercial) fiction, same as much SF (much commercial SF is pretty bad of course).

I find the romance sub-genres delightful; not so much to read them (although maybe I should), but just that they exist makes me smile and appreciative of humanity.

I think that romance gets so little respect even from people who appreciate other "pulp" genres like SF or horror, has a lot to do with assumptions about genders of readers. SF has a very "unsavory" past too, but has been "recuperated" somehow. Romance stuff is just books too. I like books, and I'm glad that people still read them!

To your last point, my read on the history of taxis in the USA is that that was roughly what was happening during the early 20th century, until some regulation came along to create artificial barriers to entry. Uber broke down those barriers to entry, which allowed them to disrupt the incumbent taxi companies. But it also means that there's not much to protect them from being disrupted themselves.

The taxi situation in most cities was awful before rideshare came long, and the taxi cartels' rent-seeking behavior produced produced some gross externalities (the lack of any train lines going to LGA comes to mind), so this has perhaps been a net benefit to consumers. But Uber and Lyft are not charities, and that fact has no bearing on their viability as businesses.

The lack of any meaningful rail / subway connection at LGA is something I have to deal with on a regular basis. Probably won't change anytime soon either which is unfortunate.

And is something that I would presume Uber is just as happy to lobby against as the taxi companies are.

Uber could be willing, but there could be others trying to disrupt Uber who try and stop it.

Agreed, we're still left with the same fundamental problems.

What's really interesting, and I think what's unclear is this: what's costs these services so much that they can't turn a profit?

Their costs, other than taking a haircut on the ride, doesn't seem entirely clear, or obviously large.

A 2017 number says Lyft completes about 360 million rides per year. For fun, let's say they make $1 per ride, are they really not able to run their front-end operations with around 1,000 employees? (assuming an employee costs about $250k-300k/yr)?

That seems crazy to me, but I don't know what hidden costs there are. From an outside PoV it appears they need to run a more or less static website, about 4 smartphone apps with some back-end routefinding and accounting systems.

What am I missing?

Last I looked at Uber's financials, 90-95% of their expenses was driver earnings. And then you have operating expenses that includes employees, promotions, r&d, regulatory fees, marketing, support, new investments etc.

Uber's margin is probably under 5% which simply isn't enough.

You were looking at the wrong numbers, or you didn’t understand if those were the conclusions you came to.

AWS/Google Maps/Foursquare etc. bills probably add up.

Customer service - Uber seems to have decided it's cheaper to just allow a few no-questions-asked refunds for cancellations than actually getting humans involved every time

Office space (in SF!) to hold all those employees

"some back-end routefinding" becomes hideously complex once you factor in:

- real-time road closures

- lyft line matching

- traffic modelling

- time-of-day turn restrictions

- normalizing data from various regional map providers

- routing itself is NP-hard

I'd guess you're underestimating the cost per employee by about half, is one factor.

If your cost per employee is approaching half a million dollars or more on average, you've probably messed up somewhere.

If you're a taxicab company and your non-driving staff is making that, you've definitely screwed up somewhere.

Which is why I expect massive layoffs at uber/lyft, they have too many employees for the simple things they do.

Lyft charges $2/ride plus some wiggle around discounts and surge pricing.

These ride-sharing companies are still in their mailing DVDs phase of their business. The ultimate goal is clearly to use self-driving tech to cut the costly human labor out of the system and that remains the most obvious path to eventual profitability. The questions then just become which is the first company to get this tech safe enough to deploy to general consumers and which players can survive being unprofitable long enough to make it there. It remains to be seen which companies in the ride-sharing space are the Netflixs and which are the Blockbusters.

So let's stipulate for now that this idea (all self-driving cars) is their "end game" for the sake of argument.

If you take their current numbers, and set the amount of money they pay drivers to 0. Are they profitable?

While you could imagine that money going to the service instead, the missing piece there is that the drivers own (or lease) their cars and absorb that cost, so does what the driver makes cover the costs associated with owning the vehicle? (gas/energy, depreciation, maintenance, insurance)

Does doing this at scale have better margins than say an individual offering their self driving car as a livery service during the 'off hours' and keeping all the money it generates?

If done right, it's probably always preferable to own the fleet yourself. You can presumably get better economies of scale on purchasing, fueling, maintaining, and insuring the vehicles.

On the current market with human drivers, there are some odd incentives to the contrary though. Using driver-provided vehicles probably helps make the "they're independent contractors" legal argument. There's also the storage yard problem-- if you own a fleet, you're going to have to provide a place for the drivers to come to, park their own cars, and get into yours. I also suspect it lets them cast off the "unknown unknowns" -- damage and insurance claims, underpriced routes. And yes, there are likely opportunities to exploit new recruits by paying below their actual costs.

Once you have self-driving, many of those incentives vanish. Your biggest win comes from calling up GM and ordering cars 10,000 at a time, which a new-to-market entrant can't afford to do.

If the drivers made less than it cost them to maintain their vehicles, they wouldn't be doing it.

I know that a lot of people think the drivers generally are that stupid, but I'm skeptical.

Even if every driver knew for certain that the income wouldn't cover the longterm cost of wear, there would still be drivers who needed money now enough to trade the future value of their car.

Which I imagine happens a lot. I expect a lot of/most drivers have at least a vague sense that a decent chunk of their earnings are going to get eaten up down the road in new tires, maintenance, etc. But they have rent due next week so...

You miss the obvious driver who is not an Uber driver only but one who is an Uber driver as a side hustle. This person owns a car for their own reasons, they want to drive around and have access to a vehicle. They 'rent' that expense to Uber which comes out of their compensation.

Here is another way to look at it. Someone who rents their apartment on AirBnB for one week a month which generates enough revenue to pay their rent, and they live in the apartment the other weeks of the month. This arbitraging of costs is similar to what Uber drivers do.

If Uber were to shift completely to self driven cars, all of their arbitrage ability would be lost, as the full costs of the cars would then be on their books. Now if the business model of having cars available 24hrs a day and there was no drivers fee allowed them to be profitable, that would be an interesting model. Of course one of the things that is going to happen in self driven cars will be things like drunk people throwing up all over the car, resulting in the car being out of service while someone cleans it. Or being defrauded when someone steals a phone and tells a self driving uber to drive them to the next state so they can sleep in the back seat. Then you are back to a security guard who is watching cameras of cars, but how many do you need of those? What do they get paid, are they 'contractors' or employees?

I'm rooting for them to change the world for the better but I've been unable to guess at a business model that would allow them to be profitable yet.

The cost equation for AirBnB and robo-Uber--when used in the sense of renting out personal property as a side hustle--are different though.

If you're away for the weekend or a business trip, there's very little $$ cost associated with renting out your condo for the weekend (ignoring the risk of a bad renter). It's arguably (almost) free money, again, depending on how you quantify the risk.

The cost of a car, on the other hand, is mostly related to how many miles it's driven, not over how many years it's driven. There are some time-based costs (taxes, insurance mostly, rust in snow states, having older tech) but it's mostly distance.

> If you take their current numbers, and set the amount of money they pay drivers to 0. Are they profitable?

Easily. They paid ~$8bln to drivers last quarter. They merely lost ~$2bln in 2018.

The payments they made to drivers included the cost of ownership of the car, fuel, insurance, etc. Labor is the most expensive piece, but is not the only piece of that.

Won't self-driving cars only make the problem worse?

Many people use Uber because they don't want to drive when they go out, but if their car can drive itself, why bother with Uber?

In a world where self-driving capabilities are in almost every car, car ownership will be vastly reduced. Most trips will happen through some variety of Uber. The exceptions will be people who need to store things in their car like car seats or work equipment.

Where exactly does Uber get the cars for this? Are they just going to maintain all of this, then they're literally a robot taxi company and I have no idea why that is so much more lucrative than being a human taxi company, especially given that urban traffic is probably not going to be fully autonomous for a long, long time.

what stops anybody from spinning up a p2p solution for car sharing that cuts out Uber?

Yeah, they (or someone who replaces them) are a robot taxi company. They own and operate a large fleet so their costs of acquisition and maintenance are much lower than a P2P solution.

if that's actually the plan then the next question is what the differentation is. Everybody can buy robot cars (and probably will), and they'll all compete themselves to death as they already do.

The problem is that there's no significant economies of scale to the taxi industry. You don't make drivers much more efficient by having more of them, and there's an induced demand problem where the limitations of cities and traffic mean that you just cannot scale up to infinity.

This is by the way why there's no enormous single individual taxi company in the existing market. Taxi business tends to be small and competitive for this very reason. It's an extremely ill suited environment for a technology startup.

Absolutely agree. I don't buy this whole 'Robot cars' will make Uber / Grab / Lyft profitable stuff.

If self-driving tech really becomes so good that it will make tons of money, then why let Uber etc have that market? There is zero that differentiates them. Everyone can put a booking app together and optimise it over a few years (see the many international copy cats who have done just that).

Then why wouldn't a self-driving-manufacturing leader (whoever that will be, Tesla, GM, BNW, a Geely or other Chinese player, doesn't matter) run fleets themselves? It's not like there's much human cost involved. (and manufacturers already got their service networks and charging networks together where self driving vehicles could go at night to be charged/serviced)

I'm guessing not a manufacturer. They haven't historically wanted to get into fleet management beyond some side investments. But the rental car companies (both long-term and short-term) seem likely players as soon as self-driving is reliable off-the-shelf tech. Which I expect to be a long while in the areas dense enough for taxi services to work well.

So you're saying my car will become vastly more powerful, and therefore I won't buy one? What? Is that how it worked with, say, cellphones? Or automobiles, for that matter? When automobiles became vastly better quality and more useful, people bought fewer of them?

> In a world where self-driving capabilities are in almost every car, car ownership will be vastly reduced.

We'll see how it plays out, but I don't think that's true. Maybe it's what Uber wants, but I think car companies and consumers will disagree.

It isn't going to be a immediate and simple switch with everyone suddenly having self-driving tech at their fingertips. It will come into the market slowly and very likely at the top of the market. There are going to be plenty of people who simply can't afford to purchase a new self-driving car but would be happy to use one through a ride-sharing app.

In the long term, self-driving decrease the need for even owning a car. Why make that huge investment when a car can always be available to you within minutes with a few clicks in an app? It then would make more sense for those large investments to be made centrally by the Ubers, Lyfts, Waymos, Teslas, Apples, etc of the world. In the distant future I would bet driving eventually ends up like flying is today with only the ultra-affluent and hobbyist owning their own vehicles and everyone else just paying per use.

Pretty sure Uber and friends will lobby lawmakers on why private ownership of self driving vehicles isn't safe. Forced maintenance and computer updates, proprietary car-to-car comms, etc.

Private car ownership is less of a threat. Currently connects many drivers with many riders. A competitor has reach critical mass one both sides. Getting rid of drivers would significantly weaken the current leaders network effect and thus make it a lot easier for competition. Windows mobile might still be alive if their app store wouldn't have been a wasteland :(

Uber could still lobby against competition, but that's a whole different level and we'd be pretty much back at a classical taxi situation.

Every single major car company is working on this tech. There is no way they can keep it to themselves. Plus put aside private ownership, those car companies will just become other Uber and Lyft competitors.


- You don't have a self driving car.

- You don't have a car, period.

- You're stranded somewhere or don't have your car with you.

- You don't want to deal with parking.

I didn't say nobody would use it, I'm just saying a large portion of people using Uber wouldn't need it if they had a self driving car of their own.

Also, with a self-driving car the driver doesn't have to deal with parking because the car can take care of it.

Why buy a 10-100k car when you can pay the incrementally per use?

You pay per use with AWS instead of buying physical servers right?

AWS is extraordinarily expensive when it comes to bandwidth pricing. The same could be applied to a car - it depends on your use case. Do you haul goods? Go in the mountains? Live out of a major city with poorly mapped roads?

Conversely, bulk buying saves money -- you buy toilet paper and paper towels in bulk, buy a bag of 20 lbs of rice instead of 2 lbs at a time, etc.

So it probably depends on the individual's financial situation and where a car ride falls in terms of buying bulk vs incrementally.

A lot of the expense about physical servers is also the maintenance and having employees' time to manage them. A car requires some maintenance but arguably less so than that, so perhaps not the closest comparison.

> Why buy a 10-100k car when you can pay the incrementally per use?

Because it's cheaper over the long run.

Not if you have access to public transit but need "last mile" support.

Uber is an alternative not just to driving but to owning a car. Why bother owning a car when you can just uber?

If I wanted to use Uber to commute to work five days a week, the average ride even with UberPool would be around $19 one way. Assuming I go somewhere else that's of comparable cost just once a week (in practice, I tend to go out for dinner several times a week and go fairly long distances on weekends, but never mind), that's 26 days a month spending ~$37 per day, for nearly $1000 a month. My car payments, insurance, and fuel per month are almost certainly hundreds less than that.

"Why own a car when you can just Uber" makes sense for people who live in areas where they don't have to (and don't want to) drive very much, but I think the assumption that most people fall into that group is pretty shaky. I think it's probable this will change over time, but that time span is almost certainly going to be decades, not a few years.

a very San Francisco way of thinking which would already break down in LA, let alone other places with long driving distances and lower parking costs than SF (and hence a wayyyyyy different value proposition between owning a car and ubering)

And there's little profitability when your business model could be easily replicated with a simple open-source IRC bot, similar to https://libretaxi.org/

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