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.
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.
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.
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.
Rides are a bit like diamonds: The only thing keeping the prices up was a cartel.
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.
Is Linux dumping on Windows?
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!!!
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!
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.
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?
Uber's margin is probably under 5% which simply isn't enough.
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
If you're a taxicab company and your non-driving staff is making that, you've definitely screwed up somewhere.
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?
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.
I know that a lot of people think the drivers generally are that stupid, but I'm skeptical.
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.
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.
Easily. They paid ~$8bln to drivers last quarter. They merely lost ~$2bln in 2018.
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?
what stops anybody from spinning up a p2p solution for car sharing that cuts out Uber?
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.
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)
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.
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.
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.
- 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.
Also, with a self-driving car the driver doesn't have to deal with parking because the car can take care of it.
You pay per use with AWS instead of buying physical servers right?
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.
Because it's cheaper over the long run.
"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.