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I think it's more the massive amount of spending they do with little to nothing to show for it. They spent $457m last year on autonomous and flying cars with $0 in revenue from those projects. Maybe that will work out, but I bet every penny was ultimately wasted.

Not spending billions a year on R&D certainly makes the financials look nicer. It might not attract as nice of a multiple, but it's not the ride prices that are out of whack at Uber IMO.

On the other hand, they spent $0.5 billion on R&D in a year, and lost $5 billion in a quarter, so I don’t think the R&D is nearly as significant an issue as subsidizing rides.

They booked an expense of $3.1bn in R&D last quarter. Even excluding the $2.6bn linked to stock-based compensation it’s $0.5bn per quarter. But of course that includes useful R&D and not just the flying-cars kind.

"R&D" usually includes all engineering expenses on financial reports, which for a company like Uber is the vast majority of operating expenses.

Can I ask something that will sound incredibly naive?

How complicated needs to be an IT infrastructure that lets you book a taxi via an app and pay the driver? Is it really something to throw billions at each year? Sometimes I feel these companies are throwing billions in IT simply because they're expected to be disruptive technology companies, and not for real technical reasons.

I imagine a driver-passenger matchmaking system could be craigslist level of simplicity, but Uber and Lyft want to suck up every piece of data: ingesting and analyzing where people are when they open the app, how many people give up on finding a driver, how long every driver is idling on the side of the road, whether a user is probably a cop, etc etc

They use this data to update their surge pricing by the minute for all these different geofences all over the world... yeah, I think having the self image of a technology company that wanted to attract the best talent definitely created a lot of expensive problems for itself.

At a minimum drivers need to be tracked in real time from the point they respond to the point passengers are picked up, and preferably tracked throughout trips due to various concerns, so it definitely can’t be Craigslist level of simplicity.

There are similar, smaller services (like Via, or myTaxi in Europe) that work fine and have nowhere near the money that Uber spends on their tech stack.

Ride sharing is extremely local, so it's not like you need any cleverly scalable tech. Most places will be tracking a few hundred cars at any given moment. Only in very large cities like NYC would you need to spend a little more on big servers.

What Uber presumably does is collect and analyze a lot of real-time data, which isn't strictly necessary to provide the service they're providing.

Uber as a product is very technologically complex, mainly because of the scale it operates at. You can read about some of their tech at https://eng.uber.com.

From that page I can see that they created their own deep learning framework, their own AI conversational agents, their own data science platform, their own geospatial indexing system, their own web applications framework, etc. The list seems to go on and on and on.

Essentially they seem to be repeating whatever Google and Facebook are doing: but those are pure technology companies that serve two orders of magnitude more customers and have contributed building the web as we know it. Uber is a taxi company.

Only if you want to have a huge and complex system. If you have small and localized ones, it should be very cheap.

Ye, like one VM running per city or region. I feel they are just sinking money into software and administration of software.

WhatsApp has shown that you can actually build large-scale system infrastructures very efficiently. And they had global service, Uber could profit from sharding as you suggest.

Apply for a job at Uber proposing a cut in engineering expenses with your plan and become instantly rich.

And never get hired because the people doing interviews have to protect their jobs :)

> Uber as a product is very technologically complex, mainly because of the scale it operates at.

Also because when Uber was young, it was not motivated to seek profits or consider expenses, it was just growth at any cost. Once that work culture is established, it can be hard to shake.

It doesn’t!

You can read here on HN how their large IT staff spends most of its time migrating back and forth between MySQL and Postgres.

But in this case they clearly don't: Operations and support ($864m), Sales and marketing ($1.2b), General and administrative ($1.6b). They have bloated costs all over. Easy to do when you're the hottest VC backed company around, but the clock is ticking and they'll probably trim a lot of fat.

Yeah my point was people shouldn't look at it and think "self driving car research". Every engineer at Uber is paid out of that budget.

That’s why I said it included useful R&D.

And last quarter was somewhat unusual due to the SBC charges allocated mostly to R&D. Looking at Q1:

  Cost of revenue $1.68bn
  Operations and support $434mn
  Sales and marketing $1.04bn
  Research and development $409mn
  General and administrative $423mn

R&D is the only way that they survive in the long term. Uber's entire plan is just to keep hemorrhaging money until autonomous vehicles come online. They just did not expect that to be as hard of a problem as it has turned out to be.

The only way they survive as such a richly valued company perhaps, my point is they could provide the current level of service with vastly lower spending and be a sustainable company. The financial problems aren't they charge too little for rides, it's that they have thousands of people working on bullshit that brings in little to nothing.

Sorry, but I have to disagree. R&D is the life blood of a tech company. Some problems are hard. Hard problems take a lot of time and money to solve. If they spend $2B solving a problem that allows them to make $10B in revenue long term, I would say that is a worthwhile investment, wouldn't you?

Frankly, the R&D spend is the least of their worries. They recently trimmed some fat from their marketing department[1] but the subsidized rides problem continues to be the biggest issue they face financially.

[1]: https://www.nytimes.com/2019/07/29/technology/uber-job-cuts....

I'm suggesting that ride sharing doesn't have to be a tech company. I just want to get across town, there's no requirement that the company that does this has to fund flying car research or have fancy offices around the globe.

I travel across Asia Pacific for work. The global nature of ride hailing apps are convenient in this context in a similar way to MacDonalds (fast, convenient and you kind of know what you’re going to get).

Try hailing a cab in Thailand, Indonesia or Malaysia. They will ask your destination and quote you 5-10x meter fare. Use a ride hailing app and you get approximately the meter fare.

Speaking for Thailand, the ride hailing apps are usually 1.5x - 2x the price of the meter.

That's fair but the vast majority of cabs I hail refuse to use meter (sometimes quite aggressively).

> R&D is the life blood of a tech company.

Uber is not a tech company. It’s a taxi-company with a fancy app.

There’s literally no reason their operating expenses should be this big.

I hope they don't actually think that. Autonomous vehicles will turn a two sided market into a one sided market. Just think about all the companies working on self driving cars that don't currently compete with Uber. As soon as they succeed, they'll build an app, buy thousands of cars, and cut the per ride price to nothing.

Edit: misread comment. What I meant was that even with autonomous cars, there will probably be a huge market leader (but it won't necessarily be Uber).

It doesn't take dozens. GM, Tesla, and Google are already making the expensive part of the investment (developing ai cars in the first place). Will Uber make more money with one competitor or four?

I mean, is there a chance these three companies develope autonomous vehicles and decide NOT to compete in ride sharing?

Well we already know Tesla (RoboTaxi) and Google (Waymo One) are entering the ride sharing market (Waymo One is currently live), not sure about GM's ambitions.

But if autonomous vehicles are ever a thing, where does Uber actually add value? Wouldn’t Tesla etc just “cut out the middleman” and capture that value themselves?

Also Uber as a company has zero experience of owning and maintaining a fleet of vehicles. They’ve entirely sidestepped that problem. What evidence is there they can do it better than anyone who does do it, like say Hertz?

Autonomous vehicles replace the drivers, not Uber.

The vehicles get told to go from point A to point B and does safely and effectively. Uber still plays the role of interacting with the customers, "booking" a car for them, collecting payments, etc.

DACs need to disrupt Uber and all the other P2P marketplaces. Eventually they will, IMHO (maybe starting with P2P rides?).

Yeah, that's not going to happen in large parts of the world.

Autonomous vehicles will never work in the chaos of Delhi or Jakarta's traffic

“AI will never” is a phrase you should remove from your vocabulary. No hate just facts. Right now is the beginning of the end.

> They spent $457m last year on autonomous and flying cars with $0 in revenue from those projects.

I sincerely hope they weren't expecting any revenue from those for the next decade or two. Anything else would be delusional.

I think both Uber, Lyft and (to some extent) Tesla have been working on autonomous cars because it's not an immediately implausible way for them to turn profitable.

I personally agree it's a multi-decade (if ever) thing, but if Uber et al. claim they'll have it in 2 years, without facts on the table it boils down to who the investors believe in.

Even if autonomous cars were 99.99% reliable tomorrow, it would take a decade to get through regulators. Maybe longer.

Can they sustain 5B losses for a decade? Can any investor?

Softbank can.

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