What I don't understand about the "Uber can never be profitable" argument is, why can't they just raise prices until they're no longer selling at a loss? If the answer to that is, "because then demand would die", why doesn't that apply to taxis? Taxis make money. Why can't a better (in many people's opinion) service, with better tech, do at least that well?
Setting aside the other reasons to dislike Uber, there is obviously a valuable product there. I get that it has been subsidized by VC dollars in a land grab, etc., but saying it can never be profitable is saying it can never find a fair market value, and that doesn't make sense to me. What am I missing?
Non-governmental subsidized transportation infrastructure is and always has been a race to the bottom. Taxis are mostly only profitable with extremely low overhead and only servicing high traffic areas like Manhattan or other major metropolitan areas.
Uber's thousands of engineers and SF HQ disqualifies them from being low overhead anything.
In the 1890s in Chicago when massive subway and interurban train networks were built out by private business, they either failed financially or succeeded only by real estate speculation around where they built their lines. Eventually all of those lines were acquired by local governments or shut down. Mass transit lines in LA, NYC and around the country followed similar trajectories. Look up the Interborough Rapid Transit Company in NY, or Charles Yerkes and Sam Insull in Chicago.
These days modern suburban subdivision companies don't bother with creating mass transit, they just fund street construction and install public works lines like gas/sewer/water/electric, and let the city deal with the traffic and the inevitable deferred maintenance that clashes with their low tax philosophies.
Because people won’t pay $25 to take a 15 min ride. They’ll just stay where they are, drive themselves, or coordinate a car pool with their friends.
Uber subsidies changed leisure for many folks. When it’s $6-10 for a ride, even middle class incomes don’t even think twice about it. But when the true price of the ride must be paid, those people won’t be a part of that economy.
And without those mass short rides to fill the gaps, there’s not enough “fat” rides to keep enough drivers on the road to keep the wait times low. So the product might exist, but it devolves to a taxi rate with a taxi wait, just done over an app.
The taxi business does not extract out 30-40% of revenue away from the drivers and into the hands of software engineers who keep adding useless features to an overbloated app. (not the mention the investors and the executives)
A lot of it is in the weakness of the gig model. If prices rise, then demand falls. But the lower demand is, the less likely people are to try and drive, so the more expensive it becomes to do rides. A significant chunk of their "overhead" isn't engineers, but marketing to get new drivers into their system. It's not stable. Turnover is very high. Because they don't have a stable workforce, their problems compound more quickly than in other business models. Surge pricing is what happens when there's not enough drivers. If you raise the base price, and now have lower demand and fewer drivers, you'll likely need to surge on top of that increased base.
You can imagine a taxi company with 20 cabs on the road has a fairly predictable supply. A gig model is always playing the odds. When there's too few drivers, Uber both misses customers and has to charge the customers extra to pay the drivers more. When there's too many drivers, Uber can probably charge less and meet all demand, but the drivers have a worse experience. This is not so bad when the overall level of activity is high, but is not good when the overall level of activity is low.
That is, it's much worse to have 5 drivers and 10 riders than it is to have 55 drivers and 60 riders.
tl;dr if you're charging high prices, you have a small, upper class target market. The gig model is suited to a mass market model.
> If the answer to that is, "because then demand would die", why doesn't that apply to taxis? Taxis make money.
Taxi licenses are an artificially constrained resource, which keeps prices high. As a result, taxis are typically only conveniently available in high-demand locations (among other ills).
There probably is a niche for ridehailing services as public infrastructure (or perhaps using a co-op model) running on open source software, but that excludes VC-fueld behemoths like Uber.
It isn't so much that Uber can never be profitable, it is that Uber could never be profitable enough to recoup the sunk costs and operate as an attractive publicly-traded company.
Plenty of companies show a profit and remain privately owned. They aren't hypergrowth companies. VCs don't invest in them, except accidentally.
There are, ironically, business models that would have justified some VC investment and led to decent outcomes with a market cap around $1-5B, but they are shaped completely differently, and would have produced much more modest returns.
Uber is an application that helps drivers find passengers (not the other way around). They do not control the costs associated with operating a car service and so have no chance of engendering the productivity necessary to keep costs down. Their VC subsidized attack on the taxi industry has actually destroyed much of the productivity gains inherent in traditional car service companies who were able to scale car maintenance and other fees (now each individual driver has to manage their own costs).
Uber's only major contribution is an easily reproducible app and considerable market manipulation which it can no longer maintain. If Uber decided to charge what their failed system actually requires for profitability, it would be uncompetitive against traditional car services that actually have the capacity to scale the costs associated with car services.
>why can't they just raise prices until they're no longer selling at a loss?
because competition exists. Same reason your local bakery can't sell bread at 50 bucks and make their owners millionaires. In a market economy you don't get to 'set prices' at arbitrary rates until you don't make losses.
Right-hailing companies have no differentiating features, there's dozens off them, they also have to compete with taxis, and if Uber was to raise prices someone else would eat their marketshare until they've got the same problem and they've all competed each other into the ground.
The entire flaw with the company is that building you an app that lets you hail a car isn't actually providing any surplus value to the tune of tens of billions of dollars and the only thing that keeps that illusion running is dumb Saudi money having nowhere to go
They are very close to being a monopoly in the US, and are certainly a duopoly. Predatory pricing for a decade to establish market share, and then raising prices once in duopoly status, would be a slamdunk antitrust case.
That's the legal reality. Plus the political one- the average Uber customer is middle to upper middle class in an urban area- i.e., the types of people that politicians actually listen to. Politically sympathetic, vote in very large numbers, have an outsized voice in the media, etc. Every media outlet in America would cover the price increase nonstop. If raising prices didn't result in an antitrust suit the very next day, I will eat my hat
Because taxi's don't have a bloated 'backend' corporate office where thousands of engineers are making $300-500k a a year, and a bevy of extremely elaborate offices in the most expensive parts of the world, London, SF, NY etc. They have the dispatch company which runs on a shoestring budget and the cabbies who are either owner operators or work for a cab company, they also don't have the tech that powers Uber/Lyft which allows anyone to hail a ride from their smartphone. [tradeoffs]
(Note: what follows is a purely US viewpoint. I have no idea how these markets work in the rest of the world.)
Well, the thing about Taxi's was that they were available, at some times, in downtown business districts. If you wanted a taxi south of 70th St in Manhattan, congrats! If you wanted one in the Bronx you needed to get very lucky. If you wanted one in a typical suburb you had to call someone and talk on the phone to schedule a taxi to come get you with plenty of advance notice. It's something that was so inconvenient I only remember ever doing it to go to the airport. The number of taxis was such that in a busy central business district you had a pretty good chance of catching one (presuming you didn't look too 'scary') but pretty much anywhere else you would never see one.
Uber tried to change that fundamental fact of life by bringing many more drivers out there, so that it would never be more than a few minutes wait, even in the suburbs. This, of course, means much more competition for drivers. They tried to solve that by bringing many more riders out, which was where the massive subsidies come in: you can keep both sides of a two sided market coming out if they are getting big subsidies. It's when they tried to make the riders pay enough, and paid the drivers little enough, to be profitable that the drivers and riders stopped showing up. Presumably it will be profitable still in heavily trafficked areas, but the dream of Uber being a reasonable choice for transportation in suburbs of Des Moines seems like a failure.
If an Uber costs the same as a taxi, it makes no difference.
I think the real product is in the dispatch app.
But it really only works if all the various cab companies subscribe to the same dispatch service. Every cab company having their own dispatch app doesn't work.
Basically, we don't need Uber, we need DoorDash, but for cabs.
Doesn't it apply to taxis? There weren't as many taxis as ubers, so they were more expensive and harder to get and took longer to show up.
If this was a purely artificial supply constraint (medallian monopolies and abuse, say), then that would be one path to Uber profitability.
If this was just a flexibility problem - where taxi driving full time as a requirement for drivers meant you couldn't hit peak demand without an unsustainable amount of idle time too - Uber could have a path there.
If it was a sort of "step change" demand function, where if you make it trivially available and cheap the growth in demand will be enough to offset the lower per-ride revenue, there's another potential path there.
But it's been a long time now for really none of those theories to pan out.
Price elasticity of demand. Uber’s market wouldn’t just shrink with higher (fair) prices; it would evaporate. Consumers are getting something for nothing and the Saudis are getting nothing for something. But the VCs and Kalenick probably did ok in this pyramid scheme.
That old saying: "If it walks like a duck, quacks like a duck,...." is relevant here.
If it costs like a taxi, looks like a taxi, pays its drivers like a taxi, it's a taxi. It's not an 'Uber' - whatever that's supposed to mean.
Uber appealed to the riders because it was cheaper - now the costs are approaching taxi prices, what's the 'Uber' advantage?
Uber appealed to drivers because they could earn more money than it cost to run their vehicles - with lower driver-payments, what's the 'Uber' advantage?
So, if the costs are higher and the returns aren't there why drive for 'Uber' at all? Without the drivers, there's nobody to take the riders anywhere. Best to order a Taxi. At least you know that there is a taxi in the town, and it will get to you eventually.
On the other hand, if no Uber driver happens to feel like driving at the moment, you could be waiting for days until your trip happens.
I've always said that Uber is scam. Soaking the investors and drivers alike, while the 'management boys' skim the top and laugh all the way to the bank.
Of course they can raise prices. But that doesn’t mean people will pay them.
I’ve noticed massive increases lately in Ubers prices. So have lots of other people. In response, people take fewer Ubers. As prices go up demand will go down.
Uber has massive fixed costs. Even if they maximize where supply meets demand (where they can make the most money) if it’s not enough to cover their fixed costs they won’t be profitable.
Uber needs to find a way to lower their costs or grow their users (raising prices doesn’t help) to hit a profitable break even point.
It’s been the VC money that has been subsidizing Uber prices for a while. That’s disappearing. Uber is also trying to expand into more spaces (Uber eats) to acquire customers. Maybe this will work but so far it’s not.
Maybe the company as it stands is so inefficient and cash burning that it can't actually compete with taxis. In that case a slimmed down Uber may be able to do so, but that would require a lot of blood to flow inside the company.
All I know is that in the midwest, before Uber, there was maybe 1 taxi company near-ish (usually from a newarby town). You couldn't just call a ride- You'd have to look up the taxi company's number, schedule days in advance, and pay somewhere between $2-4/minute.
After Uber, you can get a ride even in less populated areas (almost) on demand. The price is definitely lower, but not significantly. But we went from only using a taxi to get to the airport (if you could find absolutely no one to drop you off) to being able to take one home from the bar or concert.
> I live in Burbank, where Ubers were never more than 5 minutes away. Now, a 30 minute wait is common – and the fare is comparable to the licensed taxi company, which is literally one app away from achieving feature parity with Uber.
I'm not an Uber apologist in the slightest but why is it that apps for the alternatives still suck? In a similar vein a delivery co-op app launched in my area semi-recently and I tried their app and it's absolute garbage. I've done minor app development and while I'm not great at it, I don't think you need millions (or billions in Uber's case) of dollars to create something on-par. Honestly you could pair me with a good designer and for the price of 1 year of pay I have doubt it could be built.
Oh - why it always needs to be so one-sided? When we don't like something than everything in the article needs to be a condemnation if we like the subject than there is only prise.
In this particular article: if Uber is losing money by subsidising rides - then people get cheaper rides than they could otherwise have. But that also article suggests that Uber victimizes riders. That does not compute. Yes - it is anticompetitive and possibly without Uber we would have something else that could potentially be better - but also without it we would not have all those cheap rides and all those valuable things that the riders did because of the cheap transportation. That all subsidising in bad in the sense of disrupting normal market forces - but it is a stretch to declare the riders to be victims here.
> I live in Burbank, where Ubers were never more than 5 minutes away. Now, a 30 minute wait is common – and the fare is comparable to the licensed taxi company, which is literally one app away from achieving feature parity with Uber.
This sounds like the typical arrogant software developer declaring that they could build someone else's entire business during a weekend with a text editor.
"Literally one app away" is exactly what was wrong with the taxi business before Uber and Lyft. And yet with 10 years to catch up, taxi apps -- many of them built specifically to try to compete with Uber/Lyft -- still suck.
So according to this, Uber is ripping off the drivers, riders and investors - with no path to profitability. So where is the money going? Is the claim that it's just so poorly managed that it's all being blown on overpriced tech salaries?
Incidentally, how is it that hyperscale tech companies such as Uber and Deliveroo are struggling to turn a profit on proven business models, while charging more to both the customer and provider? Isn't tech and scale meant to make it cheaper?
I think the only way the argument that they're ripping off riders makes sense is if you look at it as a long-term thing: by burning money to give riders unsustainable prices for years, they sabotaged any more-realistic alternatives to improve mobility.
I'm not sure I buy that, personally. I don't think riders are victims. Uber to me has always looked like a way to subsidize a bunch of cheap rides for riders with some wildly-optimistic "one day this will be profitable and we'll be the biggest name in the space" plan. Even self-driving cars didn't seem like the answer - that's a massive investment in a vandalism magnet, like the scooter companies but dozens of times more expensive (maybe running a scooter business helped them realize this?).
The problem with trying to profit off "scale" with something like Uber is that the service still has to be delivered one-on-one. Things like Uber Pool are the closest they can get to scale, but suffer from a "why am I paying for this" problem as the experience suffers and the cost can't be that low (since their base rate is artificially low already).
> Is the claim that it's just so poorly managed that it's all being blown on overpriced tech salaries?
I think that's the main argument.
Uber had ~$17Bn revenue on ~1.44Bn trips in 2020 per quarter. That's ~$12 per trip.
Salaries are >$7Bn. That's about $1 per trip. Add in the marketing and server costs - and it's close to $3 per trip - without profit. Then they're going to want a >10% profit margin (another $1). When >50% of trips are only a few miles and <$9 - that's a lot of overhead - not even including Visa's ~6% cut.
The Taxi company was happy to just get a 10-20% cut. Uber needs a 40% cut to break even.
As New York is showing - you don't need to spend >$14Bn per year on an app. Uber's app is pretty awesome - but riders aren't going to pay a 30% premium to use it. And driver's (of equal quality) definitely aren't going to take a 50%+ pay-cut to make up the difference.
To drivers AIUI. The "fair" value a driver should make is $1. Uber is paying them $0.7 and charging the customer $0.5. That said, I'm not sure how valid OP's assessment is without also considering Lyft/Didi/Grab. If Uber's business model is ultimately untenable, every company should be in trouble
It costs about $0.56/mi to run a midsize car for an individual without a driver.
A legitimate, licensed, insured car in livery service probably costs more like $2/mi just to operate the car and pay the driver.
Think about how NYC Cabs are operated vs Uber. The cab is a fixed asset with operating expenses, and many cabs get rented 24/7 to maximize the return on asset. With Uber, the vehicle is a consumable and the business is to lease time from contractors who don’t understand accounting, and both the company and driver is losing money.
I don’t think the investors are getting ripped off. They own an international network that has value, and have more money than they know what to do with!
for a while, I thought the founders/VCs truly believed they were creating a loss-leader for an eventual network of self-driving cars, and would slowly transition the fleet from human to robot drivers, but keep prices the same to finally get to black
I find the tone of the article a little uncharitable.
Innovation is full of scenarios where visionary companies thought they could offer something at a loss, and then eventual improvements to technology/logistics/supply chain/process/etc would make the concept profitable.
Whether it's Amazon offering free shipping, or Google offering OUTLANDISH (for the time) storage volumes for Gmail.
I can definitely imagine that Uber's leadership genuinely believed that various economies of scale or technological innovations would allow them to be fully profitable in the long run.
Same for Self-driving cars: When Uber was investing billions into it, it really looked like they were at the tip of the spear of innovation together with Google. People felt that Uber was actually BETTER Positioned for introducing self-driving technology than Google because they were focusing on adding extensions to existing cars, and they already had a built-in customer base using them for ordering point-to-point rides (Whereas Google/Waymo had to build out those capabilities themselves since)
This is where my charity ends. Uber has not treated their drivers because it considers them completely fungible and replaceable. Everything to do with Public Transit is completely bang on - it's ludicrous to even imagine Uber participating here.
And I buy the overall conclusion - in the long run we will look back at Uber and consider it a net loss for humanity's progress.
But there is no getting around the pure delight of the original user experience - irrespective of pricing. And I'm willing to bet that the leadership did not consider it a con from the beginning, they really thought they could make a profitable business from this in the long run.
I worked in government and started doing services procurements years ago. When I first started doing that, I was really taken aback by the cynicism of the procurement officers and attorneys. Then I did two or three engagements… and it makes sense.
Similarly, I experienced the delight aspect on a trip where I paid $20 for a ride in a Mercedes SUV in Baltimore that would have been a $30 cab ride.
The next time I used Uber, 5 years later, it was a 10 year old Odyssey with an Afghan guy who was illegally sub-letting somebody’s Uber Driver account, and it cost $35 for a $20 cab ride.
End of the day, all of these stories boil down the same thing. Commodity services are either luxury at a premium, or minimum viable level of delivery at a low price.
> But there is no getting around the pure delight of the original user experience - irrespective of pricing. And I'm willing to bet that the leadership did not consider it a con from the beginning, they really thought they could make a profitable business from this in the long run.
I have no doubt about the same. But the point isn't about what Uber was; it's about what Uber became, and how their over-promises turned into outrageous claims that snowballed into a completely unsustainable business.
And while I do respect the spirit of the original app being a serious improvement over prior experience, truth is that nowadays even traditional banks and even government apps can be found that are just high-quality and show that you don't need a cutting-edge startup to have good service.
I also believe that other entrepreneurs would have been able to plod a similar path without ripping off investors or mismanaging finances.
> they already had a built-in customer base using them for ordering point-to-point rides
I never understood the value of that.
The value is in the driver network, which is hard to build with human drivers, but trivial with self-driving cars. Given a driver network, building a customer network is trivial.
You can have a large fleet that moves to a city that you want to bring up. The novelty of a self-driving car will help find users, the sudden large presence of highly recognizable, branded vehicles will automatically serve as a billboard for your service, an offer of free rides does the rest. Once people realize that the self-driving option is a) cheaper b) faster (because of the excess of cars) c) safer (because there is no unpredictable human driver that could be a bad actor), human-based competitors will have a very hard time.
Once the city is brought up, they can leave the number of cars that they deem appropriate (gradually worsening service), and have the rest of the fleet drive to the next city.
What does Uber have? An app (easy), a way to handle fraud and abuse (totally changes and gets a lot easier when you remove the driver), network effect (see above).
Google has a special advantage, the maps app. If they manage to not ship the org chart, they can add a "order Waymo" button to navigation. Boom, everybody has their ride share app already installed on their phone, and many of the users have payment data in their account.
The post certainly has a plausible and understandable narrative, but I have no insight into Uber's financials.
I do however use Uber and Lyft constantly, all over the country and world, and the contrast between the services today and a a year or two ago is stark.
Pricing is often 4-5x what I used to expect for the same trip, sometimes with wait times of 30-40 minutes, even in non-peak times in central business districts.
As a regular user who just happened to be in 9 different cities over the past three weeks (I'm in the conference business) it's really clear something really severe is going on with these companies right now and their service level is in free fall.
Last time I was in NYC, I used Uber-for-taxis Curb app, which I found to be consistently cheaper and largely interchangeable UX-wise with Uber (upfront fares, ride tracking, driver rating, etc). In NYC at least, Uber offered me as a user no tangible upside. I think their inherent competitive advantage against taxis, at least in major metropolitan areas, has been exaggerated.
I don't know why seemingly knowledgeable people like the author keep spewing bullshit about drivers losing money. I live in an immigrant community in NYC. Pretty much every other person in this community is a Uber driver. Some are very industrious and do not mind working long hours or working on weekends. Making more than 100k per year (after all expenses) is not unheard of.
One question I have is, what is Uber doing with all their engineers? Most of us are engineers as well. So we all understand maintenance, monitoring, feature development, tech debt etc. Technology products rarely can just be 'let alone' and left operating successfully.
But they have over 2,000 engineers. That's a massive amount. Are there new features in development? New services? New capabilities?
From a consumer perspective I haven't see anything new in a while. Are they all focused on growth in new cities, towns, and countries supporting local peculiarities? Is Uber going through a rewrite to align on a technology stack to support future features? What are those features?
My old job was building out a (new) streaming service, so it was all about feature development, launching in new countries, supporting local payment methods etc.
Now I work on building APIs for a different company with which other developers can integrate.
Both are focused on building and maintaining new and existing features as well as growth. Just what the heck is Uber doing with its 2,000 engineers?
Uber operates in almost every major US city today. It has overcome years of predictions it would fail. Yet I still can get an Uber in minutes almost anywhere in the country. Will it get more expensive? Probably. Is it a replacement for car ownership or transit? Definitely not. But Uber will live on. It's good enough to ensure sizable marketshare for the long term.
i don't understand. transportation and food service in the era before uber was literal shit. remember, if you couldn't use your own car, you had to subject yourself to horrible smelly "licensed" taxis with drivers that barely know the city, or go on a bus with some meth head tweaking out in the back. you had to get yourself up and _physically go_ to a restaurant if you didn't have time to cook yourself.
now you can get a fast safe ride at any time of day and get the meal of your choice without having to go and sit around in the same room with a bunch of other losers like you. all at a moment's notice, through a nice convenient interface. and people have the gall to complain about this?
UPD: to be clear - it doesn't matter that uber subsidizes rides/deliveries. they could stop doing that and jack up the price, but the alternatives are so dreadful that i doubt it would make me stop using them.
Well, yes. Self-driving is how they got Softbank to convince the Saudi sovereign wealth fund to invest. Also, the Saudis have an interest in promoting fuel powered vehicle usage.
DiDi operates in Brazil under name 99. It is usually little bit cheaper for customer than Uber. At the same time DiDi pays more to the driver.
How is DiDi profitable and Uber not?
* Source mine, I talked to drivers and used both apps.
I can't say how precisely the delineation of Uber's alleged accounting schemes are true but all of the same can be said for public transit such as light rail. Los angeles for example loses 2 billion per year on their metro (before covid) not including the 27 billion overall (non inflation adjusted) that was poured into it's construction.
It would probably be cheaper to pay for the Uber fares of all the people that use the metro to use Uber instead.
The author has an obvious political worldview and must fit all information rigidly into it.
Edit: NYC subway loses 7 billion a year before covid when you remove it's tax revenue (government subsidy).
At some level, why does it matter? They didn't make drivers buy useless medallions or anything like that. Companies fail all the time, some of them fail early, others may fail at a late stage.
The article is very short on how Uber "victimized" riders.
Uber is a way for me to get a "taxi" in a foreign country largely without having to worry about which local scam I'm not aware of.
It's also usually significantly cheaper than a taxi, and I doubt it's any more dangerous than a taxi. I've definitely had fewer bad experiences with Uber than with traditional taxis (disclaimer: male, so my issues were scams and bad customer service, not safety/rape).
I'm pretty sure at least some drivers are getting royally fucked on hidden costs, although there seem to be many who seem to understand what they're doing and insist it's still profitable. Investors? Maybe/probably, but I don't care.
Whatever one says about uber's bad and sleazy tactics I will miss them. Not in SF or where I live now, but in CDMX. Taxis in CDMX are risky: too many people get fooled and wind up draining their funds at gunpoint. Never happened with Uber; but also never happened when your lodgings called a taxi for you.
I have been reading some version of this article for 10 years now. Yet Uber and Lyft and the entire "sharing" economy is surviving and thriving. Reading this article you'd be convinced that Uber is going to end tomorrow and all the investors who collectively value it at $80B are idiots.
[+] [-] neonate|4 years ago|reply
Setting aside the other reasons to dislike Uber, there is obviously a valuable product there. I get that it has been subsidized by VC dollars in a land grab, etc., but saying it can never be profitable is saying it can never find a fair market value, and that doesn't make sense to me. What am I missing?
[+] [-] dbt00|4 years ago|reply
Non-governmental subsidized transportation infrastructure is and always has been a race to the bottom. Taxis are mostly only profitable with extremely low overhead and only servicing high traffic areas like Manhattan or other major metropolitan areas.
Uber's thousands of engineers and SF HQ disqualifies them from being low overhead anything.
In the 1890s in Chicago when massive subway and interurban train networks were built out by private business, they either failed financially or succeeded only by real estate speculation around where they built their lines. Eventually all of those lines were acquired by local governments or shut down. Mass transit lines in LA, NYC and around the country followed similar trajectories. Look up the Interborough Rapid Transit Company in NY, or Charles Yerkes and Sam Insull in Chicago.
These days modern suburban subdivision companies don't bother with creating mass transit, they just fund street construction and install public works lines like gas/sewer/water/electric, and let the city deal with the traffic and the inevitable deferred maintenance that clashes with their low tax philosophies.
[+] [-] koolba|4 years ago|reply
Uber subsidies changed leisure for many folks. When it’s $6-10 for a ride, even middle class incomes don’t even think twice about it. But when the true price of the ride must be paid, those people won’t be a part of that economy.
And without those mass short rides to fill the gaps, there’s not enough “fat” rides to keep enough drivers on the road to keep the wait times low. So the product might exist, but it devolves to a taxi rate with a taxi wait, just done over an app.
[+] [-] abdullahkhalids|4 years ago|reply
[+] [-] spywaregorilla|4 years ago|reply
You can imagine a taxi company with 20 cabs on the road has a fairly predictable supply. A gig model is always playing the odds. When there's too few drivers, Uber both misses customers and has to charge the customers extra to pay the drivers more. When there's too many drivers, Uber can probably charge less and meet all demand, but the drivers have a worse experience. This is not so bad when the overall level of activity is high, but is not good when the overall level of activity is low.
That is, it's much worse to have 5 drivers and 10 riders than it is to have 55 drivers and 60 riders.
tl;dr if you're charging high prices, you have a small, upper class target market. The gig model is suited to a mass market model.
[+] [-] webmaven|4 years ago|reply
Taxi licenses are an artificially constrained resource, which keeps prices high. As a result, taxis are typically only conveniently available in high-demand locations (among other ills).
There probably is a niche for ridehailing services as public infrastructure (or perhaps using a co-op model) running on open source software, but that excludes VC-fueld behemoths like Uber.
It isn't so much that Uber can never be profitable, it is that Uber could never be profitable enough to recoup the sunk costs and operate as an attractive publicly-traded company.
Plenty of companies show a profit and remain privately owned. They aren't hypergrowth companies. VCs don't invest in them, except accidentally.
There are, ironically, business models that would have justified some VC investment and led to decent outcomes with a market cap around $1-5B, but they are shaped completely differently, and would have produced much more modest returns.
[+] [-] boh|4 years ago|reply
Uber's only major contribution is an easily reproducible app and considerable market manipulation which it can no longer maintain. If Uber decided to charge what their failed system actually requires for profitability, it would be uncompetitive against traditional car services that actually have the capacity to scale the costs associated with car services.
[+] [-] Barrin92|4 years ago|reply
because competition exists. Same reason your local bakery can't sell bread at 50 bucks and make their owners millionaires. In a market economy you don't get to 'set prices' at arbitrary rates until you don't make losses.
Right-hailing companies have no differentiating features, there's dozens off them, they also have to compete with taxis, and if Uber was to raise prices someone else would eat their marketshare until they've got the same problem and they've all competed each other into the ground.
The entire flaw with the company is that building you an app that lets you hail a car isn't actually providing any surplus value to the tune of tens of billions of dollars and the only thing that keeps that illusion running is dumb Saudi money having nowhere to go
[+] [-] hash872|4 years ago|reply
That's the legal reality. Plus the political one- the average Uber customer is middle to upper middle class in an urban area- i.e., the types of people that politicians actually listen to. Politically sympathetic, vote in very large numbers, have an outsized voice in the media, etc. Every media outlet in America would cover the price increase nonstop. If raising prices didn't result in an antitrust suit the very next day, I will eat my hat
[+] [-] subsubzero|4 years ago|reply
[+] [-] thebigman433|4 years ago|reply
Wouldnt it "just" be because of the massive overhead that Uber has with the software engineers, support staff, execs, etc?
[+] [-] mandevil|4 years ago|reply
Well, the thing about Taxi's was that they were available, at some times, in downtown business districts. If you wanted a taxi south of 70th St in Manhattan, congrats! If you wanted one in the Bronx you needed to get very lucky. If you wanted one in a typical suburb you had to call someone and talk on the phone to schedule a taxi to come get you with plenty of advance notice. It's something that was so inconvenient I only remember ever doing it to go to the airport. The number of taxis was such that in a busy central business district you had a pretty good chance of catching one (presuming you didn't look too 'scary') but pretty much anywhere else you would never see one.
Uber tried to change that fundamental fact of life by bringing many more drivers out there, so that it would never be more than a few minutes wait, even in the suburbs. This, of course, means much more competition for drivers. They tried to solve that by bringing many more riders out, which was where the massive subsidies come in: you can keep both sides of a two sided market coming out if they are getting big subsidies. It's when they tried to make the riders pay enough, and paid the drivers little enough, to be profitable that the drivers and riders stopped showing up. Presumably it will be profitable still in heavily trafficked areas, but the dream of Uber being a reasonable choice for transportation in suburbs of Des Moines seems like a failure.
[+] [-] bena|4 years ago|reply
I think the real product is in the dispatch app.
But it really only works if all the various cab companies subscribe to the same dispatch service. Every cab company having their own dispatch app doesn't work.
Basically, we don't need Uber, we need DoorDash, but for cabs.
[+] [-] majormajor|4 years ago|reply
If this was a purely artificial supply constraint (medallian monopolies and abuse, say), then that would be one path to Uber profitability.
If this was just a flexibility problem - where taxi driving full time as a requirement for drivers meant you couldn't hit peak demand without an unsustainable amount of idle time too - Uber could have a path there.
If it was a sort of "step change" demand function, where if you make it trivially available and cheap the growth in demand will be enough to offset the lower per-ride revenue, there's another potential path there.
But it's been a long time now for really none of those theories to pan out.
[+] [-] CalChris|4 years ago|reply
https://en.m.wikipedia.org/wiki/Price_elasticity_of_demand
[+] [-] tootie|4 years ago|reply
[+] [-] simonblack|4 years ago|reply
If it costs like a taxi, looks like a taxi, pays its drivers like a taxi, it's a taxi. It's not an 'Uber' - whatever that's supposed to mean.
Uber appealed to the riders because it was cheaper - now the costs are approaching taxi prices, what's the 'Uber' advantage?
Uber appealed to drivers because they could earn more money than it cost to run their vehicles - with lower driver-payments, what's the 'Uber' advantage?
So, if the costs are higher and the returns aren't there why drive for 'Uber' at all? Without the drivers, there's nobody to take the riders anywhere. Best to order a Taxi. At least you know that there is a taxi in the town, and it will get to you eventually.
On the other hand, if no Uber driver happens to feel like driving at the moment, you could be waiting for days until your trip happens.
I've always said that Uber is scam. Soaking the investors and drivers alike, while the 'management boys' skim the top and laugh all the way to the bank.
[+] [-] bern4444|4 years ago|reply
I’ve noticed massive increases lately in Ubers prices. So have lots of other people. In response, people take fewer Ubers. As prices go up demand will go down.
Uber has massive fixed costs. Even if they maximize where supply meets demand (where they can make the most money) if it’s not enough to cover their fixed costs they won’t be profitable.
Uber needs to find a way to lower their costs or grow their users (raising prices doesn’t help) to hit a profitable break even point.
It’s been the VC money that has been subsidizing Uber prices for a while. That’s disappearing. Uber is also trying to expand into more spaces (Uber eats) to acquire customers. Maybe this will work but so far it’s not.
[+] [-] api|4 years ago|reply
[+] [-] Kihashi|4 years ago|reply
After Uber, you can get a ride even in less populated areas (almost) on demand. The price is definitely lower, but not significantly. But we went from only using a taxi to get to the airport (if you could find absolutely no one to drop you off) to being able to take one home from the bar or concert.
[+] [-] joshstrange|4 years ago|reply
I'm not an Uber apologist in the slightest but why is it that apps for the alternatives still suck? In a similar vein a delivery co-op app launched in my area semi-recently and I tried their app and it's absolute garbage. I've done minor app development and while I'm not great at it, I don't think you need millions (or billions in Uber's case) of dollars to create something on-par. Honestly you could pair me with a good designer and for the price of 1 year of pay I have doubt it could be built.
[+] [-] zby|4 years ago|reply
In this particular article: if Uber is losing money by subsidising rides - then people get cheaper rides than they could otherwise have. But that also article suggests that Uber victimizes riders. That does not compute. Yes - it is anticompetitive and possibly without Uber we would have something else that could potentially be better - but also without it we would not have all those cheap rides and all those valuable things that the riders did because of the cheap transportation. That all subsidising in bad in the sense of disrupting normal market forces - but it is a stretch to declare the riders to be victims here.
[+] [-] kelnos|4 years ago|reply
This sounds like the typical arrogant software developer declaring that they could build someone else's entire business during a weekend with a text editor.
"Literally one app away" is exactly what was wrong with the taxi business before Uber and Lyft. And yet with 10 years to catch up, taxi apps -- many of them built specifically to try to compete with Uber/Lyft -- still suck.
[+] [-] CogitoCogito|4 years ago|reply
[+] [-] cameronh90|4 years ago|reply
Incidentally, how is it that hyperscale tech companies such as Uber and Deliveroo are struggling to turn a profit on proven business models, while charging more to both the customer and provider? Isn't tech and scale meant to make it cheaper?
[+] [-] majormajor|4 years ago|reply
I'm not sure I buy that, personally. I don't think riders are victims. Uber to me has always looked like a way to subsidize a bunch of cheap rides for riders with some wildly-optimistic "one day this will be profitable and we'll be the biggest name in the space" plan. Even self-driving cars didn't seem like the answer - that's a massive investment in a vandalism magnet, like the scooter companies but dozens of times more expensive (maybe running a scooter business helped them realize this?).
The problem with trying to profit off "scale" with something like Uber is that the service still has to be delivered one-on-one. Things like Uber Pool are the closest they can get to scale, but suffer from a "why am I paying for this" problem as the experience suffers and the cost can't be that low (since their base rate is artificially low already).
[+] [-] onlyrealcuzzo|4 years ago|reply
I think that's the main argument.
Uber had ~$17Bn revenue on ~1.44Bn trips in 2020 per quarter. That's ~$12 per trip.
Salaries are >$7Bn. That's about $1 per trip. Add in the marketing and server costs - and it's close to $3 per trip - without profit. Then they're going to want a >10% profit margin (another $1). When >50% of trips are only a few miles and <$9 - that's a lot of overhead - not even including Visa's ~6% cut.
The Taxi company was happy to just get a 10-20% cut. Uber needs a 40% cut to break even.
As New York is showing - you don't need to spend >$14Bn per year on an app. Uber's app is pretty awesome - but riders aren't going to pay a 30% premium to use it. And driver's (of equal quality) definitely aren't going to take a 50%+ pay-cut to make up the difference.
[+] [-] disgruntledphd2|4 years ago|reply
Uber has never made any sense to me as a business (since 2016), and it's crazy how long it's lasted.
[+] [-] nemothekid|4 years ago|reply
To drivers AIUI. The "fair" value a driver should make is $1. Uber is paying them $0.7 and charging the customer $0.5. That said, I'm not sure how valid OP's assessment is without also considering Lyft/Didi/Grab. If Uber's business model is ultimately untenable, every company should be in trouble
[+] [-] Spooky23|4 years ago|reply
A legitimate, licensed, insured car in livery service probably costs more like $2/mi just to operate the car and pay the driver.
Think about how NYC Cabs are operated vs Uber. The cab is a fixed asset with operating expenses, and many cabs get rented 24/7 to maximize the return on asset. With Uber, the vehicle is a consumable and the business is to lease time from contractors who don’t understand accounting, and both the company and driver is losing money.
I don’t think the investors are getting ripped off. They own an international network that has value, and have more money than they know what to do with!
[+] [-] mypalmike|4 years ago|reply
[+] [-] jareklupinski|4 years ago|reply
fingers crossed
[+] [-] deanCommie|4 years ago|reply
Innovation is full of scenarios where visionary companies thought they could offer something at a loss, and then eventual improvements to technology/logistics/supply chain/process/etc would make the concept profitable.
Whether it's Amazon offering free shipping, or Google offering OUTLANDISH (for the time) storage volumes for Gmail.
I can definitely imagine that Uber's leadership genuinely believed that various economies of scale or technological innovations would allow them to be fully profitable in the long run.
Same for Self-driving cars: When Uber was investing billions into it, it really looked like they were at the tip of the spear of innovation together with Google. People felt that Uber was actually BETTER Positioned for introducing self-driving technology than Google because they were focusing on adding extensions to existing cars, and they already had a built-in customer base using them for ordering point-to-point rides (Whereas Google/Waymo had to build out those capabilities themselves since)
This is where my charity ends. Uber has not treated their drivers because it considers them completely fungible and replaceable. Everything to do with Public Transit is completely bang on - it's ludicrous to even imagine Uber participating here.
And I buy the overall conclusion - in the long run we will look back at Uber and consider it a net loss for humanity's progress.
But there is no getting around the pure delight of the original user experience - irrespective of pricing. And I'm willing to bet that the leadership did not consider it a con from the beginning, they really thought they could make a profitable business from this in the long run.
[+] [-] Spooky23|4 years ago|reply
I worked in government and started doing services procurements years ago. When I first started doing that, I was really taken aback by the cynicism of the procurement officers and attorneys. Then I did two or three engagements… and it makes sense.
Similarly, I experienced the delight aspect on a trip where I paid $20 for a ride in a Mercedes SUV in Baltimore that would have been a $30 cab ride.
The next time I used Uber, 5 years later, it was a 10 year old Odyssey with an Afghan guy who was illegally sub-letting somebody’s Uber Driver account, and it cost $35 for a $20 cab ride.
End of the day, all of these stories boil down the same thing. Commodity services are either luxury at a premium, or minimum viable level of delivery at a low price.
[+] [-] Daishiman|4 years ago|reply
I have no doubt about the same. But the point isn't about what Uber was; it's about what Uber became, and how their over-promises turned into outrageous claims that snowballed into a completely unsustainable business.
And while I do respect the spirit of the original app being a serious improvement over prior experience, truth is that nowadays even traditional banks and even government apps can be found that are just high-quality and show that you don't need a cutting-edge startup to have good service.
I also believe that other entrepreneurs would have been able to plod a similar path without ripping off investors or mismanaging finances.
[+] [-] tgsovlerkhgsel|4 years ago|reply
I never understood the value of that.
The value is in the driver network, which is hard to build with human drivers, but trivial with self-driving cars. Given a driver network, building a customer network is trivial.
You can have a large fleet that moves to a city that you want to bring up. The novelty of a self-driving car will help find users, the sudden large presence of highly recognizable, branded vehicles will automatically serve as a billboard for your service, an offer of free rides does the rest. Once people realize that the self-driving option is a) cheaper b) faster (because of the excess of cars) c) safer (because there is no unpredictable human driver that could be a bad actor), human-based competitors will have a very hard time.
Once the city is brought up, they can leave the number of cars that they deem appropriate (gradually worsening service), and have the rest of the fleet drive to the next city.
What does Uber have? An app (easy), a way to handle fraud and abuse (totally changes and gets a lot easier when you remove the driver), network effect (see above).
Google has a special advantage, the maps app. If they manage to not ship the org chart, they can add a "order Waymo" button to navigation. Boom, everybody has their ride share app already installed on their phone, and many of the users have payment data in their account.
[+] [-] CPLX|4 years ago|reply
I do however use Uber and Lyft constantly, all over the country and world, and the contrast between the services today and a a year or two ago is stark.
Pricing is often 4-5x what I used to expect for the same trip, sometimes with wait times of 30-40 minutes, even in non-peak times in central business districts.
As a regular user who just happened to be in 9 different cities over the past three weeks (I'm in the conference business) it's really clear something really severe is going on with these companies right now and their service level is in free fall.
[+] [-] ChefboyOG|4 years ago|reply
[+] [-] 1helloworld1|4 years ago|reply
[+] [-] bern4444|4 years ago|reply
But they have over 2,000 engineers. That's a massive amount. Are there new features in development? New services? New capabilities?
From a consumer perspective I haven't see anything new in a while. Are they all focused on growth in new cities, towns, and countries supporting local peculiarities? Is Uber going through a rewrite to align on a technology stack to support future features? What are those features?
My old job was building out a (new) streaming service, so it was all about feature development, launching in new countries, supporting local payment methods etc.
Now I work on building APIs for a different company with which other developers can integrate.
Both are focused on building and maintaining new and existing features as well as growth. Just what the heck is Uber doing with its 2,000 engineers?
[+] [-] northerdome|4 years ago|reply
[+] [-] nice_byte|4 years ago|reply
now you can get a fast safe ride at any time of day and get the meal of your choice without having to go and sit around in the same room with a bunch of other losers like you. all at a moment's notice, through a nice convenient interface. and people have the gall to complain about this?
UPD: to be clear - it doesn't matter that uber subsidizes rides/deliveries. they could stop doing that and jack up the price, but the alternatives are so dreadful that i doubt it would make me stop using them.
[+] [-] Animats|4 years ago|reply
[+] [-] slaw|4 years ago|reply
[+] [-] hamburgerwah|4 years ago|reply
It would probably be cheaper to pay for the Uber fares of all the people that use the metro to use Uber instead.
The author has an obvious political worldview and must fit all information rigidly into it.
Edit: NYC subway loses 7 billion a year before covid when you remove it's tax revenue (government subsidy).
[+] [-] diebeforei485|4 years ago|reply
[+] [-] tgsovlerkhgsel|4 years ago|reply
Uber is a way for me to get a "taxi" in a foreign country largely without having to worry about which local scam I'm not aware of.
It's also usually significantly cheaper than a taxi, and I doubt it's any more dangerous than a taxi. I've definitely had fewer bad experiences with Uber than with traditional taxis (disclaimer: male, so my issues were scams and bad customer service, not safety/rape).
I'm pretty sure at least some drivers are getting royally fucked on hidden costs, although there seem to be many who seem to understand what they're doing and insist it's still profitable. Investors? Maybe/probably, but I don't care.
[+] [-] Apocryphon|4 years ago|reply
Hey, isn’t that what WeWork was being valued with?
[+] [-] jet_32951|4 years ago|reply
[+] [-] paxys|4 years ago|reply