Unless I'm missing something, the claim that becoming a taxi driver can become a well-salaried, middle-class job for a significant number of people is patent nonsense. There is a reason that taxis look the way they do and are driven by the people who currently drive them, and regulations and licensing is only a small part of that.
Uber might disrupt the taxi industry, maybe for the better, but once equilibrium is reached, incomes for drivers will have shifted to the right slightly, at best.
It's hard for me to understand what the long play is for Uber's investors. Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.
> Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.
The long game is in capitalizing on (a) network effects and (b) the effects of changing technology on consumer behavior and market structure.
Start with network effects. I live in New York. There are many transportation options. Like my tendency to default to a "top of my wallet" credit card, I tend to fire up Uber first. Other options are considered if Uber disappoints. It seldom does; Uber remains at the top of my "stack". This leads to me demanding several rides a day more from Uber than from its competitors. That, in turn, makes Uber marginally more attractive to drivers. The technology is easy to copy, but the ecosystem is not: network effects.
Let's now consider the effects of changing technology on consumer behaviour. I can walk out of the aeroport in San Francisco, Paris, Austin or Abu Dhabi and have an Uber fueled and ready. Uber has been the driving factor behind me abandoning my driver's license, and with it expectations of ever owning a car.
Here's another technology: driverless cars. Driverless cars reduce fleet costs and risks, and increase scalability on the supply-side (i.e. scale is no longer limited by driver availability and quality). If I were writing Uber's strategy, everything until the availability of fully automated automobiles would be geared towards establishing a strong opening for driverless cars. The tactical phase deploys in force only after the supply side of the scaling problem has been kicked away.
The long game as I understand it is the idea that Uber is building out a platform for real-time mobile logistics, and that transportation is the simplest and most broadly compelling example of something that would run on that platform.
I have seen some taxi companies trying to add convenience--for example, I tried using TaxiMagic when I was in Denver for a conference. When it worked, it was great! I could see the car on the map as it arrived...But, the next time, I tried it during a mild snowstorm and the cab never arrived. So, I gave up on using them--but I imagine that with time, traditional cab companies will have more reliable apps. So, where will that leave Uber?
I imagine that there must be a floor to what can be charged such that a driver is willing to work for the service and such that Uber can earn a profit. So, let's imagine that the market segments and that Uber wins say 80% of the market and the rest is left between competitors (I say imagine this, because as someone mentioned, there is a STRONG inertia effect. If I already have a taxi app with my information in it, then unless the price/service advantage is large, then I'm unlikely to change.). I imagine that one area that Uber will still maintain an advantage is that they will have a pretty good map in large cities of the traffic patterns (based on tracking of cabs). I imagine that that routing information could be valuable to delivery services in general. While large players like Google, Verizon, UPS, and such already have such data, there must be smaller players for whom it would be useful. Cities themselves might find it useful for traffic planning.
Also, on a scarier note, Uber knows the route that its customers take. If it can link that data to demographics, then that might have some value for advertising along given routes, commercial real estate, etc.
> Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary.
I think part of it is a bet that individual car ownership will decrease with technology, which I think is a great bet. Not to say that investing in Uber is the best way to bet on that.
This is not based on any kind of deep analysis whatsoever, but I'm starting to get the same vibe from Uber as I got from Groupon several years ago.
Groupon's promise to local business owners was that offering a Groupon deal was an easy way to attract new long-term customers en masse, despite the sizable up-front loss. History showed that that did not happen for many businesses who used Groupon.
Similarly, so much of Uber's marketing is targeted towards the supply side (i.e. drivers) and the promise of making more than they could at any other available job, with "flexible hours" and other dubious perks. This is just the latest article to show that that is not the case.
Groupon's and Uber's business both depend on acquiring and retaining the best local businesses and drivers respectively, and as these kinds of stories keep coming to light, I wonder whether Uber will be able to retain all the drivers they acquire. Lyft has focused from the start on making their drivers happy, which is a smart way to differentiate from Uber's mercenary mindset, but I also wonder if that is enough to really differentiate itself in the eyes of drivers, at least enough to make Uber really worry.
In all honesty, I am rooting for someone to beat out Uber. When I first learned about them about 2 years ago, I marveled at their business model innovation and their ability to execute. But everything I read (and personally experience) about Uber tells me that they are becoming the new Investment Bank, both philosophically and culturally.
A key difference between Uber and Groupon is that with Groupon, unhappy business owners simply ceased their dealings with Groupon. With Uber, unhappy drivers may be able to inflict far more damage beyond quitting or jumping ship.
Most threatening to Uber's long-term viability are putative class action lawsuits, such as one alleging that drivers were misclassified as independent contractors[1]. If Uber is forced to reclassify its drivers, it could literally upend the economics of Uber's business overnight.
Because of the legal and regulatory challenges it faces, I think Uber is actually in a far riskier position than Groupon ever was and Uber's valuation seems to indicate that investors have too significantly discounted these risks. At this point, I actually think Uber might for some investors prove to be a binary investment. That wasn't even the case with Groupon, which still has a $4 billion valuation despite its decline.
> offering a Groupon deal was an easy way to attract new long-term customers en masse
What does that even mean, at scale? If it is a money printing press for everyone involved, you have to postulate either that the entire market grows rapidly (for "local businesses", no matter what they do, in this case) or you've (at best!) created a middleman to tax all transactions in the system.
Quite honestly - do you believe that making more than $50,000 per year for a HS grad is a bad thing?
I am not saying that they should not make more, but for most non college educated individuals - $50,000 is above US average income.
Uber may have shady tactics, and might be deceiving drivers - that's true. But the reality is that the opportunities they are giving drivers are not insignificant.
Unfortunately - these drivers are paying with their wages the price of a market equilibrium that has not been found yet in terms of finding the right pricing model to match supply and demand.
This is the problem that has existed in all major Internet marketplaces where you deal with people's businesses - with eBay, Uber, Amazon, oDesk, etc....
They may not be lying - that could be raw revenue. Unlike white collar jobs driving a car for a living comes with a lot of costs that kill your actual take-home income, far above and beyond just taxes.
Maintenance, repairs, insurance, and gas are all direct costs that don't really improve with economies of scale. Car payments too - though white collar workers may also be hit with that, but probably less so.
I think there's a bit of deliberate obfuscation here where Uber wants you, the office worker, to think of that $90K without all the strings attached, in which case it would be a pretty decent income.
I have no idea how they arrive at that number. I think I read somewhere that its a hypothetical rate, assuming someone worked a given number of hours.
Or else the "Data Driven" company doesn't know what the difference between Median and Maximum are?
On another note, I've met quite a few UberX drivers who have financed their cars. That level of fixed costs make someone significantly less able to absorb any price cuts.
Finally, what is the really Price Elasticity of Demand here? Even when the fares are at surge levels of 2x, how does often does that deter people? Sure, if its 8 blocks, I might walk it, but at a certain threshold (which I assume is the best revenue anyway) the only other alternative is some other mode of service with an almost equally high cost. My guess is that their claim that lower fares = greater ridership has a much lower coefficient than they let on.
Well, the article claims that Uber has been unable to produce even one driver making $90,000 in NYC. Given that it's supposedly the median, they should have hundreds or thousands of drivers making it. It certainly seems damning.
Plus income != profit. If you buy a car and gas and insurance and maintenance and then Uber cuts the price, you might not make much at all out of that.
We at Sherpa has collected around 1M trips from Uber and Lyft. The average hourly rate of Uber driver is around $15 -- varies among cities. If you work 8 hours a day for 365 days, you will earn around $43,800. Of course, if you drive for 24 hours a day, you will earn as much as $131,400.
Do drivers collect the additional income during surge pricing or does the delta simply line uber's pockets? It seems like you could game the system by simply only driving during surge pricing.
I think that's the point. During times when there is a higher demand, they want to provide extra incentive for drivers to be out there. That way the supply of drivers doesn't just dry up instantly because of the swell in demand.
"It seems like you could game the system by simply only driving during surge pricing."
The more drivers stay at home, the more there is surge pricing. The more drivers drive, the less there is surge pricing. Such is the game of equilibrium :)
Really cool article I found it pretty informative. I think the Uber/On-Demand Taxi Service was a revolutionary idea but the question is how successful will it be in the long term, and how much power does uber truly have over controlling the price? I think they've taken a risky route and may be susceptible to failure without some type of change.
[+] [-] jordanpg|11 years ago|reply
Uber might disrupt the taxi industry, maybe for the better, but once equilibrium is reached, incomes for drivers will have shifted to the right slightly, at best.
It's hard for me to understand what the long play is for Uber's investors. Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.
[+] [-] JumpCrisscross|11 years ago|reply
The long game is in capitalizing on (a) network effects and (b) the effects of changing technology on consumer behavior and market structure.
Start with network effects. I live in New York. There are many transportation options. Like my tendency to default to a "top of my wallet" credit card, I tend to fire up Uber first. Other options are considered if Uber disappoints. It seldom does; Uber remains at the top of my "stack". This leads to me demanding several rides a day more from Uber than from its competitors. That, in turn, makes Uber marginally more attractive to drivers. The technology is easy to copy, but the ecosystem is not: network effects.
Let's now consider the effects of changing technology on consumer behaviour. I can walk out of the aeroport in San Francisco, Paris, Austin or Abu Dhabi and have an Uber fueled and ready. Uber has been the driving factor behind me abandoning my driver's license, and with it expectations of ever owning a car.
Here's another technology: driverless cars. Driverless cars reduce fleet costs and risks, and increase scalability on the supply-side (i.e. scale is no longer limited by driver availability and quality). If I were writing Uber's strategy, everything until the availability of fully automated automobiles would be geared towards establishing a strong opening for driverless cars. The tactical phase deploys in force only after the supply side of the scaling problem has been kicked away.
[+] [-] tptacek|11 years ago|reply
[+] [-] ylem|11 years ago|reply
I imagine that there must be a floor to what can be charged such that a driver is willing to work for the service and such that Uber can earn a profit. So, let's imagine that the market segments and that Uber wins say 80% of the market and the rest is left between competitors (I say imagine this, because as someone mentioned, there is a STRONG inertia effect. If I already have a taxi app with my information in it, then unless the price/service advantage is large, then I'm unlikely to change.). I imagine that one area that Uber will still maintain an advantage is that they will have a pretty good map in large cities of the traffic patterns (based on tracking of cabs). I imagine that that routing information could be valuable to delivery services in general. While large players like Google, Verizon, UPS, and such already have such data, there must be smaller players for whom it would be useful. Cities themselves might find it useful for traffic planning.
Also, on a scarier note, Uber knows the route that its customers take. If it can link that data to demographics, then that might have some value for advertising along given routes, commercial real estate, etc.
[+] [-] bernardom|11 years ago|reply
I think part of it is a bet that individual car ownership will decrease with technology, which I think is a great bet. Not to say that investing in Uber is the best way to bet on that.
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] pshin45|11 years ago|reply
Groupon's promise to local business owners was that offering a Groupon deal was an easy way to attract new long-term customers en masse, despite the sizable up-front loss. History showed that that did not happen for many businesses who used Groupon.
Similarly, so much of Uber's marketing is targeted towards the supply side (i.e. drivers) and the promise of making more than they could at any other available job, with "flexible hours" and other dubious perks. This is just the latest article to show that that is not the case.
Groupon's and Uber's business both depend on acquiring and retaining the best local businesses and drivers respectively, and as these kinds of stories keep coming to light, I wonder whether Uber will be able to retain all the drivers they acquire. Lyft has focused from the start on making their drivers happy, which is a smart way to differentiate from Uber's mercenary mindset, but I also wonder if that is enough to really differentiate itself in the eyes of drivers, at least enough to make Uber really worry.
In all honesty, I am rooting for someone to beat out Uber. When I first learned about them about 2 years ago, I marveled at their business model innovation and their ability to execute. But everything I read (and personally experience) about Uber tells me that they are becoming the new Investment Bank, both philosophically and culturally.
[+] [-] 7Figures2Commas|11 years ago|reply
Most threatening to Uber's long-term viability are putative class action lawsuits, such as one alleging that drivers were misclassified as independent contractors[1]. If Uber is forced to reclassify its drivers, it could literally upend the economics of Uber's business overnight.
Because of the legal and regulatory challenges it faces, I think Uber is actually in a far riskier position than Groupon ever was and Uber's valuation seems to indicate that investors have too significantly discounted these risks. At this point, I actually think Uber might for some investors prove to be a binary investment. That wasn't even the case with Groupon, which still has a $4 billion valuation despite its decline.
[1] http://uberlawsuit.com/
[+] [-] xorcist|11 years ago|reply
What does that even mean, at scale? If it is a money printing press for everyone involved, you have to postulate either that the entire market grows rapidly (for "local businesses", no matter what they do, in this case) or you've (at best!) created a middleman to tax all transactions in the system.
[+] [-] jessejhernandez|11 years ago|reply
[+] [-] onewaystreet|11 years ago|reply
[+] [-] 2pasc|11 years ago|reply
[deleted]
[+] [-] 2pasc|11 years ago|reply
[+] [-] parfe|11 years ago|reply
Is it pretty much accepted that Uber is outright lying here? Does anyone believe there is a driver out there banking $100,000 driving a taxi?
I know the company is shady but hoping they can generate enough new blood to compensate for burnout of drivers chasing the dream seems abusive.
[+] [-] potatolicious|11 years ago|reply
Maintenance, repairs, insurance, and gas are all direct costs that don't really improve with economies of scale. Car payments too - though white collar workers may also be hit with that, but probably less so.
I think there's a bit of deliberate obfuscation here where Uber wants you, the office worker, to think of that $90K without all the strings attached, in which case it would be a pretty decent income.
[+] [-] abakker|11 years ago|reply
Or else the "Data Driven" company doesn't know what the difference between Median and Maximum are?
On another note, I've met quite a few UberX drivers who have financed their cars. That level of fixed costs make someone significantly less able to absorb any price cuts.
Finally, what is the really Price Elasticity of Demand here? Even when the fares are at surge levels of 2x, how does often does that deter people? Sure, if its 8 blocks, I might walk it, but at a certain threshold (which I assume is the best revenue anyway) the only other alternative is some other mode of service with an almost equally high cost. My guess is that their claim that lower fares = greater ridership has a much lower coefficient than they let on.
[+] [-] aetherson|11 years ago|reply
[+] [-] coldcode|11 years ago|reply
[+] [-] bbd|11 years ago|reply
[+] [-] shiftpgdn|11 years ago|reply
[+] [-] dnissley|11 years ago|reply
[+] [-] melvinmt|11 years ago|reply
The more drivers stay at home, the more there is surge pricing. The more drivers drive, the less there is surge pricing. Such is the game of equilibrium :)
[+] [-] baddox|11 years ago|reply
[+] [-] mmoche|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] jessejhernandez|11 years ago|reply
[+] [-] foobarqux|11 years ago|reply
https://news.ycombinator.com/item?id=8519585