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Uber's valuation is now starting to makes sense if this is true. Marginal cost of revenue for uber is very very low. You can argue that gross margins can run as

by ameyamk 11y ago

Uber's valuation is now starting to makes sense if this is true. Marginal cost of revenue for uber is very very low. You can argue that gross margins can run as high as 60-70% of revenue. Giving uber gross profit of over 3B for 2016. Given how aggressive uber is in driving growth premium on valuation is making sense. Side note: I was in Chicago last week - and I am noticing almost every cab driver now has uber app open. There are 13k uber drivers in chicago alone. Anecdotal evidence suggests Uber is winning.

tathastu 11y ago
Bookings are 10B, not revenue -- that's what the passengers pay; stated revenue from the doc was 2B, which is what Uber keeps (rest goes to drivers). But your larger point is well-taken, even at that number, the valuation of Uber is not that surprising.
shs 11y ago
The issue is whether any of that will matter if self-driving cars come into the picture sooner rather than later. Uber's key advantage is that there's a huge network effect that's hard to overcome with humans. Drivers want to use the app that riders are using. Riders want to use the app that drivers are using. If a company could go out and finance a few hundred self-driving vehicles, it would be easy to build up market share for competing services with lower margins. Where I am, Uber has far better coverage than competing services. But if it were easy for alternatives to cover equally and with lower margins, riders would easily check the cheaper services. While Uber is certainly employing robotics engineers, so are the auto manufacturers, Google, and possibly others. I think people use Uber for the same reason that people use Facebook - it's hard to get all the other humans to use other services when the value of those other services is how many people are using it. But when self-driving cars allow anyone with enough money to finance enough vehicles that they're offering comparable wait times, Uber's network effect disappears. Sure, it will still have brand recognition and some amount of loyalty. But it won't have the kind of barrier to entry that it has today. Uber is winning, but it's also subject to a huge disruption by self-driving cars. If one can purchase and operate a self-driving car for $500/mo., you only need to do $17 worth of rides per day for that to pay you back. If Uber tries to keep its margins up, there's no reason someone isn't going to come into the market with some VC and drive those margins down quite a bit. Lyft, Sidecar, Split, and others all face a huge challenge of getting drivers to work for their service before they have riders and getting riders for their service before they have drivers. If they could just grab some VC to pay the finance charges on the vehicles until ridership picks up, that's a game changer. Uber goes from Facebook with a wonderful network-effect moat to Amazon who has to make sure that margins stay razor thin to maintain a quarter of the market. I'm not saying that Amazon can't do good things, just that Amazon doesn't get high margins and if it tried to up its margins 10%, many people would shop elsewhere. With self-driving cars, someone is going to have near-zero margins and if Uber is 20% above that, people will switch. In fact, if Uber had margins of 60-70%, why wouldn't Amazon (who has a reasonable amount of robotics expertise with Kiva and their drone research) step into the market at significantly cheaper prices? Heck, Amazon could have an automated delivery fleet of cars with drones handling the car-to-door problem and then Amazon could use their "excess capacity" much like they did with EC2 to drive people Uber-style. During the 10-4 day (when there's less demand for vehicles), they could deliver Amazon packages. From 7:30-9:30am and 5-7pm they could do rush-hour and 7pm-4am do restaurant and bar patrons. That's probably a lot more use out of those vehicles than one could get simply from people wanting an Uber and that would lead to lower prices. Sitting here in the cheap seats, I guess I wonder how Uber would fare against that business plan. Amazon accepts thin margins and has a giant use case for their vehicles for the hours that self-driving Ubers sit idle. I'm not saying that Uber isn't filled with smart people. The issue is simply that Uber's current success is probably mostly due to the network effect. They might still have future success, but it's going to be tempered by the fact that competition will be a lot easier.
- dragonwriter 11y ago
  > a company could go out and finance a few hundred self-driving vehicles, it would be easy to build up market share for competing services with lower margins. Especially if that company, was, say a mobile OS and mapping/navigation vendor with decent marketshare whose OS with included personal assistant and/or mapping/navigation software was already in lots of hands, such that it would be easy for them to integrate ride hailing into those existing products and thus have minimal onboarding cost for new users.
- minthd 11y ago
  You're forgetting ride sharing(i.e. uber's UberPool). by sharing rides , one can save 40% (or maybe more, inc case sharign with 3 passenger is available) of cost. And that creates a powerful network effect with the possibility of disrupting the private car. Since this lower cost sharing dynamic might be appealing to passengers also in a world with self-driving cars, and such network effects would be a powerful effect against commodization for the self-driving car company - it's understandable why the SDC company might be willing to share profits with UBER , just to lock the market. Of course that's one scenario, but in general, one would guess that UberPool will have some influence on the self driving car market.
  - nugget 11y ago
    That is one network effect that Uber will maintain but I wonder how cheap self driving car services can become - cheaper cars, cheaper energy, no human drivers - we are looking at an extreme amount of price deflation down to levels where the additional discount of pooling might not make sense for most people.
jostmey 11y ago
Uber is winning in Chicago because the taxi service is so aweful. I dread riding in the city taxis. On more than one occasion a taxi driver become nasty after I asked them to take a back road to save money. Each time I called for a city taxi I crossed my fingers that it would show up in a timely manner.

by ameyamk 11y ago

tathastu 11y ago

Bookings are 10B, not revenue -- that's what the passengers pay; stated revenue from the doc was 2B, which is what Uber keeps (rest goes to drivers). But your larger point is well-taken, even at that number, the valuation of Uber is not that surprising.

shs 11y ago

The issue is whether any of that will matter if self-driving cars come into the picture sooner rather than later. Uber's key advantage is that there's a huge network effect that's hard to overcome with humans. Drivers want to use the app that riders are using. Riders want to use the app that drivers are using. If a company could go out and finance a few hundred self-driving vehicles, it would be easy to build up market share for competing services with lower margins. Where I am, Uber has far better coverage than competing services. But if it were easy for alternatives to cover equally and with lower margins, riders would easily check the cheaper services. While Uber is certainly employing robotics engineers, so are the auto manufacturers, Google, and possibly others. I think people use Uber for the same reason that people use Facebook - it's hard to get all the other humans to use other services when the value of those other services is how many people are using it. But when self-driving cars allow anyone with enough money to finance enough vehicles that they're offering comparable wait times, Uber's network effect disappears. Sure, it will still have brand recognition and some amount of loyalty. But it won't have the kind of barrier to entry that it has today. Uber is winning, but it's also subject to a huge disruption by self-driving cars. If one can purchase and operate a self-driving car for $500/mo., you only need to do $17 worth of rides per day for that to pay you back. If Uber tries to keep its margins up, there's no reason someone isn't going to come into the market with some VC and drive those margins down quite a bit. Lyft, Sidecar, Split, and others all face a huge challenge of getting drivers to work for their service before they have riders and getting riders for their service before they have drivers. If they could just grab some VC to pay the finance charges on the vehicles until ridership picks up, that's a game changer. Uber goes from Facebook with a wonderful network-effect moat to Amazon who has to make sure that margins stay razor thin to maintain a quarter of the market. I'm not saying that Amazon can't do good things, just that Amazon doesn't get high margins and if it tried to up its margins 10%, many people would shop elsewhere. With self-driving cars, someone is going to have near-zero margins and if Uber is 20% above that, people will switch. In fact, if Uber had margins of 60-70%, why wouldn't Amazon (who has a reasonable amount of robotics expertise with Kiva and their drone research) step into the market at significantly cheaper prices? Heck, Amazon could have an automated delivery fleet of cars with drones handling the car-to-door problem and then Amazon could use their "excess capacity" much like they did with EC2 to drive people Uber-style. During the 10-4 day (when there's less demand for vehicles), they could deliver Amazon packages. From 7:30-9:30am and 5-7pm they could do rush-hour and 7pm-4am do restaurant and bar patrons. That's probably a lot more use out of those vehicles than one could get simply from people wanting an Uber and that would lead to lower prices. Sitting here in the cheap seats, I guess I wonder how Uber would fare against that business plan. Amazon accepts thin margins and has a giant use case for their vehicles for the hours that self-driving Ubers sit idle. I'm not saying that Uber isn't filled with smart people. The issue is simply that Uber's current success is probably mostly due to the network effect. They might still have future success, but it's going to be tempered by the fact that competition will be a lot easier.

dragonwriter 11y ago
> a company could go out and finance a few hundred self-driving vehicles, it would be easy to build up market share for competing services with lower margins. Especially if that company, was, say a mobile OS and mapping/navigation vendor with decent marketshare whose OS with included personal assistant and/or mapping/navigation software was already in lots of hands, such that it would be easy for them to integrate ride hailing into those existing products and thus have minimal onboarding cost for new users.
minthd 11y ago
You're forgetting ride sharing(i.e. uber's UberPool). by sharing rides , one can save 40% (or maybe more, inc case sharign with 3 passenger is available) of cost. And that creates a powerful network effect with the possibility of disrupting the private car. Since this lower cost sharing dynamic might be appealing to passengers also in a world with self-driving cars, and such network effects would be a powerful effect against commodization for the self-driving car company - it's understandable why the SDC company might be willing to share profits with UBER , just to lock the market. Of course that's one scenario, but in general, one would guess that UberPool will have some influence on the self driving car market.
- nugget 11y ago
  That is one network effect that Uber will maintain but I wonder how cheap self driving car services can become - cheaper cars, cheaper energy, no human drivers - we are looking at an extreme amount of price deflation down to levels where the additional discount of pooling might not make sense for most people.

jostmey 11y ago

Uber is winning in Chicago because the taxi service is so aweful. I dread riding in the city taxis. On more than one occasion a taxi driver become nasty after I asked them to take a back road to save money. Each time I called for a city taxi I crossed my fingers that it would show up in a timely manner.