24 ms·

Why Uber Won

173 points by realdlee 10y ago

thinkmoore 10y ago
Does anyone else find the first chart in this post ominous? 2014-2015 is looking a lot like 1999-2000, and nothing seems to suggest things are that different this time around...
Animats 10y ago
The article says Uber "won" by spending heavily to get 5 minute response and $25/hour driver pay. They no longer provide either of those, because they couldn't do so profitably. Uber might still be the next Webvan.
tostitos1979 10y ago
What is an "arb"? A quick google didn't do it for me :(
- arthurcolle 10y ago
  arbitrage
  - tostitos1979 10y ago
    That's what Google returned but I didn't think it made sense in the context. I guess he means to say you can trade one for the other? That doesn't make sense to me to be honest. I did like the article though.
    - galdosdi 10y ago
      I think the author is using "arbitrage" a bit loosely/metaphorically, as "a new opportunity that seems low-risk that has only just appeared, and, being such a great opportunity, will thus likely only exist briefly till the first few actors exploit it till it's not really an available opportunity anymore" The looseness comes from the fact that traditionally an arbitrage opportunity really is theoretically nearly zero-risk while I think the author is using it here in cases where it's a bit more complex. But the analogy at least works in highlighting the aspect of these opportunities being temporary in their existence, like the joke about an economics professor and student seeing a twenty dollar bill on the ground and the professor ignoring it, quipping "If that was a real twenty dollar bill, someone else would already have picked it up off the ground"
    - caseyf7 10y ago
      Arbitrage may be the most incorrectly used word in Silicon Valley. People usually mean they buy something here and sell it for more there - but that's not arbitrage.
devanti 10y ago
Did Uber really win yet? They haven't exited yet. Their valuation is insanely high and they are not looking to IPO, as they won't get a favorable price in todays markets. They are spending billions in China where they are not leaders yet (and unlikely to be). I don't see how they have won yet. They are walking a dangerous path with no exit in sight.
- distances 10y ago
  They also have severe problems in many European countries where the consideration of the legality of the service hasn't been as lenient as in the US. One can "win" without a global presence sure, but that's something to still keep in mind.
- prostoalex 10y ago
  Treating drivers as independent contractors also increases liquidity for everyone else in the market, as drivers just run multiple apps (and anecdotally prefer driving for Lyft in my unscientific q&a sessions). It's like Groupon marketing budget in early days increasing awareness of all deal sites out there.
- duaneb 10y ago
  Not all companies look for short term profits over long term viability. Why exit at all?
  - adevine 10y ago
    Because VCs want their money back before they're dead.
kwikiel 10y ago
Post success analysis have one serious flaw. Theory should explain not only why Uber won but why Lyft lost. Assuming that some competitor would do the same as Uber regarding their strategy but without having to change laws/work on PR needed for drive sharing - why Uber strategy cannot be copied?
- fishnchips 10y ago
  One problem with business as science is that even if we found a perfect recipe for success the fact that it was found would change the market in such a way that would render the golden recipe invalid. And that's assuming all things being equal which is never the case, at least not these days. Admittedly though, that's not how you sell thousands of copies of business books.
- SilasX 10y ago
  Also, it's not even clear that one of them has won or lost yet. Lyft is still going strong, and uber is now having to make major changes to how it deals with tips. It's too early to write narratives for this.
  - prostoalex 10y ago
    Exactly. As a point of reference, Uber entered Russian market which already had various competing providers such as Yandex.Taxi and GetTaxi, and did not gain significant advantage.
- choxi 10y ago
  https://medium.com/@choxi/uber-s-dominant-fundraising-strategy-7c2126918cc6#.c90ydy120 https://medium.com/@choxi/uber-s-dominant-fundraising-strate...
stcredzero 10y ago
So many bandied acronyms. CAC?
- jonbishop 10y ago
  It stands for customer acquisition cost.
- arthurcolle 10y ago
  customer acquisition cost
ericabiz 10y ago
Investors love to spout this stuff. Unfortunately, it really isn't true (even though as a founder who generally prefers to bootstrap, I wish it was.) FTA: > If the cost of customer acquisition (CAC) is greater than the lifetime value (LTV), a startup can grow itself to death. Oh, you mean like Salesforce? No, wait, they had an IPO and they still only rarely show a profit. And they hold their LTV very close to their chest, so we still have no idea if CAC is lower or higher than LTV. > When investors talk about growth, we’re talking about sustainable growth. No, you're not, because you continually fund companies that do the opposite. Salesforce, Webvan, Pets.com from the first boom. Instacart, Uber, Lyft, WeWork, HubSpot from the latest. > The period of cheap capital and billion dollar checks has ended. Same thing we heard in 2001 and 2007. > In this capital constrained market, buying scale is no longer going to be a credible lever for the next generation of startups. ... Companies can no longer look to money as a performance enhancing drug for scale-up. Until it is again. It wasn't OK to "buy scale" in 2001 or 2007, but it was in 1997-1999 and 2012-2014. And now in 2016, it's fallen out of fashion again. Either we're going to have a raging depression, or the bubble will inflate again. Hypothetically, both of those scenarios could actually happen--a depression followed by bubble inflation yet again. This is why I suggest that founders tune out the idiocy and focus on building a sustainable business. You probably won't build an Uber as quickly as Uber did. But you'll be hugely protected against the inevitable downfall, and won't find yourself cash-strapped and forced to switch gears quickly (notice Uber now singing the "we plan to be profitable in most U.S. cities this year" tune.) And, more importantly, you'll have built a life for yourself, your employees, and their families that are depending on you.
- kelukelugames 10y ago
  Great comment for a terrible post. When I saw the title I knew it was click bait.
- danr4 10y ago
  Thank you. I love it when I read an article, generally agree with it, feel like i'm wiser now, and then read the comments and someone like you shows me I automatically agreed with the author without thinking about it too much. Gotta work on my critical thinking. Any recommendations on what to read?
hodgesrm 10y ago
I don't fully understand the conclusion that "the period of cheap capital and billion dollar checks has ended." Uber won in a unique market place primed by underutilization of personal vehicles and widespread customer dissatisfaction with taxi services. There's even an argument that the so-called gig economy is mostly Uber and its competitors. [1] So yes, companies in less valuable markets are going to have a tough time getting funding as VCs pull back. But it does not follow that if you found an equally valuable market somewhere else you would not have access to funds to make it big. There's still a lot of money out there looking for good investments. I don't see a complete downturn as predetermined without some other externality at play. [1] http://blogs.wsj.com/economics/2016/03/28/the-entire-online-gig-economy-might-be-mostly-uber/ http://blogs.wsj.com/economics/2016/03/28/the-entire-online-...
kordless 10y ago
Uber won because a massive amount of stored trust (capital) was put into it while users were trusting it would do what it said it would do then, now and in the future. Being able to change the business model and not violate user trust, as most software does eventually unfortunately, is much tricker. Saying they "won" when the game is ongoing is illogical. Post this in 20 years when Uber is still a brand, the customers (and drivers) are still joyful (and the company isn't bringing them suffering) and then you can talk about success. Huge cash inflections into companies isn't helping user experience. In most cases, the game theory behind the huge cashouts causes user suffering. It's time to think differently.
siliconc0w 10y ago
Maybe I'm misunderstanding the author's point but I kinda disagree that Uber has created a 'network'. To me, it's more of a commodity service. My use of Uber doesn't really increase it's value for other users. At least compared to something like Facebook where network effects are obvious. I also think it's too early to call the game. They're doing well but again, with a commodity service, it doesn't take much to fall behind. I see the logical end game here as more of a marketplace where I can request a ride and anyone can bid for for the job.
- the_mitsuhiko 10y ago
  > I kinda disagree that Uber has created a 'network'. I agree with your disagreement. In particular because the network effect means that it's hard to go from facebook to somewhere else because the services are useless if your friends are not on it. Both drivers and customers of uber already use competing services.
  - elmigranto 10y ago
    Well you kind of do contribute to Uber's value for others by using it and not other service, but not as significantly as with social networks. You use an app, drivers see there is a demand for it, more drivers, better service, you ever so slightly increased Uber's value against its rivals. This is true for every service, only the value of individual contribution differs: huge for facebook, pretty big for "real life" businesses (uber, airbnb), quite minor for "online only" (non-multiplayer videogames).
- Dwolb 10y ago
  Your use of Uber does increase value for other users. Every incremental user increases the probability that someone will need a ride at any given moment, allowing fewer drivers to profitably service an increasing geography. This means better service, on average, for the network. Another benefit is every incremental passenger increases the utilization of the current assets, spreading fixed asset costs around to more rides.
  - 10y ago
msvan 10y ago
Is capital really getting more expensive? Aren't we still seeing truckloads of cheap cash still getting shepherded into private tech companies? It sounds to me like this investor would like to see a return to investments in profitable companies rather than aggressive investments in growth, because it was more fun for him when he had fewer competitors willing to throw money around. Is there any evidence that this trend is actually reversing as opposed to just being wishful thinking?
askyourmother 10y ago
Has uber won? When? Did the rest of the market get told? Given the fact they are still embroiled in legal wrangles worldwide, still throwing a billion dollars a year into a hole in China, had to recently settle a large case with their drivers, face competition from Lyft as their friendlier rival, from lady only driver firms to deal with rapey and gropey uber drivers, overall, sounds like a winner. Or does it?
- tim333 10y ago
  Indeed I'm not sure you can say Uber has won until they maintain market dominance without having to throw in more investor money. It's pretty hard to compete with them when they are subsidising fares but when they stop maybe less so.
etrautmann 10y ago
In SF the quality of Uber's service has dropped so dramatically in the past 3-4 months that I no longer use it anymore. It's completely commoditized and I have no qualms about switching to Lyft when they have a better product.
- chambo622 10y ago
  Curious what you mean by the quality of service dropping? I use both Lyft and Uber pretty regularly (multiple times a week) and have had only positive experiences in SF.
  - etrautmann 10y ago
    It started out awesome but recently I've had: 1) I can't see estimated time but lots of cars around. I then book and it estimates > 12min wait time. If I cancel, it charges me $2 anyway because reasons. 2) a number of drivers cancel after 10 min of waiting - this happened 3x in a row a few weeks ago so I finally got a car after 40 min. ... Friends with similar experiences...
catplexion 10y ago
I wanted to know if I'm the only one who doesn't find these apps convenient. I'm in NYC and have been trying to use Uber and Lyft, but I keep finding that whenever I request a ride, the driver usually takes too long to get to me (e.g. gets lost and goes the wrong way), and in that time I see like 20+ taxis drive past. Why would I wait 5-10 minutes for an Uber/Lyft when I could, in the same amount of time, be closer to my destination by just hailing a regular taxi? Surely I'm not the only person experiencing this. I want to love Uber/Lyft, but so far my experience has just been one of hassle and inconvenience. I was motivated to try them out because of free credits, and I'm trying to use up my free rides before they expire, but it's just been too painful so far!
- untog 10y ago
  NYC is the exception to a lot of rules, this one included. And to be honest, as an NYC resident, I still disagree with you. If you're in central Manhattan you'll get a yellow cab very easily, but if you're anywhere outside of that area you will have a significantly more difficult time. Another advantage to me is the fact that my destination is programmed in - I've had to deal with a lot of yellow cab drivers who have absolutely no idea where they are going or the location I am talking about.
- jastanton 10y ago
  Biggest reasons for me: 1) Driver and I agree on a best route via mapping software, no more getting lost, miscommunications or malicious route designed to get more money out of me. 2) Payments are clear and fast. No more getting pressured and hounded for cash when I only cary my card. 3) It's always a clean nice car. No more duct tape over check engine lights. 4) I know if there is ever an issue I know it's going to get taken care of instantly by Ubers excellent staff. No more terrible customer service.
  - ape4 10y ago
    Uber doesn't have any staff. They're all contractors, like the drivers.
    - 10y ago
freyr 10y ago
This article is built on the premise that Uber "won," but fails to define winning or back up this premise with facts. Does winning mean beating its competitors? In San Francisco, at least, this doesn't seem clear at all. Most people I meet -- both drivers and passengers -- prefer Lyft to Uber because they claim it has better technology, a better brand image, better treatment of employees (correction: drivers), and fewer instances of creepy and offensive behavior from its top management. Does winning mean expanding faster than its competitors? This rests on the VC assertion that Uber is playing in a winner-take-all space. The fact that they can't starve out the competition on their home turf challenges this assertion. Unless they can put up artificial barriers once they enter new markets, they might just be clearing the way for their competition. Or does winning mean transforming from a VC-fueled startup to a self-reliant profitable company? Once again, no facts in the article, but they did recently claim they'll be profitable in the U.S. in Q2 2016 (although losing $1B/year in China) [1]. But unless they can differentiate in terms of price or service (which, my experience, they've failed at), this isn't necessarily a sustained win. [1] http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/
- karussell 10y ago
  Yeah, I really think that the treatment of employees, drivers (they are no employees!), partners etc. will crucial for their success. And I see this only partially fulfilled.
- ProblemFactory 10y ago
  > This rests on the VC assertion that Uber is playing a winner-take-all game. They certainly seem to be playing a winner-take-all game, by heavily subsidising rides when they first launch in a new city. But it seems questionable to conclude that taxi services really are a winner-take-all market. Many Uber drivers I see have multiple phones, running multiple taxi apps at the same time. And most people I know have at least two apps in their phone. I usually check three (Uber, an European one, and a local one in my city) before making an order. There are some network effects to taxi services - customers want a car fast, and drivers want to find fares fast. But there are no switching costs for either side, so these network effects can be distributed over more than one platform.
idiot900 10y ago
Still remains to be seen what the long term costs are to be an Uber driver. They are probably not that favorable when considering depreciation, insurance, etc. Most likely there will be a slow exodus of drivers until the market reaches equilibrium and Uber et al are not so distinguishable from traditional taxis.
pbreit 10y ago
I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers. After hooking all the riders, UberX became much easier. Coupled with Uber's more aggressive practices.
- cb18 10y ago
  I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers. That's a very astute observation. Anyone have any ideas of other markets(or potential markets) where such an approach could be translated?
dataisfun 10y ago
I didn't see any comments mentioning self driving cars, which to me suggest a cleaving of uber's marketplace. If all cars were to suddenly become autonomous, uber could be easily bested because their liquidity has become beside the point.
deleted 10y ago
[deleted]
ChuckMcM 10y ago
I wonder if the "easy money" period is over or just resetting. There still aren't very many ways to get "good" returns on cash at the moment.
jernfrost 10y ago
Great explanation of how Uber could get so big. I never really understood why Uber made it and nobody before, because the App itself does not seem like a revolutionary idea. There must have been apps like that around already and lost of people must have thought of it. I mean I certainly thought of this long before I heard of Uber. But the missing piece of the puzzle, which this article filled in was that it was never really about the app. It was about using money cleverly to get this thing going. Now Uber has first mover advantage. But I can see many potential problems for them. They have advantage in name recognition and momentum but I can't see much else advantage. The tech should be easy to replicate. So I think what will matter in the future is who manages to figure out the best way to use autonomous vehicles. In this regard I'd rather place my bets on Tesla. If they as they hinted get into doing Uber like stuff in the future with autonomous cars, they have a clear advantage as they got advantages in more fields than Uber which can enhance this particular business. By controlling the cars, they are pulling in more data than anybody else on autonomous driving at the moment. They are already beating the master data collector Google, collecting more data then they do in a year on autonomous driving.
phamilton 10y ago
An interesting parallel is baseball. The Yankees are infamous for using money as a tool, buying up as much talent as they could. In recent years, the Dodgers have outspent everybody, but in an absolutely different way. 25% of the Dodgers payroll goes to players not playing for the Dodgers. Often, it's going to players playing against the Dodgers. Many commentators have described this in similar terms. They use their deep pockets a s a weapon. Instead of giving their players huge salaries, they on multiple occasions have found teams struggling with expensive contracts for underperforming players. They negotiate to take the player (and the bad contract) and then require some talented youngsters to be thrown in on the deal. They then trade away the underperforming player to another team, subsidizing the contract substantially, and keep the talented prospects. While some of these trades didn't pan out well, it was a pretty unique way to use deep pockets as a weapon.
- qihqi 10y ago
  I almost thought that they pay opposing players to not play with full strength when reading the first sentences. Glad you clarified.
- forgetsusername 10y ago
  >An interesting parallel is baseball. It's funny you choose baseball as the sporting example, as it's without a salary cap. If you look at hockey and basketball, this has been a strategy for a long time because teams have to remain below the salary cap. As such, bad contracts are traded around all the time to make room for payroll. Stars sometimes change teams for essentially nothing but cap space. I guess it interesting that a baseball team is doing it in a world where there are no spending caps.
  - phamilton 10y ago
    Trading for cap space isn't using deep pockets as a weapon. It's just balancing the books. When a team like the Marlins has a payroll of $80M and the Dodgers are at $300M, there's a much more predatory effect at play.
  - askldfhjkasfhd 10y ago
studentrob 10y ago
Is Uber about to go public? I'll believe it has won once we see some more numbers. I am baffled how they operate here in Taiwan. Uber has been declared illegal here. Drivers and passenger are issued fines when caught. Uber fully compensates them. Now the laws are more strict; if a driver is caught 3 times, his license is revoked. Yet there are still 5 cars within 5 minutes of me at any time of day. I don't understand how that works at all. It does not seem to be a good way to get into the good graces of a country. I wonder how many places Uber operates illegally and pays fines, and how analysts use this to calculate the future value of the company. Do they assume Uber will one day be made legal in all these places? That would boost the valuation but I'm not sure it's accurate.
- Bombthecat 10y ago
  They want you to use the app and get the brand out there. They don't care about fines because the end game is driverless cars.they will later on replace all the drivers .
  - devanti 10y ago
    They'll run out of liquidity long before driverless cars go mainstream. There are huge legal and logistical hurdles to face.
amelius 10y ago
Uber is a simple service, for which competition is natural, in theory. If in practice this turns out to be different, then this is a failure of capitalism, and somebody ought to do something about it.
dc2 10y ago
Am I the only one who was slightly ticked off by this guy's writing style? It was riddled with terms like "arb", clearly written for self-satisfaction. If my life was wrapped around the VC universe, I probably would not care to read this article, and yet for anyone who isn't so familiar, you need to interrupt the reading several times if you want to understand what he is talking about. The conclusion of the article, hinted at the beginning, seems to run abrupt without fully explaining itself.
shalmanese 10y ago
I think the more interesting story isn't how Uber won but how Lyft lost. Sidecar was actually first out of the gate with a ridesharing product but Lyft wasn't far behind and soon clearly dominated the space with their ingenious pink mustaches. Sidecar suffered from a classic first mover's disadvantage in that they were overly concerned with regulatory risk which made them too timid. Sidecar's opinion was that the mustache overstepped the bounds between employer/independant contractor and that the CPUC would slap down Lyft and put them out of business (similarly, the bid model that Sidecar used was driven by similar concerns despite the noticeably poorer user experience). I've never seen a product achieve such ferocious product/market fit as Lyft did. During its first year, it was extremely common for there to be hours at a time when drivers were immediately snatched up as soon as they ended their last ride and passengers would wait for half an hour at a time, eagle eyed staring at the screen to snatch up a car. The level of inconvenience that people were prepared to put up with just to use Lyft's product spoke to just how much of a radical upgrade in user experience ridesharing provided and a hint as to the explosive growth that was to come. Lyft was in the enviable position that they held a near monopoly in this space for almost 18 months as Uber tried to reconfigure itself and I remember hearing Travis speak about how the cheaper Uber would be Uber and being skeptical that he could ever overcome such a huge first mover advantage. In the face of all of this, Lyft could have made the "standard" startup decision of prioritizing growth above all else and taking whatever compromises were necessary to service that growth. Instead, Lyft took an alternate path in which they placed driver quality as a longer term priority. I remember during even the most insane supply/demand mismatches, Lyft was still rejecting some 50%+ of driver applicants for not being "Lyft material". I think against almost any other competitor, Lyft could have made the same choices that it made and come out ahead but Uber's raw ability to execute is something that, regardless of what you think of their ethics or culture, has to be admired. Uber is one of those extraordinary companies that prizes execution ability culturally in the same way that Apple prizes design. Lyft should have rolled out into other cities faster, Lyft should have gone international, Lyft should have dropped its prices more aggressively and taken the hit on driver quality. All of those are recoverable errors unless you're facing up against someone like Uber who rolled out an aggressive expansion plan and then relentlessly executed against it with the wheels barely falling off. This is all easy to see with the benefit of hindsight but I remember living through that time, with friends at all 3 companies and watching them grope towards an uncertain future while doing the best they could.
1024core 10y ago
I am traveling right now in India, and Uber is a huge boon: no more haggling, no hassles, no arguing: just call up Uber and go. I've been making it a point to ask the drivers what they think about Uber. The interesting part is, when Uber first came to town, they would offer a flat fee: Rupees 60,000/month, as long as the driver kept the app open 10 hours/day, and didn't refuse rides. So many drivers signed up, that many of them spent the entire day just hanging around, giving 2-3 rides/day. So Uber outspent the competition heavily, taking huge losses. But now, with the glut of drivers in Uber, their payment has gone down significantly: they pay based on the number of rides a driver makes. For example, for 17 rides, Uber pays about Rs 3000. The problem is: most rides are < Rs 100, so Uber is still offering rides at a loss. So, the answer to the question "why Uber won" is: by spending lavishly.
known 10y ago
Why Torrent Won

173 points by realdlee 10y ago

Does anyone else find the first chart in this post ominous? 2014-2015 is looking a lot like 1999-2000, and nothing seems to suggest things are that different this time around...

Animats 10y ago

The article says Uber "won" by spending heavily to get 5 minute response and $25/hour driver pay. They no longer provide either of those, because they couldn't do so profitably. Uber might still be the next Webvan.

tostitos1979 10y ago

What is an "arb"? A quick google didn't do it for me :(

arthurcolle 10y ago
arbitrage
- tostitos1979 10y ago
  That's what Google returned but I didn't think it made sense in the context. I guess he means to say you can trade one for the other? That doesn't make sense to me to be honest. I did like the article though.
  - galdosdi 10y ago
    I think the author is using "arbitrage" a bit loosely/metaphorically, as "a new opportunity that seems low-risk that has only just appeared, and, being such a great opportunity, will thus likely only exist briefly till the first few actors exploit it till it's not really an available opportunity anymore" The looseness comes from the fact that traditionally an arbitrage opportunity really is theoretically nearly zero-risk while I think the author is using it here in cases where it's a bit more complex. But the analogy at least works in highlighting the aspect of these opportunities being temporary in their existence, like the joke about an economics professor and student seeing a twenty dollar bill on the ground and the professor ignoring it, quipping "If that was a real twenty dollar bill, someone else would already have picked it up off the ground"
  - caseyf7 10y ago
    Arbitrage may be the most incorrectly used word in Silicon Valley. People usually mean they buy something here and sell it for more there - but that's not arbitrage.

devanti 10y ago

Did Uber really win yet? They haven't exited yet. Their valuation is insanely high and they are not looking to IPO, as they won't get a favorable price in todays markets. They are spending billions in China where they are not leaders yet (and unlikely to be). I don't see how they have won yet. They are walking a dangerous path with no exit in sight.

distances 10y ago
They also have severe problems in many European countries where the consideration of the legality of the service hasn't been as lenient as in the US. One can "win" without a global presence sure, but that's something to still keep in mind.
prostoalex 10y ago
Treating drivers as independent contractors also increases liquidity for everyone else in the market, as drivers just run multiple apps (and anecdotally prefer driving for Lyft in my unscientific q&a sessions). It's like Groupon marketing budget in early days increasing awareness of all deal sites out there.
duaneb 10y ago
Not all companies look for short term profits over long term viability. Why exit at all?
- adevine 10y ago
  Because VCs want their money back before they're dead.

kwikiel 10y ago

Post success analysis have one serious flaw. Theory should explain not only why Uber won but why Lyft lost. Assuming that some competitor would do the same as Uber regarding their strategy but without having to change laws/work on PR needed for drive sharing - why Uber strategy cannot be copied?

fishnchips 10y ago
One problem with business as science is that even if we found a perfect recipe for success the fact that it was found would change the market in such a way that would render the golden recipe invalid. And that's assuming all things being equal which is never the case, at least not these days. Admittedly though, that's not how you sell thousands of copies of business books.
SilasX 10y ago
Also, it's not even clear that one of them has won or lost yet. Lyft is still going strong, and uber is now having to make major changes to how it deals with tips. It's too early to write narratives for this.
- prostoalex 10y ago
  Exactly. As a point of reference, Uber entered Russian market which already had various competing providers such as Yandex.Taxi and GetTaxi, and did not gain significant advantage.
choxi 10y ago
https://medium.com/@choxi/uber-s-dominant-fundraising-strategy-7c2126918cc6#.c90ydy120 https://medium.com/@choxi/uber-s-dominant-fundraising-strate...

stcredzero 10y ago

So many bandied acronyms. CAC?

jonbishop 10y ago
It stands for customer acquisition cost.
arthurcolle 10y ago
customer acquisition cost

ericabiz 10y ago

Investors love to spout this stuff. Unfortunately, it really isn't true (even though as a founder who generally prefers to bootstrap, I wish it was.) FTA: > If the cost of customer acquisition (CAC) is greater than the lifetime value (LTV), a startup can grow itself to death. Oh, you mean like Salesforce? No, wait, they had an IPO and they still only rarely show a profit. And they hold their LTV very close to their chest, so we still have no idea if CAC is lower or higher than LTV. > When investors talk about growth, we’re talking about sustainable growth. No, you're not, because you continually fund companies that do the opposite. Salesforce, Webvan, Pets.com from the first boom. Instacart, Uber, Lyft, WeWork, HubSpot from the latest. > The period of cheap capital and billion dollar checks has ended. Same thing we heard in 2001 and 2007. > In this capital constrained market, buying scale is no longer going to be a credible lever for the next generation of startups. ... Companies can no longer look to money as a performance enhancing drug for scale-up. Until it is again. It wasn't OK to "buy scale" in 2001 or 2007, but it was in 1997-1999 and 2012-2014. And now in 2016, it's fallen out of fashion again. Either we're going to have a raging depression, or the bubble will inflate again. Hypothetically, both of those scenarios could actually happen--a depression followed by bubble inflation yet again. This is why I suggest that founders tune out the idiocy and focus on building a sustainable business. You probably won't build an Uber as quickly as Uber did. But you'll be hugely protected against the inevitable downfall, and won't find yourself cash-strapped and forced to switch gears quickly (notice Uber now singing the "we plan to be profitable in most U.S. cities this year" tune.) And, more importantly, you'll have built a life for yourself, your employees, and their families that are depending on you.

kelukelugames 10y ago
Great comment for a terrible post. When I saw the title I knew it was click bait.
danr4 10y ago
Thank you. I love it when I read an article, generally agree with it, feel like i'm wiser now, and then read the comments and someone like you shows me I automatically agreed with the author without thinking about it too much. Gotta work on my critical thinking. Any recommendations on what to read?

hodgesrm 10y ago

I don't fully understand the conclusion that "the period of cheap capital and billion dollar checks has ended." Uber won in a unique market place primed by underutilization of personal vehicles and widespread customer dissatisfaction with taxi services. There's even an argument that the so-called gig economy is mostly Uber and its competitors. [1] So yes, companies in less valuable markets are going to have a tough time getting funding as VCs pull back. But it does not follow that if you found an equally valuable market somewhere else you would not have access to funds to make it big. There's still a lot of money out there looking for good investments. I don't see a complete downturn as predetermined without some other externality at play. [1] http://blogs.wsj.com/economics/2016/03/28/the-entire-online-gig-economy-might-be-mostly-uber/ http://blogs.wsj.com/economics/2016/03/28/the-entire-online-...

kordless 10y ago

Uber won because a massive amount of stored trust (capital) was put into it while users were trusting it would do what it said it would do then, now and in the future. Being able to change the business model and not violate user trust, as most software does eventually unfortunately, is much tricker. Saying they "won" when the game is ongoing is illogical. Post this in 20 years when Uber is still a brand, the customers (and drivers) are still joyful (and the company isn't bringing them suffering) and then you can talk about success. Huge cash inflections into companies isn't helping user experience. In most cases, the game theory behind the huge cashouts causes user suffering. It's time to think differently.

siliconc0w 10y ago

Maybe I'm misunderstanding the author's point but I kinda disagree that Uber has created a 'network'. To me, it's more of a commodity service. My use of Uber doesn't really increase it's value for other users. At least compared to something like Facebook where network effects are obvious. I also think it's too early to call the game. They're doing well but again, with a commodity service, it doesn't take much to fall behind. I see the logical end game here as more of a marketplace where I can request a ride and anyone can bid for for the job.

the_mitsuhiko 10y ago
> I kinda disagree that Uber has created a 'network'. I agree with your disagreement. In particular because the network effect means that it's hard to go from facebook to somewhere else because the services are useless if your friends are not on it. Both drivers and customers of uber already use competing services.
- elmigranto 10y ago
  Well you kind of do contribute to Uber's value for others by using it and not other service, but not as significantly as with social networks. You use an app, drivers see there is a demand for it, more drivers, better service, you ever so slightly increased Uber's value against its rivals. This is true for every service, only the value of individual contribution differs: huge for facebook, pretty big for "real life" businesses (uber, airbnb), quite minor for "online only" (non-multiplayer videogames).
Dwolb 10y ago
Your use of Uber does increase value for other users. Every incremental user increases the probability that someone will need a ride at any given moment, allowing fewer drivers to profitably service an increasing geography. This means better service, on average, for the network. Another benefit is every incremental passenger increases the utilization of the current assets, spreading fixed asset costs around to more rides.
- 10y ago

msvan 10y ago

Is capital really getting more expensive? Aren't we still seeing truckloads of cheap cash still getting shepherded into private tech companies? It sounds to me like this investor would like to see a return to investments in profitable companies rather than aggressive investments in growth, because it was more fun for him when he had fewer competitors willing to throw money around. Is there any evidence that this trend is actually reversing as opposed to just being wishful thinking?

askyourmother 10y ago

Has uber won? When? Did the rest of the market get told? Given the fact they are still embroiled in legal wrangles worldwide, still throwing a billion dollars a year into a hole in China, had to recently settle a large case with their drivers, face competition from Lyft as their friendlier rival, from lady only driver firms to deal with rapey and gropey uber drivers, overall, sounds like a winner. Or does it?

tim333 10y ago
Indeed I'm not sure you can say Uber has won until they maintain market dominance without having to throw in more investor money. It's pretty hard to compete with them when they are subsidising fares but when they stop maybe less so.

etrautmann 10y ago

In SF the quality of Uber's service has dropped so dramatically in the past 3-4 months that I no longer use it anymore. It's completely commoditized and I have no qualms about switching to Lyft when they have a better product.

chambo622 10y ago
Curious what you mean by the quality of service dropping? I use both Lyft and Uber pretty regularly (multiple times a week) and have had only positive experiences in SF.
- etrautmann 10y ago
  It started out awesome but recently I've had: 1) I can't see estimated time but lots of cars around. I then book and it estimates > 12min wait time. If I cancel, it charges me $2 anyway because reasons. 2) a number of drivers cancel after 10 min of waiting - this happened 3x in a row a few weeks ago so I finally got a car after 40 min. ... Friends with similar experiences...

catplexion 10y ago

I wanted to know if I'm the only one who doesn't find these apps convenient. I'm in NYC and have been trying to use Uber and Lyft, but I keep finding that whenever I request a ride, the driver usually takes too long to get to me (e.g. gets lost and goes the wrong way), and in that time I see like 20+ taxis drive past. Why would I wait 5-10 minutes for an Uber/Lyft when I could, in the same amount of time, be closer to my destination by just hailing a regular taxi? Surely I'm not the only person experiencing this. I want to love Uber/Lyft, but so far my experience has just been one of hassle and inconvenience. I was motivated to try them out because of free credits, and I'm trying to use up my free rides before they expire, but it's just been too painful so far!

untog 10y ago
NYC is the exception to a lot of rules, this one included. And to be honest, as an NYC resident, I still disagree with you. If you're in central Manhattan you'll get a yellow cab very easily, but if you're anywhere outside of that area you will have a significantly more difficult time. Another advantage to me is the fact that my destination is programmed in - I've had to deal with a lot of yellow cab drivers who have absolutely no idea where they are going or the location I am talking about.
jastanton 10y ago
Biggest reasons for me: 1) Driver and I agree on a best route via mapping software, no more getting lost, miscommunications or malicious route designed to get more money out of me. 2) Payments are clear and fast. No more getting pressured and hounded for cash when I only cary my card. 3) It's always a clean nice car. No more duct tape over check engine lights. 4) I know if there is ever an issue I know it's going to get taken care of instantly by Ubers excellent staff. No more terrible customer service.
- ape4 10y ago
  Uber doesn't have any staff. They're all contractors, like the drivers.
  - 10y ago

freyr 10y ago

This article is built on the premise that Uber "won," but fails to define winning or back up this premise with facts. Does winning mean beating its competitors? In San Francisco, at least, this doesn't seem clear at all. Most people I meet -- both drivers and passengers -- prefer Lyft to Uber because they claim it has better technology, a better brand image, better treatment of employees (correction: drivers), and fewer instances of creepy and offensive behavior from its top management. Does winning mean expanding faster than its competitors? This rests on the VC assertion that Uber is playing in a winner-take-all space. The fact that they can't starve out the competition on their home turf challenges this assertion. Unless they can put up artificial barriers once they enter new markets, they might just be clearing the way for their competition. Or does winning mean transforming from a VC-fueled startup to a self-reliant profitable company? Once again, no facts in the article, but they did recently claim they'll be profitable in the U.S. in Q2 2016 (although losing $1B/year in China) [1]. But unless they can differentiate in terms of price or service (which, my experience, they've failed at), this isn't necessarily a sustained win. [1] http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/

karussell 10y ago
Yeah, I really think that the treatment of employees, drivers (they are no employees!), partners etc. will crucial for their success. And I see this only partially fulfilled.
ProblemFactory 10y ago
> This rests on the VC assertion that Uber is playing a winner-take-all game. They certainly seem to be playing a winner-take-all game, by heavily subsidising rides when they first launch in a new city. But it seems questionable to conclude that taxi services really are a winner-take-all market. Many Uber drivers I see have multiple phones, running multiple taxi apps at the same time. And most people I know have at least two apps in their phone. I usually check three (Uber, an European one, and a local one in my city) before making an order. There are some network effects to taxi services - customers want a car fast, and drivers want to find fares fast. But there are no switching costs for either side, so these network effects can be distributed over more than one platform.

idiot900 10y ago

Still remains to be seen what the long term costs are to be an Uber driver. They are probably not that favorable when considering depreciation, insurance, etc. Most likely there will be a slow exodus of drivers until the market reaches equilibrium and Uber et al are not so distinguishable from traditional taxis.

pbreit 10y ago

I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers. After hooking all the riders, UberX became much easier. Coupled with Uber's more aggressive practices.

cb18 10y ago
I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers. That's a very astute observation. Anyone have any ideas of other markets(or potential markets) where such an approach could be translated?

dataisfun 10y ago

I didn't see any comments mentioning self driving cars, which to me suggest a cleaving of uber's marketplace. If all cars were to suddenly become autonomous, uber could be easily bested because their liquidity has become beside the point.

deleted 10y ago

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ChuckMcM 10y ago

I wonder if the "easy money" period is over or just resetting. There still aren't very many ways to get "good" returns on cash at the moment.

jernfrost 10y ago

Great explanation of how Uber could get so big. I never really understood why Uber made it and nobody before, because the App itself does not seem like a revolutionary idea. There must have been apps like that around already and lost of people must have thought of it. I mean I certainly thought of this long before I heard of Uber. But the missing piece of the puzzle, which this article filled in was that it was never really about the app. It was about using money cleverly to get this thing going. Now Uber has first mover advantage. But I can see many potential problems for them. They have advantage in name recognition and momentum but I can't see much else advantage. The tech should be easy to replicate. So I think what will matter in the future is who manages to figure out the best way to use autonomous vehicles. In this regard I'd rather place my bets on Tesla. If they as they hinted get into doing Uber like stuff in the future with autonomous cars, they have a clear advantage as they got advantages in more fields than Uber which can enhance this particular business. By controlling the cars, they are pulling in more data than anybody else on autonomous driving at the moment. They are already beating the master data collector Google, collecting more data then they do in a year on autonomous driving.

phamilton 10y ago

An interesting parallel is baseball. The Yankees are infamous for using money as a tool, buying up as much talent as they could. In recent years, the Dodgers have outspent everybody, but in an absolutely different way. 25% of the Dodgers payroll goes to players not playing for the Dodgers. Often, it's going to players playing against the Dodgers. Many commentators have described this in similar terms. They use their deep pockets a s a weapon. Instead of giving their players huge salaries, they on multiple occasions have found teams struggling with expensive contracts for underperforming players. They negotiate to take the player (and the bad contract) and then require some talented youngsters to be thrown in on the deal. They then trade away the underperforming player to another team, subsidizing the contract substantially, and keep the talented prospects. While some of these trades didn't pan out well, it was a pretty unique way to use deep pockets as a weapon.

qihqi 10y ago
I almost thought that they pay opposing players to not play with full strength when reading the first sentences. Glad you clarified.
forgetsusername 10y ago
>An interesting parallel is baseball. It's funny you choose baseball as the sporting example, as it's without a salary cap. If you look at hockey and basketball, this has been a strategy for a long time because teams have to remain below the salary cap. As such, bad contracts are traded around all the time to make room for payroll. Stars sometimes change teams for essentially nothing but cap space. I guess it interesting that a baseball team is doing it in a world where there are no spending caps.
- phamilton 10y ago
  Trading for cap space isn't using deep pockets as a weapon. It's just balancing the books. When a team like the Marlins has a payroll of $80M and the Dodgers are at $300M, there's a much more predatory effect at play.
- askldfhjkasfhd 10y ago

studentrob 10y ago

Is Uber about to go public? I'll believe it has won once we see some more numbers. I am baffled how they operate here in Taiwan. Uber has been declared illegal here. Drivers and passenger are issued fines when caught. Uber fully compensates them. Now the laws are more strict; if a driver is caught 3 times, his license is revoked. Yet there are still 5 cars within 5 minutes of me at any time of day. I don't understand how that works at all. It does not seem to be a good way to get into the good graces of a country. I wonder how many places Uber operates illegally and pays fines, and how analysts use this to calculate the future value of the company. Do they assume Uber will one day be made legal in all these places? That would boost the valuation but I'm not sure it's accurate.

Bombthecat 10y ago
They want you to use the app and get the brand out there. They don't care about fines because the end game is driverless cars.they will later on replace all the drivers .
- devanti 10y ago
  They'll run out of liquidity long before driverless cars go mainstream. There are huge legal and logistical hurdles to face.

amelius 10y ago

Uber is a simple service, for which competition is natural, in theory. If in practice this turns out to be different, then this is a failure of capitalism, and somebody ought to do something about it.

dc2 10y ago

Am I the only one who was slightly ticked off by this guy's writing style? It was riddled with terms like "arb", clearly written for self-satisfaction. If my life was wrapped around the VC universe, I probably would not care to read this article, and yet for anyone who isn't so familiar, you need to interrupt the reading several times if you want to understand what he is talking about. The conclusion of the article, hinted at the beginning, seems to run abrupt without fully explaining itself.

shalmanese 10y ago

I think the more interesting story isn't how Uber won but how Lyft lost. Sidecar was actually first out of the gate with a ridesharing product but Lyft wasn't far behind and soon clearly dominated the space with their ingenious pink mustaches. Sidecar suffered from a classic first mover's disadvantage in that they were overly concerned with regulatory risk which made them too timid. Sidecar's opinion was that the mustache overstepped the bounds between employer/independant contractor and that the CPUC would slap down Lyft and put them out of business (similarly, the bid model that Sidecar used was driven by similar concerns despite the noticeably poorer user experience). I've never seen a product achieve such ferocious product/market fit as Lyft did. During its first year, it was extremely common for there to be hours at a time when drivers were immediately snatched up as soon as they ended their last ride and passengers would wait for half an hour at a time, eagle eyed staring at the screen to snatch up a car. The level of inconvenience that people were prepared to put up with just to use Lyft's product spoke to just how much of a radical upgrade in user experience ridesharing provided and a hint as to the explosive growth that was to come. Lyft was in the enviable position that they held a near monopoly in this space for almost 18 months as Uber tried to reconfigure itself and I remember hearing Travis speak about how the cheaper Uber would be Uber and being skeptical that he could ever overcome such a huge first mover advantage. In the face of all of this, Lyft could have made the "standard" startup decision of prioritizing growth above all else and taking whatever compromises were necessary to service that growth. Instead, Lyft took an alternate path in which they placed driver quality as a longer term priority. I remember during even the most insane supply/demand mismatches, Lyft was still rejecting some 50%+ of driver applicants for not being "Lyft material". I think against almost any other competitor, Lyft could have made the same choices that it made and come out ahead but Uber's raw ability to execute is something that, regardless of what you think of their ethics or culture, has to be admired. Uber is one of those extraordinary companies that prizes execution ability culturally in the same way that Apple prizes design. Lyft should have rolled out into other cities faster, Lyft should have gone international, Lyft should have dropped its prices more aggressively and taken the hit on driver quality. All of those are recoverable errors unless you're facing up against someone like Uber who rolled out an aggressive expansion plan and then relentlessly executed against it with the wheels barely falling off. This is all easy to see with the benefit of hindsight but I remember living through that time, with friends at all 3 companies and watching them grope towards an uncertain future while doing the best they could.

1024core 10y ago

I am traveling right now in India, and Uber is a huge boon: no more haggling, no hassles, no arguing: just call up Uber and go. I've been making it a point to ask the drivers what they think about Uber. The interesting part is, when Uber first came to town, they would offer a flat fee: Rupees 60,000/month, as long as the driver kept the app open 10 hours/day, and didn't refuse rides. So many drivers signed up, that many of them spent the entire day just hanging around, giving 2-3 rides/day. So Uber outspent the competition heavily, taking huge losses. But now, with the glut of drivers in Uber, their payment has gone down significantly: they pay based on the number of rides a driver makes. For example, for 17 rides, Uber pays about Rs 3000. The problem is: most rides are < Rs 100, so Uber is still offering rides at a loss. So, the answer to the question "why Uber won" is: by spending lavishly.

known 10y ago

Why Torrent Won