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I've always been a little confused about uber's capital needs. When I first heard about uber, the part I thought was super-clever was that you wouldn't _need_

I've always been a little confused about uber's capital needs. When I first heard about uber, the part I thought was super-clever was that you wouldn't _need_ lots of capital because all the drivers would have their own cars. Leveraging the latent capital of one side of the two-sided market was the genius of it. (Airbnb too) Same for the staffing -- hook up both sides of the market. No need to pay anyone out of your pocket -- in fact, probably there'd be some float for you there. Sure, maybe you have to subsidize one side at first, but not forever. So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)? Is there a moonlander (driverless car) in the works? Are the G&A costs off the charts? How could that be, give that the software does the connecting? Is the software _that_ hard to write? I mean, it's good, but it ain't rocket science. (I'm not sure rocket science is even rocket science anymore.) If I'm right that all the cash is still going to make the fares cheap to encourage up-take, it seems to me like Lyft (or another/any fast follower) is in a fantastic position. Let uber burn the capital to sell the idea to consumers, and then step in when it stumbles and walk away with the glory and gold. Place your bets.

cylinder 10y ago
Exactly. They are burning cash to gain market share and will lose that share as soon as they stop. Not many barriers to these apps. Uber is going to implode.
- ng12 10y ago
  Here's the thing -- ride sharing is the least interesting thing about Uber. Uber's expertise is on-demand logistics which is a totally new field at this scale. Ride sharing just happened to be an easy first step. Once they're able to move things around in real-time at a global scale the opportunities are massive.
  - CPLX 10y ago
    People say this a lot, so I am not picking on you, but I don't get this argument at all. Amazon does it, so does Lasership and Seamless and Fedex and WalMart and a million other variations. I don't see any real reason Uber is more adept at adjacent non-core market verticals than any other top tier entrant.
    - mikeash 10y ago
      Don't forget Domino's. They and others in their business had this whole thing with drivers using their own cars for short notice transportation jobs decades ago.
      - sjg007 10y ago
        It's like uber for pizza.
        adgulacti 10y ago
        more like uber is domino's for people
        codecamper 10y ago
        Maybe domino's could carry passengers one way. Order a pizza. Get a pizza & a passenger too!
    - macspoofing 10y ago
      That's a great point. To add to it, as Uber grows, it'll take on weight and inertia and become as rigid, bloated and inflexible as other successful Fortune 500 companies. They'll have departments, and department heads who want good quarterly numbers and will not want to rock the boat too much. They'll have shareholders who'll want a good return and not expensive moonshots. And I mean that all in a good way. There's nothing wrong with that. WalMart didn't miss out by not building a search engine 10 years ago. It's not what they know.
  - wsinks 10y ago
    This is a great point. UberEATS and UberCats and put our stuff anywhere with an API? I'm starting to see the platform in action.
  - dharmon 10y ago
    This is the oft-repeated argument in favor of Uber ("they're a logistics company!"), and to be honest, it's quite hand-wavey. Why is the expertise they have built up in car-hailing directly applicable to other logistics problems, and what advantage will they have going in that creates a barrier to entry for newcomers? I think there is one answer to this for Uber, and its the same strategy Amazon stumbled into: have your "main" business be breakeven, but provide the scale needed for a pure profit business. In Amazon's case, the main business is retail and the profit center is AWS. In Uber's case, this would look like individual ride-taking customers providing the demand to keep a critical mass of drivers on the road. This business is breakeven at best, likely slightly money-losing (sorry folks, but an increases in ride costs will quickly stamp out demand to pre-Uber days). Then, with this "infrastructure" of drivers on the road, they can leverage it into nearly pure profit areas like last-mile delivery. There's a huge catch, though. Amazon just has to buy new machines every 3-5 years. Uber's driver turnover is much much higher, and is absolutely killing them. All the claims of profitability are deceptive, because they assume current demand with current set of drivers; those statements do not factor in driver recruitment costs next month, or tomorrow. Unfortunately this appears on the surface to be a structural problem. Current pay with driver-owned vehicles is probably not a long-term or full-time possibility for most candidate drivers. Edit: to save a step, the predictable response to my objection is always, "but... self-driving cars!"
    - cylinder 10y ago
      Yep. Uber Eats is a joke, horrible experiences with that, it just seems like a joke they're running almost.
    - bduerst 10y ago
      Yep. The reason that's the next predictable response is because Uber is holding off for self-driving cars, so it can become the logistics network for delivery. That doesn't mean that they will, of course. I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.
      - toomuchtodo 10y ago
  - jsemrau 10y ago
    Good point. However, it is a huge operational risk to rely on on-demand hires for logistics. In addition, ride-sharing works because humans are moved with a given market price given by the taxi network. In logistics you compete not only against UPS and FedEx but with Amazon as well. And *mostly free shipping is hard to get cheaper.
    - aetherson 10y ago
      Also, you know, Amazon are not idiots. They aren't like, "Hey, you know what would be fun? Being bent over a barrel on last-mile shipping so that our profits can go to justify Uber's insane stock price." Amazon is investigating Uber-like delivery options [1]. If they decide that there's anything there (and I'm not totally convinced that there is), they'll build the service themselves and not pay Uber for the privilege. And if the service works well for themselves, you can bet they'll open it up to other people to use for a price, as they have for all of their internal infrastructure projects. [1] Source for this claim: I worked at Flywheel, an Uber competitor. Amazon had a program to have our drivers deliver packages, and got fairly close to acquiring us, before deciding they would rather not. This was a few years ago at this point, information is not current, and I have no idea about the present state of Flywheel, as I do not work there any more.
  - macspoofing 10y ago
    >ride sharing is the least interesting thing about Uber That's the only interesting thing about Uber. Sure they have delusions of grandeur and they certainly have no qualms about putting out glossy marketing material extolling how they will change humanity, but today they are a taxi company.
    - ng12 10y ago
      That's the whole point of investing -- you're betting money on the fact that they can make their "delusions" a reality.
  - dreamdu5t 10y ago
    That's what they tell everyone when people start questioning the fundamentals. It's what they told me two years ago when I interviewed there. Linking drivers with riders is not a complex problem. It doesn't even require machine learning. It doesn't require ongoing research. The whole dispatch infrastructure is mostly node and redis running predetermined matching algorithms.
  - roel_v 10y ago
    "on-demand logistics which is a totally new field at this scale" I've heard this argument before, but how can this be taken seriously? Take DHL, or UPS - they do orders of magnitude more (in transactions) than Uber does, and I know it's not exactly the same, but I'd even argue that any parcel service is a lot more complicated than Uber. Hell, even the tiny postal service of my country ships the same amount of packages each day as Uber has rides. The tech side of Uber is (dare I say it!) trivial (well the 'ride sharing' part, not the AV research side). It's the regulatory and plain business model angles that must be costing them.
  - brohee 10y ago
    The scale at which Uber operate is laughably small compared to real logistic companies like Maersk...
- hyperbovine 10y ago
  > Not many barriers to these apps. Two words: network effect. More drivers means more users. More users attracts more drivers. This is precisely why we have eBay and Craigslist despite them both offering, by modern standards, objectively terrible user experiences. Suffice it to say I am extremely bullish on Uber, Airbnb, etc. sticking around for a whole.
  - rasz_pl 10y ago
    Except taxis also experience network effect. There is no central 'hail a taxi' telephone number(at least in my part of the world, might be different in NY), every company has its own numbers, own dispatch, and own rates. They all compete with each other, and while some bigger companies might ride on the too lazy dont care just come and pick me up tail of the market, majority still chooses their ride based on the rate and previous experience (nice driver, clean car, speed). In Europe small scale transportation is as competitive as cellphone market. Hmm now I am beginning to see the problem, in US you might not understand what a competitive cellphone carrier market looks like in the first place? :) Here you can transfer numbers freely between carriers, there are usually 3-5 providers to pick from and they all compete fiercely on price, level and quality of service. Changing companies is not a mayor ordeal, merely an ~hour of work to optimize your phone bill.
    - hyperbovine 10y ago
      I didn't say I was from the US. The average EU state is the size of Illinois and has maybe three or four population centers. It's no wonder that there are many regional carriers competing within each country. God help you once you start crossing borders though--evidently there isn't fierce competition on price, or the EU wouldn't have stepped in and capped roaming rates!
    - jcranmer 10y ago
      The US has 4 major cellular carriers--AT&T, Sprint, T-Mobile, and Verizon. Most of the EU has just three carriers.
enahs-sf 10y ago
I think fare subsidy plays a large role, but I think it's both driver and customer acquisition across every market in the world. It's gotta be very expensive for them to recruit people to become drivers.
downandout 10y ago
I believe that your assumption of insane driver subsidies is indeed the reason they are sucking down so much money. That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars. The only strategy I can see with the absurd amounts they are raising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them - much like Standard Oil did. In today's world though, I'm not sure that such a strategy can work. It will be interesting to see what happens. Perhaps there is a chance of success. But if Uber were a public company, personally I'd be shorting every share that I could.
- taxicabjesus 10y ago
  > The only strategy I can see with the absurd amounts of fundraising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them The taxi company I drove for has contracts with many government agencies to transport poor & unfortunate people around. People have to get to their doctor (Arizona Medicaid) appointments, to the hospital, home from the hospital, foster kids transported to meetings with their parents, etc. These fares pay better than Uber's non-surge fares. /methinks "ride share" companies are run by founders suffering from delusions of grandeur. When they run out of venture capital, the realities of transporting people from place to place will reassert themselves.
  - Thriptic 10y ago
    I've heard that Uber is going after those contracts as well.
- martinald 10y ago
  But Standard Oil literally bought the refineries, railroad, long term contracts on crude. That would be like Uber buying every road and every manufacturer. I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport. The markets with the best scale (esp outside of US) have good public transit. People aren't going to go from paying a £10 uber to a £30 black taxi in London, they'll go back to getting the tube or the bus home after a night out.
takeda 10y ago
They need lower prices to subsidize costs and exterminate the competition, then the prices will go up.
pbreit 10y ago
In a steady state, the basic business is extremely capital efficient. Pedal-to-the-metal-all-out-global-land-grab stage benefits from lots of capital.
intrasight 10y ago
They hired away almost half of CMUs robotics department. That's gotta be expensive. They are building (in the city no less) an autonomous driving test track/facility. That's also gotta be expensive. Human drivers are just a brief stepping-stone.
- assface 10y ago
  I can't go into details, but it wasn't that much. The public number for "buying" CMU's NREC is $5.5 million. http://www.nytimes.com/2015/09/13/magazine/uber-would-like-to-buy-your-robotics-department.html http://www.nytimes.com/2015/09/13/magazine/uber-would-like-t...
  - alttab 10y ago
    As least we know there was an assface on the inside. Edit: username?
  - jayjay71 10y ago
    That $5.5 million was a gift to Carnegie Mellon, I believe mostly for public relations. It does not include salaries, bonuses, or operating costs for Uber's Advanced Technology Center. The real cost was/is much higher than that.
- aetherson 10y ago
  Just to be clear: If you spend $1B on actual physical vehicles or whatever (let's say... 500 $2M vehicles), then if you have 200 employees with an average pay of say $500k per year, then you could pay them all for a decade with another $1B, meaning that you'd have spent less than 1/6th of the funding they've taken to date, or still have $1.5B left of the Saudi Royal Family's hard earned money. More briefly: no, obviously they are not spending their money on an autonomous driving program.
ryanfreeborn 10y ago
I can't imagine the incessant legal and legislative battles they are fighting are coming cheap. That means hiring legal and policy people, paying a ton of money to outside counsel, lobbying expenses, the hidden costs of building influence. And it's at a huge, because most of this isn't happening at the federal level (yet)—it's all state and city—which means they don't have the luxury of concentrating on the familiar, well-tread (and very insular) game of DC politics. Instead Uber has to have boots on the ground in a ton of places, and they have to have people knowledgable on the nuances of regional politics and culture. Things like the dynamics of a state's house vs senate, country executives, the port authority, taxi unions, legal systems, initiative systems, local elections, Chambers of Commerce. The list really does go on and on. It's a huge and complex footprint to manage.
- cmurf 10y ago
  Yeah I think that's probably true but as a private company we don't know how significant these costs are. I think it's questionable to have a business plan predicated on suing your way out of being considered a taxi when in pretty much every way that matters, except one, it's a taxi (or limo, or a hybrid) service. And that one exception is that it has a decent Ux in large part due the Uber app and its backend infra (which is huge).
- MicroBerto 10y ago
  Like spending $8 MILLION in Austin just so they could upset the citizens and lose what should have been an easy battle....
advertising 10y ago
I would imagine it's to put out the first driverless fleet. How else could this valuation be justified.
ValentineC 10y ago
> So where's all this cash going? In Singapore, Uber owns and operates a car rental subsidiary that has singlehandedly driven up the total cost of owning a car. [1] I suspect that this has been the case in some other cities that Uber operates in as well. [1] http://www.straitstimes.com/singapore/transport/uber-bids-continue-to-prop-up-car-coe-prices http://www.straitstimes.com/singapore/transport/uber-bids-co...
- eru 10y ago
  That's an interesting development. Of course, that's how the Certificate of Entitlement system in Singapore is supposed to work: the island's infrastructure can support only so many cars on the road, and they have decided that this shared resources be rationed out by willingness to pay---so that the most economically efficient users get to drive the cars. Of course, if they are more economically efficient per-car because they drive these cars more, the separate congestion charging might have to go up. Still a net win for the economy of Singapore---since they will be using the national share of capital sunken into the cost of cars more efficiently. (I am talking about the cost the economy of Singapore has to pay as a whole to import a car. That's net of taxes and CoE which are just transfers within Singapore.) I hope the government can stay non-populist, and not give in to shortsighted special interests.
Spooky23 10y ago
Über has enchanted the tech people. It's this golden goose that every conversation turns to. Listen to the Ben Thompson podcast -- if he was reacting to an article about ham sandwiches, he would tie it to Uber. There's no reality here. No magic self driving electric taxis, no robot delivering your takeout. 18-24 months this thing will be like Groupon (remember they were magically saving writers by hiring thousands of them to copywrite Yoga Studio coupons) -- the insiders cash out, and the dumb money takes a bath. That said, I thank the Saudis for subsidizing my next black car ride. God knows I've shipped $100k for gas to them over the last two decades.
- tracker1 10y ago
  For those curious... 100k / 20 / 365 = $13/day, at $3/gallon (est) = 4.56 gallons * 20mpg (low gas milage) = 91 miles/day, or closer to 30mpg would be around 135miles/day, which I guess is possible. I was just thinking it seemed like a lot. Now, a fair amount of that is varying levels of taxes... but it's still significant amount. I'm currently doing about 40 miles/day commute for work, and know people who are driving a lot farther than I am... while I was married, I'd drive about 140 miles to/from home on the weekends, staying in the city during the week, put many miles on my car and truck back then.
  - lazaroclapp 10y ago
    You are not counting consumption of plastics, electricity generated by oil, combustible used by construction vehicles building the roads and buildings he uses, etc. But even by that sort of accounting, $100K sounds like it was intended to be hyperbolic ;)
  - blablablame 10y ago
    Or have 2 cars (or god forbid, more if your kids drive) and include a few thousand mile trips here and there and it isn't very hard to get there.
- codecamper 10y ago
  Saudis benefit from our 2 mid eastern wars. Total cost of wars? According to Brown U. just the Iraq war is 4.4 trillion. http://watson.brown.edu/costsofwar/ http://watson.brown.edu/costsofwar/ That's a cost of $15,000 per person in the US.
vonklaus 10y ago
my thought for the last couple years has been they are an information arbitrage/market maker probably similar to AMZN. I also have to imagine they are working on a self driving car. On top of engineering spend they are basically at war with every single place they move into and refuse to go public. They can't continue to be just ride sharing when self-driving cars come out, so they need to capture that market (or some market) another way
- eru 10y ago
  > On top of engineering spend they are basically at war with every single place they move into [...] You mean with every single jurisdiction they move into? (Customers and drivers seem reasonably happy. At least they are not at war.)
  - vonklaus 10y ago
    Correct, city, state and to some extent federal law. As well as various international companies and the international regional equivalents
discardorama 10y ago
> So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)? I was in India recently. The driver said that when Uber started out, they'd give each driver Rs. 60K/mo (about $1000/mo) just to sign in for 10 hours/day, even if they did not give a single ride. Now, Uber pays by the number of rides and not a portion of the actual fares. So, for example, he said that Uber pays them Rs. 3500 for 17 rides. Most of my rides were about Rs 100 each; so Uber was taking a loss on each ride. But their system of paying by the ride is a genius idea: it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare. Now its in their interest to get the ride over with as quickly as possible, so they take the most direct route. Edit: Sorry, "Rs" is the Indian currency, Rupee. There's about 65 Rupees to the USD.
- zatkin 10y ago
  What does "Rs." mean?
  - TaylorSwift 10y ago
    Rupees, the Indian Rupee. Currency.
  - deleted 10y ago
    [deleted]
  - deleted 10y ago
    [deleted]
  - riyadparvez 10y ago
    Rupees, Indian currency. BTW, that is a lot of money.
- klackerz 10y ago
  What happens when there is a surge? There is also Pay by Cash option for Uber now to in India. Who gets the money at these times. Uber also offers bonuses if they complete a set amount of rides per day. There was a problem recently due to this when a driver fall asleep and the passenger had to drive the car. [0] I have also experienced Uber drivers asking for a new ride to somewhere nearby using the Cash option after I completed a ride just so that they can increase the number of completed trips. [0] http://thelogicalindian.com/story-feed/awareness/watchread-uber-driver-falls-asleep-while-driving-passenger-drives-the-car/ http://thelogicalindian.com/story-feed/awareness/watchread-u...
jaxondu 10y ago
Maybe Uber needs much more cash to fend off the alliance of Lyft (US) + Didi (China) + Ola (India) + Grab (SEA). Grab in Singapore just announced that you can now use the Grab app to book Lyft drive when in US.
- dafrankenstein2 10y ago
  apparently clever initiative from Uber+Lyft
tn13 10y ago
Lobbying is my primary guess. They are disrupting one of the most heavily regulated markets where government is protecting special interest groups. I would not even have bet any money that Uber could have taken off the ground. But they have done well.
mathattack 10y ago
Without knowing any inside info, my impression is there are large fixed costs entering a market. Once the double sided market is built there is a large cash flow, but it takes effort in each new city. Additionally if they are doing R and D beyond this (autonomous cars, universal delivery service, whatever) then they need lots of cash.
bogomipz 10y ago
I've had the same though about their initial business plan leveraging latent capital and also can't understand the need for all of this funding but I tend to think that it is in fact being used to keep fares artificially low for the time being. Back in January I believe of this year they dropped fares ~ 15%. There's not many business that can sustain that type of cut overnight. So my guess the cash is needed to sustain them until most of the existing monopolies(local taxi) are out of business. The other reason I see is China. I've heard estimates that and seen probably at least one story here on HN about Uber spending 1 Billions a year to try to compete in China and it's largely not working. So the question is how sustainable is this valuation? It's too big for anyone to step in and acquire at this point at least in terms of its current model - cars with drivers, since the long term future is likely driverless cars.
codecamper 10y ago
Folks... How many years was Amazon not profitable? And what is that stock worth?
- GrinningFool 10y ago
  On the other hand, Amazon continued to improve operating margins and expand offerings which led them to profitability. Every indication is that Uber is selling rides cheaper than they cost - and the things they can do to reduce cost also disincentivize their drivers. Secondarily, Amazon was public for years - which means they were required to become profitable. Uber doesn't yet have that pressure in place- and a new round of cash delays that requirement even further.

cylinder 10y ago

Exactly. They are burning cash to gain market share and will lose that share as soon as they stop. Not many barriers to these apps. Uber is going to implode.

ng12 10y ago
Here's the thing -- ride sharing is the least interesting thing about Uber. Uber's expertise is on-demand logistics which is a totally new field at this scale. Ride sharing just happened to be an easy first step. Once they're able to move things around in real-time at a global scale the opportunities are massive.
- CPLX 10y ago
  People say this a lot, so I am not picking on you, but I don't get this argument at all. Amazon does it, so does Lasership and Seamless and Fedex and WalMart and a million other variations. I don't see any real reason Uber is more adept at adjacent non-core market verticals than any other top tier entrant.
  - mikeash 10y ago
    Don't forget Domino's. They and others in their business had this whole thing with drivers using their own cars for short notice transportation jobs decades ago.
    - sjg007 10y ago
      It's like uber for pizza.
      - adgulacti 10y ago
        more like uber is domino's for people
        codecamper 10y ago
        Maybe domino's could carry passengers one way. Order a pizza. Get a pizza & a passenger too!
  - macspoofing 10y ago
    That's a great point. To add to it, as Uber grows, it'll take on weight and inertia and become as rigid, bloated and inflexible as other successful Fortune 500 companies. They'll have departments, and department heads who want good quarterly numbers and will not want to rock the boat too much. They'll have shareholders who'll want a good return and not expensive moonshots. And I mean that all in a good way. There's nothing wrong with that. WalMart didn't miss out by not building a search engine 10 years ago. It's not what they know.
- wsinks 10y ago
  This is a great point. UberEATS and UberCats and put our stuff anywhere with an API? I'm starting to see the platform in action.
- dharmon 10y ago
  This is the oft-repeated argument in favor of Uber ("they're a logistics company!"), and to be honest, it's quite hand-wavey. Why is the expertise they have built up in car-hailing directly applicable to other logistics problems, and what advantage will they have going in that creates a barrier to entry for newcomers? I think there is one answer to this for Uber, and its the same strategy Amazon stumbled into: have your "main" business be breakeven, but provide the scale needed for a pure profit business. In Amazon's case, the main business is retail and the profit center is AWS. In Uber's case, this would look like individual ride-taking customers providing the demand to keep a critical mass of drivers on the road. This business is breakeven at best, likely slightly money-losing (sorry folks, but an increases in ride costs will quickly stamp out demand to pre-Uber days). Then, with this "infrastructure" of drivers on the road, they can leverage it into nearly pure profit areas like last-mile delivery. There's a huge catch, though. Amazon just has to buy new machines every 3-5 years. Uber's driver turnover is much much higher, and is absolutely killing them. All the claims of profitability are deceptive, because they assume current demand with current set of drivers; those statements do not factor in driver recruitment costs next month, or tomorrow. Unfortunately this appears on the surface to be a structural problem. Current pay with driver-owned vehicles is probably not a long-term or full-time possibility for most candidate drivers. Edit: to save a step, the predictable response to my objection is always, "but... self-driving cars!"
  - cylinder 10y ago
    Yep. Uber Eats is a joke, horrible experiences with that, it just seems like a joke they're running almost.
  - bduerst 10y ago
    Yep. The reason that's the next predictable response is because Uber is holding off for self-driving cars, so it can become the logistics network for delivery. That doesn't mean that they will, of course. I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.
    - toomuchtodo 10y ago
- jsemrau 10y ago
  Good point. However, it is a huge operational risk to rely on on-demand hires for logistics. In addition, ride-sharing works because humans are moved with a given market price given by the taxi network. In logistics you compete not only against UPS and FedEx but with Amazon as well. And *mostly free shipping is hard to get cheaper.
  - aetherson 10y ago
    Also, you know, Amazon are not idiots. They aren't like, "Hey, you know what would be fun? Being bent over a barrel on last-mile shipping so that our profits can go to justify Uber's insane stock price." Amazon is investigating Uber-like delivery options [1]. If they decide that there's anything there (and I'm not totally convinced that there is), they'll build the service themselves and not pay Uber for the privilege. And if the service works well for themselves, you can bet they'll open it up to other people to use for a price, as they have for all of their internal infrastructure projects. [1] Source for this claim: I worked at Flywheel, an Uber competitor. Amazon had a program to have our drivers deliver packages, and got fairly close to acquiring us, before deciding they would rather not. This was a few years ago at this point, information is not current, and I have no idea about the present state of Flywheel, as I do not work there any more.
- macspoofing 10y ago
  >ride sharing is the least interesting thing about Uber That's the only interesting thing about Uber. Sure they have delusions of grandeur and they certainly have no qualms about putting out glossy marketing material extolling how they will change humanity, but today they are a taxi company.
  - ng12 10y ago
    That's the whole point of investing -- you're betting money on the fact that they can make their "delusions" a reality.
- dreamdu5t 10y ago
  That's what they tell everyone when people start questioning the fundamentals. It's what they told me two years ago when I interviewed there. Linking drivers with riders is not a complex problem. It doesn't even require machine learning. It doesn't require ongoing research. The whole dispatch infrastructure is mostly node and redis running predetermined matching algorithms.
- roel_v 10y ago
  "on-demand logistics which is a totally new field at this scale" I've heard this argument before, but how can this be taken seriously? Take DHL, or UPS - they do orders of magnitude more (in transactions) than Uber does, and I know it's not exactly the same, but I'd even argue that any parcel service is a lot more complicated than Uber. Hell, even the tiny postal service of my country ships the same amount of packages each day as Uber has rides. The tech side of Uber is (dare I say it!) trivial (well the 'ride sharing' part, not the AV research side). It's the regulatory and plain business model angles that must be costing them.
- brohee 10y ago
  The scale at which Uber operate is laughably small compared to real logistic companies like Maersk...
hyperbovine 10y ago
> Not many barriers to these apps. Two words: network effect. More drivers means more users. More users attracts more drivers. This is precisely why we have eBay and Craigslist despite them both offering, by modern standards, objectively terrible user experiences. Suffice it to say I am extremely bullish on Uber, Airbnb, etc. sticking around for a whole.
- rasz_pl 10y ago
  Except taxis also experience network effect. There is no central 'hail a taxi' telephone number(at least in my part of the world, might be different in NY), every company has its own numbers, own dispatch, and own rates. They all compete with each other, and while some bigger companies might ride on the too lazy dont care just come and pick me up tail of the market, majority still chooses their ride based on the rate and previous experience (nice driver, clean car, speed). In Europe small scale transportation is as competitive as cellphone market. Hmm now I am beginning to see the problem, in US you might not understand what a competitive cellphone carrier market looks like in the first place? :) Here you can transfer numbers freely between carriers, there are usually 3-5 providers to pick from and they all compete fiercely on price, level and quality of service. Changing companies is not a mayor ordeal, merely an ~hour of work to optimize your phone bill.
  - hyperbovine 10y ago
    I didn't say I was from the US. The average EU state is the size of Illinois and has maybe three or four population centers. It's no wonder that there are many regional carriers competing within each country. God help you once you start crossing borders though--evidently there isn't fierce competition on price, or the EU wouldn't have stepped in and capped roaming rates!
  - jcranmer 10y ago
    The US has 4 major cellular carriers--AT&T, Sprint, T-Mobile, and Verizon. Most of the EU has just three carriers.

enahs-sf 10y ago

I think fare subsidy plays a large role, but I think it's both driver and customer acquisition across every market in the world. It's gotta be very expensive for them to recruit people to become drivers.

downandout 10y ago

I believe that your assumption of insane driver subsidies is indeed the reason they are sucking down so much money. That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars. The only strategy I can see with the absurd amounts they are raising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them - much like Standard Oil did. In today's world though, I'm not sure that such a strategy can work. It will be interesting to see what happens. Perhaps there is a chance of success. But if Uber were a public company, personally I'd be shorting every share that I could.

taxicabjesus 10y ago
> The only strategy I can see with the absurd amounts of fundraising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them The taxi company I drove for has contracts with many government agencies to transport poor & unfortunate people around. People have to get to their doctor (Arizona Medicaid) appointments, to the hospital, home from the hospital, foster kids transported to meetings with their parents, etc. These fares pay better than Uber's non-surge fares. /methinks "ride share" companies are run by founders suffering from delusions of grandeur. When they run out of venture capital, the realities of transporting people from place to place will reassert themselves.
- Thriptic 10y ago
  I've heard that Uber is going after those contracts as well.
martinald 10y ago
But Standard Oil literally bought the refineries, railroad, long term contracts on crude. That would be like Uber buying every road and every manufacturer. I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport. The markets with the best scale (esp outside of US) have good public transit. People aren't going to go from paying a £10 uber to a £30 black taxi in London, they'll go back to getting the tube or the bus home after a night out.

takeda 10y ago

They need lower prices to subsidize costs and exterminate the competition, then the prices will go up.

pbreit 10y ago

In a steady state, the basic business is extremely capital efficient. Pedal-to-the-metal-all-out-global-land-grab stage benefits from lots of capital.

intrasight 10y ago

They hired away almost half of CMUs robotics department. That's gotta be expensive. They are building (in the city no less) an autonomous driving test track/facility. That's also gotta be expensive. Human drivers are just a brief stepping-stone.

assface 10y ago
I can't go into details, but it wasn't that much. The public number for "buying" CMU's NREC is $5.5 million. http://www.nytimes.com/2015/09/13/magazine/uber-would-like-to-buy-your-robotics-department.html http://www.nytimes.com/2015/09/13/magazine/uber-would-like-t...
- alttab 10y ago
  As least we know there was an assface on the inside. Edit: username?
- jayjay71 10y ago
  That $5.5 million was a gift to Carnegie Mellon, I believe mostly for public relations. It does not include salaries, bonuses, or operating costs for Uber's Advanced Technology Center. The real cost was/is much higher than that.
aetherson 10y ago
Just to be clear: If you spend $1B on actual physical vehicles or whatever (let's say... 500 $2M vehicles), then if you have 200 employees with an average pay of say $500k per year, then you could pay them all for a decade with another $1B, meaning that you'd have spent less than 1/6th of the funding they've taken to date, or still have $1.5B left of the Saudi Royal Family's hard earned money. More briefly: no, obviously they are not spending their money on an autonomous driving program.

ryanfreeborn 10y ago

I can't imagine the incessant legal and legislative battles they are fighting are coming cheap. That means hiring legal and policy people, paying a ton of money to outside counsel, lobbying expenses, the hidden costs of building influence. And it's at a huge, because most of this isn't happening at the federal level (yet)—it's all state and city—which means they don't have the luxury of concentrating on the familiar, well-tread (and very insular) game of DC politics. Instead Uber has to have boots on the ground in a ton of places, and they have to have people knowledgable on the nuances of regional politics and culture. Things like the dynamics of a state's house vs senate, country executives, the port authority, taxi unions, legal systems, initiative systems, local elections, Chambers of Commerce. The list really does go on and on. It's a huge and complex footprint to manage.

cmurf 10y ago
Yeah I think that's probably true but as a private company we don't know how significant these costs are. I think it's questionable to have a business plan predicated on suing your way out of being considered a taxi when in pretty much every way that matters, except one, it's a taxi (or limo, or a hybrid) service. And that one exception is that it has a decent Ux in large part due the Uber app and its backend infra (which is huge).
MicroBerto 10y ago
Like spending $8 MILLION in Austin just so they could upset the citizens and lose what should have been an easy battle....

advertising 10y ago

I would imagine it's to put out the first driverless fleet. How else could this valuation be justified.

ValentineC 10y ago

> So where's all this cash going? In Singapore, Uber owns and operates a car rental subsidiary that has singlehandedly driven up the total cost of owning a car. [1] I suspect that this has been the case in some other cities that Uber operates in as well. [1] http://www.straitstimes.com/singapore/transport/uber-bids-continue-to-prop-up-car-coe-prices http://www.straitstimes.com/singapore/transport/uber-bids-co...

eru 10y ago
That's an interesting development. Of course, that's how the Certificate of Entitlement system in Singapore is supposed to work: the island's infrastructure can support only so many cars on the road, and they have decided that this shared resources be rationed out by willingness to pay---so that the most economically efficient users get to drive the cars. Of course, if they are more economically efficient per-car because they drive these cars more, the separate congestion charging might have to go up. Still a net win for the economy of Singapore---since they will be using the national share of capital sunken into the cost of cars more efficiently. (I am talking about the cost the economy of Singapore has to pay as a whole to import a car. That's net of taxes and CoE which are just transfers within Singapore.) I hope the government can stay non-populist, and not give in to shortsighted special interests.

Spooky23 10y ago

Über has enchanted the tech people. It's this golden goose that every conversation turns to. Listen to the Ben Thompson podcast -- if he was reacting to an article about ham sandwiches, he would tie it to Uber. There's no reality here. No magic self driving electric taxis, no robot delivering your takeout. 18-24 months this thing will be like Groupon (remember they were magically saving writers by hiring thousands of them to copywrite Yoga Studio coupons) -- the insiders cash out, and the dumb money takes a bath. That said, I thank the Saudis for subsidizing my next black car ride. God knows I've shipped $100k for gas to them over the last two decades.

tracker1 10y ago
For those curious... 100k / 20 / 365 = $13/day, at $3/gallon (est) = 4.56 gallons * 20mpg (low gas milage) = 91 miles/day, or closer to 30mpg would be around 135miles/day, which I guess is possible. I was just thinking it seemed like a lot. Now, a fair amount of that is varying levels of taxes... but it's still significant amount. I'm currently doing about 40 miles/day commute for work, and know people who are driving a lot farther than I am... while I was married, I'd drive about 140 miles to/from home on the weekends, staying in the city during the week, put many miles on my car and truck back then.
- lazaroclapp 10y ago
  You are not counting consumption of plastics, electricity generated by oil, combustible used by construction vehicles building the roads and buildings he uses, etc. But even by that sort of accounting, $100K sounds like it was intended to be hyperbolic ;)
- blablablame 10y ago
  Or have 2 cars (or god forbid, more if your kids drive) and include a few thousand mile trips here and there and it isn't very hard to get there.
codecamper 10y ago
Saudis benefit from our 2 mid eastern wars. Total cost of wars? According to Brown U. just the Iraq war is 4.4 trillion. http://watson.brown.edu/costsofwar/ http://watson.brown.edu/costsofwar/ That's a cost of $15,000 per person in the US.

vonklaus 10y ago

my thought for the last couple years has been they are an information arbitrage/market maker probably similar to AMZN. I also have to imagine they are working on a self driving car. On top of engineering spend they are basically at war with every single place they move into and refuse to go public. They can't continue to be just ride sharing when self-driving cars come out, so they need to capture that market (or some market) another way

eru 10y ago
> On top of engineering spend they are basically at war with every single place they move into [...] You mean with every single jurisdiction they move into? (Customers and drivers seem reasonably happy. At least they are not at war.)
- vonklaus 10y ago
  Correct, city, state and to some extent federal law. As well as various international companies and the international regional equivalents

discardorama 10y ago

> So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)? I was in India recently. The driver said that when Uber started out, they'd give each driver Rs. 60K/mo (about $1000/mo) just to sign in for 10 hours/day, even if they did not give a single ride. Now, Uber pays by the number of rides and not a portion of the actual fares. So, for example, he said that Uber pays them Rs. 3500 for 17 rides. Most of my rides were about Rs 100 each; so Uber was taking a loss on each ride. But their system of paying by the ride is a genius idea: it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare. Now its in their interest to get the ride over with as quickly as possible, so they take the most direct route. Edit: Sorry, "Rs" is the Indian currency, Rupee. There's about 65 Rupees to the USD.

zatkin 10y ago
What does "Rs." mean?
- TaylorSwift 10y ago
  Rupees, the Indian Rupee. Currency.
- deleted 10y ago
  [deleted]
- deleted 10y ago
  [deleted]
- riyadparvez 10y ago
  Rupees, Indian currency. BTW, that is a lot of money.
klackerz 10y ago
What happens when there is a surge? There is also Pay by Cash option for Uber now to in India. Who gets the money at these times. Uber also offers bonuses if they complete a set amount of rides per day. There was a problem recently due to this when a driver fall asleep and the passenger had to drive the car. [0] I have also experienced Uber drivers asking for a new ride to somewhere nearby using the Cash option after I completed a ride just so that they can increase the number of completed trips. [0] http://thelogicalindian.com/story-feed/awareness/watchread-uber-driver-falls-asleep-while-driving-passenger-drives-the-car/ http://thelogicalindian.com/story-feed/awareness/watchread-u...

jaxondu 10y ago

Maybe Uber needs much more cash to fend off the alliance of Lyft (US) + Didi (China) + Ola (India) + Grab (SEA). Grab in Singapore just announced that you can now use the Grab app to book Lyft drive when in US.

dafrankenstein2 10y ago
apparently clever initiative from Uber+Lyft

tn13 10y ago

Lobbying is my primary guess. They are disrupting one of the most heavily regulated markets where government is protecting special interest groups. I would not even have bet any money that Uber could have taken off the ground. But they have done well.

mathattack 10y ago

Without knowing any inside info, my impression is there are large fixed costs entering a market. Once the double sided market is built there is a large cash flow, but it takes effort in each new city. Additionally if they are doing R and D beyond this (autonomous cars, universal delivery service, whatever) then they need lots of cash.

bogomipz 10y ago

I've had the same though about their initial business plan leveraging latent capital and also can't understand the need for all of this funding but I tend to think that it is in fact being used to keep fares artificially low for the time being. Back in January I believe of this year they dropped fares ~ 15%. There's not many business that can sustain that type of cut overnight. So my guess the cash is needed to sustain them until most of the existing monopolies(local taxi) are out of business. The other reason I see is China. I've heard estimates that and seen probably at least one story here on HN about Uber spending 1 Billions a year to try to compete in China and it's largely not working. So the question is how sustainable is this valuation? It's too big for anyone to step in and acquire at this point at least in terms of its current model - cars with drivers, since the long term future is likely driverless cars.

codecamper 10y ago

Folks... How many years was Amazon not profitable? And what is that stock worth?

GrinningFool 10y ago
On the other hand, Amazon continued to improve operating margins and expand offerings which led them to profitability. Every indication is that Uber is selling rides cheaper than they cost - and the things they can do to reduce cost also disincentivize their drivers. Secondarily, Amazon was public for years - which means they were required to become profitable. Uber doesn't yet have that pressure in place- and a new round of cash delays that requirement even further.