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What shocks me about both Lyft and Uber's enormous burn rates are that they suggest the companies are heavily subsidizing their drivers. This subsidy is in part

What shocks me about both Lyft and Uber's enormous burn rates are that they suggest the companies are heavily subsidizing their drivers. This subsidy is in part to spur penetration in new markets (as all marketplace apps must do), but also suggests that they have reason to believe customers will simply not pay a rate that makes the business profitable. Assuming the latter is the case, i'm not sure if they have reason to believe this will change over time. Instead, it feels like the human drivers are really just plays to keep the company growing until hypothetical fleets of automated driving cars. In theory, such a fleet would deliver massive profits, but those fleets will be enormously expensive to assemble. Even when they are assembled each company should expect tumultuous legal battles in many areas. When i try to make all the monkey math work, it doesn't seem to add up. Maybe i'm not enough of a gambling man, but i really don't understand how the venture market still supports business models like these.

stormbrew 10y ago
I think the play is more or less to strangle the higher priced and over-regulated patchwork taxi industries and build a more uniform national/international regulatory framework that's more amenable to these kinds of businesses. At that point prices will probably rise, and (they hope, and I think they're right) customers will see value in the better product that keeps them in.
- _Codemonkeyism 10y ago
  You've picked my interest, how would lowering regulation increase customer prices?
  - stormbrew 10y ago
    I am not saying prices would rise in direct consequence to a reduction in regulation. The premise is that they are pricing below market right now, and probably also for a more open market. This is an expense to them designed to create the open market they want. Once they have it, they'll have little reason to underprice anymore. You need drivers to run this kind of business (for now), and they will create an upward pressure on cost (to a point) as they move between legitimate services based on who actually pays them a living.
  - argonaut 10y ago
    In the abstract, breaking up monopolies is the canonical example.
    - _Codemonkeyism 10y ago
      Breaking up monopolies raises prices? You've lost me :-)
      - argonaut 10y ago
        Less regulation = not breaking up a monopoly = higher prices.
      - stormbrew 10y ago
        I think the GP is talking about breaking up 'natural' monopolies, rather than government monopolies. Note: Just to skip a potential semantic argument that always crops up around this: whether or not you believe it's appropriate to call it a monopoly if it's not enforced by government fiat is beside the point.
  - dredmorbius 10y ago
    s/picked/piqued/
- femto 10y ago
  Or they are looking forward to the introduction of self-driving cars? Rather than waiting for self-driving cars to actually arrive, by which time the horse will have bolted, they are trying to lock the customer base in now at a high cost, banking on the money lasting until self-driving cars arrive. Once self-driving cars arrive, costs fall, competitors are locked out, and they make a big profit.
  - stormbrew 10y ago
    I just don't think that'll come soon enough for the amount of money and resources they're pumping into it. But obviously this is part of the long play, at least and especially for Uber.
- ForHackernews 10y ago
  > customers will see value in the better product that keeps them in. How is Uber a "better product" than a taxi? As far as I can tell, it's competing on price, and that's it. If cabs were the same price as Uber, I would take a taxi every time.
  - nordsieck 10y ago
    If you live in one of the few places where you can expect to be able to hail a taxi, you're probably right. If you have to call for a taxi, Uber is infinity times more reliable.
  - marcoperaza 10y ago
    Are you kidding? Have you ever tried to get a cab outside of Manhattan? It's painful even in the downtown core of major cities. And if you live in the suburbs, you have to call like two hours ahead and there's always a good chance they don't show up. In my experience with Uber, drivers are more courteous, billing is more honest, their cars smell better, and bad drivers are held accountable.
    - kuschku 10y ago
      Yes, I've called taxis several times in a tiny (280k) city in Germany - they're there faster than the police would come if you'd call 911, they're reliable, clean, and you can pay via app before the ride. I really don't get what's so good about uber, they're just like taxis, but worse quality, and bending the law.
      - collyw 10y ago
        Thats the thing, taxi quality varies a lot depending where you go. In Barcelona they are reasonably priced and reliable. Istanbul non seemed to have a clue where they were going and didn't bother when you showed them on the phone map. London are pricey and snobby about what they will let you carry in their cab.
        10y ago
jsprogrammer 10y ago
Why not an arms race to burn through the other side's cash, thus gaining monopoly status for a time?
- novocaine 10y ago
  This is the simplest, most conventional business explanation and what their MBAs would be thinking. They won't have many particular incumbent advantages if / when self driving cars arrive; all their carefully tuned business model, investment and product is about how to handle human drivers.
  - usrusr 10y ago
    So true. The closest we have now to self-driving taxis is car sharing, not taxis. Everybody I know is either on no car sharing network at all (the overwhelming majority) or on all available of them at the same time, picking case by case whichever network has the closest car available. In absence of monthly charges coupled with long contact periods, network lock-in only happens with horizontal, bidirectional peer to peer networks (e.g. facebook or traditional eBay), not in a vendor/buyer model. People who happily ordered from Amazon rarely stop considering other stores, hence artificial lock-in attempts like prime. What could give Uber/Lyft an advantage in the robotaxi age would be huge amounts of cash for the enormous investments required to blanket whole cities with cars to locally reach the critical mass of "a robotaxi is always closer than my own car would be", but I don't see how luring users with subsidized prices now would in any way help with that then.
niftich 10y ago
They are absolutely excited about the time when self-driving cars will be actually here. But the real play here is to use taxi service as a pretext/generator for building up an on-demand courier service [1] with superior returns -- and performance that vastly dwarfs any incumbents. [1] https://rush.uber.com/how-it-works https://rush.uber.com/how-it-works EDIT: after the introduction of courier services, picking up passengers serves as a baseline load [2] (to borrow from electricity distribution terminology) to keep drivers incentivized to be on the roads, but the real prize will be the courier tasks. [2] https://en.wikipedia.org/wiki/Base_load_power_plant https://en.wikipedia.org/wiki/Base_load_power_plant
- jahnu 10y ago
  I'm probably in the minority here but I'm not convinced we are particularly close to real self-driving cars. It's definitely possible but I strongly suspect there are more challenges ahead than most people believe.
  - kalleboo 10y ago
    Especially for the city, rain and night-time driving situations where Uber will find itself a lot of the time
  - oblio 10y ago
    And even if we do get self-driving cars, people forget that there will be an FDA clinic trial like process before they are allowed on the roads, which will take years. Multiply that by the number of states/countries where you want to operate and by the level of bureaucracy in each country. I'd say that from the day the tech actually works properly (which might be many years away, still), it will take at least 10 years for its availability across the globe, if not more.
    - foota 10y ago
      Yeah, just like how rigorously Tesla's auto pilot has been vetted?
argonaut 10y ago
Uber claims to be profitable in the US already, and it's their massive competition with Didi in China where they're burning cash ($1B/year). http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/
- arachnids 10y ago
  "not including “interest, taxes, and equity-based compensation for employees", so in terms of whether the company will survive / current employees will ever see payday, I don't think that means anything.
  - argonaut 10y ago
    Where did you get that quote? It's not in the article.
    - patd 10y ago
      http://uk.businessinsider.com/uber-says-its-profitable-in-the-us-2016-4 http://uk.businessinsider.com/uber-says-its-profitable-in-th...
graeham 10y ago
Reminds me a bit of Groupon etc - its easy to get revenue when you're selling dimes for dollars. Fixed costs are presumably low, so it can't be scale that would lead to profitability. Utilisation rates? I've not heard a lot on if rates could come down to compensate for more passenger-miles. But of course a fair bit of the cost must be tied to passenger-miles. Intentional avoidance of profit by acquiring or R&D? I suppose this could be the play for self-driving cars in the future. As you say, automated cars seem to be the easiest way to drop the passenger-mile cost. But I don't know if automated cars will be a winner-takes-all market, at least globally and in a way that would lead to monopoly-like profitability.
- georgeecollins 10y ago
  Exactly - saying it is profitable in the US, minus interest and stock, is another way of saying it is not profitable just cash flow neutral in some markets. Like Groupon it is a business for sure, and probably a big one. But it may be overvalued. And there is this assumption that when self driving cars come they will not be disrupted. But why not?
- dredmorbius 10y ago
  Selling dollars for dimes, no?
petra 10y ago
Why is it whenever we're discussing UBER/Lyft, everybody forgets the shared rides model(2+ passengers per car)? a model that has pretty strong network effects once achieved, and that may be a decent alternative to the private car, even without self-driving.
hyperdeficit 10y ago
I don't understand why anybody thinks that Uber and Lyft will be the ones to capitalize on a fleet of automated cars. Once auto manufacturers have solved the arguably harder problem of creating automated vehicles, why wouldn't they then just run the fleet of cars themselves? Especially if there is as much profit in it as people assume. Even if they didn't run the fleets themselves, it seems like they already have a great infrastructure through their dealership networks to allow the dealerships to run their own fleet of vehicles. That even helps solve one of the obvious challenges of how to build out the infrastructure to manage the fleet in each city. So if Uber is building their long term business plan on the idea that once automated cars exist they will buy them in bulk, build the infrastructure to maintain them in each city they operate in, and reap the profits then I am pessimistic on their model.
- serg_chernata 10y ago
  This! I think that's why Lyft has also partnered with GM, if I'm correct. I bet they saw this from the same angle and wanted to get as close as possible to the actual manufacturer of vehicles.
  - antisthenes 10y ago
    It's not a bad exit strategy. Align yourself with a manufacturer, let them integrate your tech with the cars coming straight off the production line, get acquired when ready. Wouldn't be surprised if that's exactly the way it happens. Lyft OnStar.
leoedin 10y ago
In the UK Uber has to compete under the same regulatory framework as all other pre-booked cars for hire. Their prices are perhaps marginally lower than the existing car services (of which there are many), and their convenience (when they're actually available) is considerably higher. So, at least here, it's pretty obvious to me that they do have a viable business model. There's thousands of hire-car drivers and mini-cab companies already making profit in the space. All Uber is doing is making the process of getting a hire car to pick you up significantly more convenient.
cloudjacker 10y ago
Lots of valid rational replies here but yes lyft, uber and the crowd can be wrong financially.
TheCoelacanth 10y ago
They do at least claim to be profitable in the US[0]. So if that is to be believed, a good portion of customers are willing to pay a sustainable rate. Whether the same applies in the other markets where they are heavily subsidizing drivers remains to be seen. [0] http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/

stormbrew 10y ago

I think the play is more or less to strangle the higher priced and over-regulated patchwork taxi industries and build a more uniform national/international regulatory framework that's more amenable to these kinds of businesses. At that point prices will probably rise, and (they hope, and I think they're right) customers will see value in the better product that keeps them in.

_Codemonkeyism 10y ago
You've picked my interest, how would lowering regulation increase customer prices?
- stormbrew 10y ago
  I am not saying prices would rise in direct consequence to a reduction in regulation. The premise is that they are pricing below market right now, and probably also for a more open market. This is an expense to them designed to create the open market they want. Once they have it, they'll have little reason to underprice anymore. You need drivers to run this kind of business (for now), and they will create an upward pressure on cost (to a point) as they move between legitimate services based on who actually pays them a living.
- argonaut 10y ago
  In the abstract, breaking up monopolies is the canonical example.
  - _Codemonkeyism 10y ago
    Breaking up monopolies raises prices? You've lost me :-)
    - argonaut 10y ago
      Less regulation = not breaking up a monopoly = higher prices.
    - stormbrew 10y ago
      I think the GP is talking about breaking up 'natural' monopolies, rather than government monopolies. Note: Just to skip a potential semantic argument that always crops up around this: whether or not you believe it's appropriate to call it a monopoly if it's not enforced by government fiat is beside the point.
- dredmorbius 10y ago
  s/picked/piqued/
femto 10y ago
Or they are looking forward to the introduction of self-driving cars? Rather than waiting for self-driving cars to actually arrive, by which time the horse will have bolted, they are trying to lock the customer base in now at a high cost, banking on the money lasting until self-driving cars arrive. Once self-driving cars arrive, costs fall, competitors are locked out, and they make a big profit.
- stormbrew 10y ago
  I just don't think that'll come soon enough for the amount of money and resources they're pumping into it. But obviously this is part of the long play, at least and especially for Uber.
ForHackernews 10y ago
> customers will see value in the better product that keeps them in. How is Uber a "better product" than a taxi? As far as I can tell, it's competing on price, and that's it. If cabs were the same price as Uber, I would take a taxi every time.
- nordsieck 10y ago
  If you live in one of the few places where you can expect to be able to hail a taxi, you're probably right. If you have to call for a taxi, Uber is infinity times more reliable.
- marcoperaza 10y ago
  Are you kidding? Have you ever tried to get a cab outside of Manhattan? It's painful even in the downtown core of major cities. And if you live in the suburbs, you have to call like two hours ahead and there's always a good chance they don't show up. In my experience with Uber, drivers are more courteous, billing is more honest, their cars smell better, and bad drivers are held accountable.
  - kuschku 10y ago
    Yes, I've called taxis several times in a tiny (280k) city in Germany - they're there faster than the police would come if you'd call 911, they're reliable, clean, and you can pay via app before the ride. I really don't get what's so good about uber, they're just like taxis, but worse quality, and bending the law.
    - collyw 10y ago
      Thats the thing, taxi quality varies a lot depending where you go. In Barcelona they are reasonably priced and reliable. Istanbul non seemed to have a clue where they were going and didn't bother when you showed them on the phone map. London are pricey and snobby about what they will let you carry in their cab.
      - 10y ago

jsprogrammer 10y ago

Why not an arms race to burn through the other side's cash, thus gaining monopoly status for a time?

novocaine 10y ago
This is the simplest, most conventional business explanation and what their MBAs would be thinking. They won't have many particular incumbent advantages if / when self driving cars arrive; all their carefully tuned business model, investment and product is about how to handle human drivers.
- usrusr 10y ago
  So true. The closest we have now to self-driving taxis is car sharing, not taxis. Everybody I know is either on no car sharing network at all (the overwhelming majority) or on all available of them at the same time, picking case by case whichever network has the closest car available. In absence of monthly charges coupled with long contact periods, network lock-in only happens with horizontal, bidirectional peer to peer networks (e.g. facebook or traditional eBay), not in a vendor/buyer model. People who happily ordered from Amazon rarely stop considering other stores, hence artificial lock-in attempts like prime. What could give Uber/Lyft an advantage in the robotaxi age would be huge amounts of cash for the enormous investments required to blanket whole cities with cars to locally reach the critical mass of "a robotaxi is always closer than my own car would be", but I don't see how luring users with subsidized prices now would in any way help with that then.

niftich 10y ago

They are absolutely excited about the time when self-driving cars will be actually here. But the real play here is to use taxi service as a pretext/generator for building up an on-demand courier service [1] with superior returns -- and performance that vastly dwarfs any incumbents. [1] https://rush.uber.com/how-it-works https://rush.uber.com/how-it-works EDIT: after the introduction of courier services, picking up passengers serves as a baseline load [2] (to borrow from electricity distribution terminology) to keep drivers incentivized to be on the roads, but the real prize will be the courier tasks. [2] https://en.wikipedia.org/wiki/Base_load_power_plant https://en.wikipedia.org/wiki/Base_load_power_plant

jahnu 10y ago
I'm probably in the minority here but I'm not convinced we are particularly close to real self-driving cars. It's definitely possible but I strongly suspect there are more challenges ahead than most people believe.
- kalleboo 10y ago
  Especially for the city, rain and night-time driving situations where Uber will find itself a lot of the time
- oblio 10y ago
  And even if we do get self-driving cars, people forget that there will be an FDA clinic trial like process before they are allowed on the roads, which will take years. Multiply that by the number of states/countries where you want to operate and by the level of bureaucracy in each country. I'd say that from the day the tech actually works properly (which might be many years away, still), it will take at least 10 years for its availability across the globe, if not more.
  - foota 10y ago
    Yeah, just like how rigorously Tesla's auto pilot has been vetted?

argonaut 10y ago

Uber claims to be profitable in the US already, and it's their massive competition with Didi in China where they're burning cash ($1B/year). http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/

arachnids 10y ago
"not including “interest, taxes, and equity-based compensation for employees", so in terms of whether the company will survive / current employees will ever see payday, I don't think that means anything.
- argonaut 10y ago
  Where did you get that quote? It's not in the article.
  - patd 10y ago
    http://uk.businessinsider.com/uber-says-its-profitable-in-the-us-2016-4 http://uk.businessinsider.com/uber-says-its-profitable-in-th...

graeham 10y ago

Reminds me a bit of Groupon etc - its easy to get revenue when you're selling dimes for dollars. Fixed costs are presumably low, so it can't be scale that would lead to profitability. Utilisation rates? I've not heard a lot on if rates could come down to compensate for more passenger-miles. But of course a fair bit of the cost must be tied to passenger-miles. Intentional avoidance of profit by acquiring or R&D? I suppose this could be the play for self-driving cars in the future. As you say, automated cars seem to be the easiest way to drop the passenger-mile cost. But I don't know if automated cars will be a winner-takes-all market, at least globally and in a way that would lead to monopoly-like profitability.

georgeecollins 10y ago
Exactly - saying it is profitable in the US, minus interest and stock, is another way of saying it is not profitable just cash flow neutral in some markets. Like Groupon it is a business for sure, and probably a big one. But it may be overvalued. And there is this assumption that when self driving cars come they will not be disrupted. But why not?
dredmorbius 10y ago
Selling dollars for dimes, no?

petra 10y ago

Why is it whenever we're discussing UBER/Lyft, everybody forgets the shared rides model(2+ passengers per car)? a model that has pretty strong network effects once achieved, and that may be a decent alternative to the private car, even without self-driving.

hyperdeficit 10y ago

I don't understand why anybody thinks that Uber and Lyft will be the ones to capitalize on a fleet of automated cars. Once auto manufacturers have solved the arguably harder problem of creating automated vehicles, why wouldn't they then just run the fleet of cars themselves? Especially if there is as much profit in it as people assume. Even if they didn't run the fleets themselves, it seems like they already have a great infrastructure through their dealership networks to allow the dealerships to run their own fleet of vehicles. That even helps solve one of the obvious challenges of how to build out the infrastructure to manage the fleet in each city. So if Uber is building their long term business plan on the idea that once automated cars exist they will buy them in bulk, build the infrastructure to maintain them in each city they operate in, and reap the profits then I am pessimistic on their model.

serg_chernata 10y ago
This! I think that's why Lyft has also partnered with GM, if I'm correct. I bet they saw this from the same angle and wanted to get as close as possible to the actual manufacturer of vehicles.
- antisthenes 10y ago
  It's not a bad exit strategy. Align yourself with a manufacturer, let them integrate your tech with the cars coming straight off the production line, get acquired when ready. Wouldn't be surprised if that's exactly the way it happens. Lyft OnStar.

leoedin 10y ago

In the UK Uber has to compete under the same regulatory framework as all other pre-booked cars for hire. Their prices are perhaps marginally lower than the existing car services (of which there are many), and their convenience (when they're actually available) is considerably higher. So, at least here, it's pretty obvious to me that they do have a viable business model. There's thousands of hire-car drivers and mini-cab companies already making profit in the space. All Uber is doing is making the process of getting a hire car to pick you up significantly more convenient.

cloudjacker 10y ago

Lots of valid rational replies here but yes lyft, uber and the crowd can be wrong financially.

TheCoelacanth 10y ago

They do at least claim to be profitable in the US[0]. So if that is to be believed, a good portion of customers are willing to pay a sustainable rate. Whether the same applies in the other markets where they are heavily subsidizing drivers remains to be seen. [0] http://fortune.com/2016/02/18/uber-profitable-us/ http://fortune.com/2016/02/18/uber-profitable-us/