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This could be a dumb question, but is there anything stopping a large startup like Uber from being more generous with the cut its drivers get? How is it more fe

This could be a dumb question, but is there anything stopping a large startup like Uber from being more generous with the cut its drivers get? How is it more feasible for a small company to do this?

meira 10y ago
I don't know, but they expend billions of VC dollars subsiding rides to get market share. Maybe they could change strategy and expend the same money lowering their share in the rides. Probably the first strategy worked better for them until now.
- Amygaz 10y ago
  They certainly could have had the same success or even better, by taking a 10% vs 25% from the get go. I think it has more to do with the Uber management's vision of what that platform is. This has never been a platform to empower drivers or to right inefficiencies in the transportation business. It has always been a platform to exploit inefficiencies in the system.
Bartweiss 10y ago
Some numbers: Uber charges riders $0.18 per minute and $1 per mile. They take a 20% cut (plus the whole of the $1 base-fare). Drivers estimate that they spend 20% of what remains on tax and vehicle costs. That's not an enormous margin, but it's large. Uber is still expanding rapidly in driver count, in geographic range, and in product range. That takes quite a bit of money, especially the geographic range - Uber runs pretty vigorous ad and lobbying campaigns to influence regulators and oppose taxi agencies. Fasten is a startup whose entire business model is "Uber but better for drivers". They advertise to consumers that they take a smaller cut, and hope to attract more drivers with their better rates. My guess is that Uber will crush or acquire them after dropping prices (or raising driver share) in the relevant markets. So I think the answer is: Uber could do this, but it would slow their growth. Once they're an entrenched player in most markets, I would expect to see driver share (and possibly rates) rise a bit to maintain supply, but right now they're funneling everything they can into expansion. (And, I'm sure, panting at the thought of using self-driving cars to turn that 80% into profit.)
- learc83 10y ago
  20% of what remains on tax and vehicle costs? FICA alone for a self employed person is 15% (although it's a bit lower in effect b/c of deductions). Add in state and federal income tax, fuel, maintenance, and vehicle depreciation, and you're talking way more than 20%.
  - Bartweiss 10y ago
    Yeah... I was honestly confused by those numbers, but I'm citing self-report by Uber drivers (there are a lot of forums online discussing these issues). They reported 10% on tax and 10% on fuel/maintenance. If you live somewhere with cheap gas, and don't count depreciation, then that 10% is plausible (obviously depreciation matters, but I think they didn't count it). The 10% on tax is odd. Possibly it's about the self-employment premium (i.e. "How much of my earnings do I lose for driving Uber instead of working McDonalds?") Or possibly it's after EITC and other balancing factors - if Uber driving is your only career you aren't likely to be in a high tax bracket.
    - dmoy 10y ago
      Or perhaps they aren't paying their taxes correctly....
    - learc83 10y ago
      It's possible they really are paying 10% of their total paycheck in taxes after the EITC, but only if they are making very little money and have children. The other possibility that I didn't think of is that it's 10% of their total paycheck because they spend half of their paycheck on deductible expenses, but that doesn't mesh with the 10% expenses section. I think the most likely explanation is that the drivers you're talking about are underestimating taxes due. They have to pay themselves since there's no withholding, and it usually takes years before underpaying taxes catches up with you. And yeah vehicle depreciation is a big expense. It's probably more than 1/3 of total pay if a driver is actually making a small enough income to have a 10% tax rate. I've heard many Uber drivers who say they are making almost nothing after expenses including vehicle depreciation.
morgante 10y ago
This is the rub. What really surprises me is that people simultaneously claim Uber cannot possibly be profitable while lambasting it for taking too much of a cut. Which one is it? Either they're being greedy with excessive margins or dangerously dependent on venture capital to sustain an unprofitable business model.
- jdmichal 10y ago
  First, false dichotomy. There is the possibility that they are taking too large a cut, and not charging enough to be profitable. But I don't think that's what the issue is. I think that there's two perspectives here. One, Uber is a match-making service, and charging 20% to make an automated match on a server... That could seem excessive. However, once you tack on things like boarding, marketing, development, legal fees, etc., it's possible that 20% isn't enough.
  - morgante 10y ago
    > There is the possibility that they are taking too large a cut, and not charging enough to be profitable. How? How can their margin be too high and simultaneously not enough to be profitable? The only other alternative is that you think consumers should pay higher prices. You present two perspectives, but only one can be correct: either it takes 20% to support the service, or it doesn't.
    - meira 10y ago
      Well, if customers paid 20% more, both Uber and drivers woould get more. And they would lose appeal compared to táxi, só Uber prefers to earn less and forces drivers to do the same in the fate of market share lol.
      - morgante 10y ago
        If Uber charged more than taxis, demand would drop substantially and Uber drivers would be out of a job. Nobody is forcing them to work for Uber.

This could be a dumb question, but is there anything stopping a large startup like Uber from being more generous with the cut its drivers get? How is it more feasible for a small company to do this?

meira 10y ago

I don't know, but they expend billions of VC dollars subsiding rides to get market share. Maybe they could change strategy and expend the same money lowering their share in the rides. Probably the first strategy worked better for them until now.

Amygaz 10y ago
They certainly could have had the same success or even better, by taking a 10% vs 25% from the get go. I think it has more to do with the Uber management's vision of what that platform is. This has never been a platform to empower drivers or to right inefficiencies in the transportation business. It has always been a platform to exploit inefficiencies in the system.

Bartweiss 10y ago

Some numbers: Uber charges riders $0.18 per minute and $1 per mile. They take a 20% cut (plus the whole of the $1 base-fare). Drivers estimate that they spend 20% of what remains on tax and vehicle costs. That's not an enormous margin, but it's large. Uber is still expanding rapidly in driver count, in geographic range, and in product range. That takes quite a bit of money, especially the geographic range - Uber runs pretty vigorous ad and lobbying campaigns to influence regulators and oppose taxi agencies. Fasten is a startup whose entire business model is "Uber but better for drivers". They advertise to consumers that they take a smaller cut, and hope to attract more drivers with their better rates. My guess is that Uber will crush or acquire them after dropping prices (or raising driver share) in the relevant markets. So I think the answer is: Uber could do this, but it would slow their growth. Once they're an entrenched player in most markets, I would expect to see driver share (and possibly rates) rise a bit to maintain supply, but right now they're funneling everything they can into expansion. (And, I'm sure, panting at the thought of using self-driving cars to turn that 80% into profit.)

learc83 10y ago
20% of what remains on tax and vehicle costs? FICA alone for a self employed person is 15% (although it's a bit lower in effect b/c of deductions). Add in state and federal income tax, fuel, maintenance, and vehicle depreciation, and you're talking way more than 20%.
- Bartweiss 10y ago
  Yeah... I was honestly confused by those numbers, but I'm citing self-report by Uber drivers (there are a lot of forums online discussing these issues). They reported 10% on tax and 10% on fuel/maintenance. If you live somewhere with cheap gas, and don't count depreciation, then that 10% is plausible (obviously depreciation matters, but I think they didn't count it). The 10% on tax is odd. Possibly it's about the self-employment premium (i.e. "How much of my earnings do I lose for driving Uber instead of working McDonalds?") Or possibly it's after EITC and other balancing factors - if Uber driving is your only career you aren't likely to be in a high tax bracket.
  - dmoy 10y ago
    Or perhaps they aren't paying their taxes correctly....
  - learc83 10y ago
    It's possible they really are paying 10% of their total paycheck in taxes after the EITC, but only if they are making very little money and have children. The other possibility that I didn't think of is that it's 10% of their total paycheck because they spend half of their paycheck on deductible expenses, but that doesn't mesh with the 10% expenses section. I think the most likely explanation is that the drivers you're talking about are underestimating taxes due. They have to pay themselves since there's no withholding, and it usually takes years before underpaying taxes catches up with you. And yeah vehicle depreciation is a big expense. It's probably more than 1/3 of total pay if a driver is actually making a small enough income to have a 10% tax rate. I've heard many Uber drivers who say they are making almost nothing after expenses including vehicle depreciation.

morgante 10y ago

This is the rub. What really surprises me is that people simultaneously claim Uber cannot possibly be profitable while lambasting it for taking too much of a cut. Which one is it? Either they're being greedy with excessive margins or dangerously dependent on venture capital to sustain an unprofitable business model.

jdmichal 10y ago
First, false dichotomy. There is the possibility that they are taking too large a cut, and not charging enough to be profitable. But I don't think that's what the issue is. I think that there's two perspectives here. One, Uber is a match-making service, and charging 20% to make an automated match on a server... That could seem excessive. However, once you tack on things like boarding, marketing, development, legal fees, etc., it's possible that 20% isn't enough.
- morgante 10y ago
  > There is the possibility that they are taking too large a cut, and not charging enough to be profitable. How? How can their margin be too high and simultaneously not enough to be profitable? The only other alternative is that you think consumers should pay higher prices. You present two perspectives, but only one can be correct: either it takes 20% to support the service, or it doesn't.
  - meira 10y ago
    Well, if customers paid 20% more, both Uber and drivers woould get more. And they would lose appeal compared to táxi, só Uber prefers to earn less and forces drivers to do the same in the fate of market share lol.
    - morgante 10y ago
      If Uber charged more than taxis, demand would drop substantially and Uber drivers would be out of a job. Nobody is forcing them to work for Uber.