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For a company with practically zero expenses, losing $1.27 billion in 6 months astounding. Charge a client whatever the driver is willing to work for, plus a sm

For a company with practically zero expenses, losing $1.27 billion in 6 months astounding. Charge a client whatever the driver is willing to work for, plus a small overhead ... what's to lose money on?

leothekim 10y ago
It's a Fabian strategy to establish market dominance. Uber is spending like crazy to expand for market share. On the surface at least, they are similar to how Amazon was operating in its early days - investing in itself early to expand and not expecting to generate a profit for many years.
- sharemywin 10y ago
  the problem is most of amazons profits are in cloud services. moving something from point a to b is expensive and hard to get economy of scale.
  - wastedhours 10y ago
    Part of the argument is the Uber is building product infrastructure of their own - Amazon built AWS as part of their everyday working, Uber could roll out delivery, autonomous tech or even their financial services as separate strands once they've reached pervasiveness.
    - SyneRyder 10y ago
      Indeed, Uber already has their UberEATS program where they offer home delivered food from restaurants that don't yet have their own delivery service. So they're already experimenting with providing delivery & mobile payment processing services.
      - Guyag 10y ago
        I'd be interested to see how UberEATS turns out. Deliveroo has had a year on them, and at least where I am I think the latter is still the favourite.
        wastedhours 10y ago
        Yep - much bigger fan of Deliveroo, but whilst UberEATS might fail, could almost see them being more of a delivery API and last mile brand than the full restaurant service stack.
- samfisher83 10y ago
  AWS already makes more money than the entire Amazon retail side. The Amazon retail margins are still razor thin.
  - toomuchtodo 10y ago
    I appreciate all of those VC dollars siphoned off by AWS-using startups subsidizing my consumer goods.
  - thwarted 10y ago
    It's currently pretty even, despite higher margins for AWS, and "already" is saying a lot despite how long AWS has been around. I covered this 64 days ago in [0], but here's the relevant part again. Looking at Amazon's Q1 2016 Financial Results [1], page 8, we see that net sales of non-AWS amounts to ~$26B, and AWS is ~$2.5B. From the Segment Highlights section (same page), AWS sales is 9% of total sales. AWS beats non-AWS income only because there were losses in international; ignoring international, it's a $16m difference. Looking at page 14, Media sales in North America and International sum to $5.6B. Media sales alone is double AWS's sales of $2.5B (page 13). Profit margins are way higher for AWS, so there's still a lot of room for a larger income difference between the two segments. [0] https://news.ycombinator.com/item?id=11951577 https://news.ycombinator.com/item?id=11951577 [1] http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjMxNjA2fENoaWxkSUQ9MzM2MTM4fFR5cGU9MQ==&t=1 http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9N...
    - samfisher83 10y ago
      Look at their most recent 10q http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=2189731 http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-new... Retail Profits = (702 (Domestic) + (- 135) (International)) < 718 (AWS) Amazon made more money on AWS than their retail side.
  - ctdonath 10y ago
    That's fine so long as they're not losing money. Someone can fill us in about how much Amazon sunk into startup costs before breaking even. Amazon is perceived by customers as usually the cheapest place to go for products/services. My concern is that Uber is already considered "expensive" by customers, and that's at a massively subsidized rate - how will customers react when Uber wins the price war, destroys the competition, and then has to actually raise prices? and not just raise prices to break even, and not just to make a profit, and not just to grow the currently non-existent fleet of physical vehicles (self-driving or not), but to also make back the US$billions lost to win the war of attrition?
adventured 10y ago
It's pretty simple: they've hired a vast number of employees, they're spending an immense sum on building out a reliable global infrastructure (not an MVP product), and they're not making nearly enough money in relation to their current organization's size. Their bet is that later on that ratio will invert. Facebook as one example also lost a lot of money (not $1.2b in six months mind you) for years before finally turning profitable. What was there for them to lose money on, social networks are just a couple servers, right? No, they were building out a massive foundation for the future. And now they're a money printing machine.
- thesimon 10y ago
  >Their bet is that later on that ratio will invert. Because later when the subsidies are dropped and the product price rises, the demand will increase?
  - wastedhours 10y ago
    But they have enough runway that it doesn't have to be one day cheap rides, the next expensive ones. You simple optimise the rate at which prices increase so as not to immediately alienate customers (isn't it something like we only feel a price rise pain if it's over 5/10% in one go?).
cstejerean 10y ago
bootstrapping both sides of the marketplace at once is very expensive. They need drivers before riders will bother using their service, but drivers will only sign up if they get paid. So uber has to heavily subsidize the drivers to stick with their platform while they then ramp up customers usage. Over time organic customer demand should be sufficient and drivers shouldn't need subsidies but that can take a while and in the mean time you are burning a lot of cash.
- nradov 10y ago
  Why shouldn't drivers need subsidies? In high cost areas, the subsidies are the only reason that drivers are willing to work. If the pay dropped much they would be better off finding other jobs, or not working at all.
  - cstejerean 10y ago
    They pay doesn't need to drop. Ridership needs to increase. As long as drivers are driving and not staying idle they should be able to earn enough to sustain itself. But early on there is a lot of idle time and that's where subsidies are important.
    - bryanlarsen 10y ago
      Always having idle drivers available is crucial to keeping wait times low.
- cookiecaper 10y ago
  I wonder if Uber shouldn't stay hyper-focused on markets where people usually don't have cars or where using a car is pretty difficult. In most of America, people already have their own vehicles which they prefer to drive. Occasion to use an Uber/cab is fairly rare for most people. At least, it doesn't seem like the same hyper-expansion strategy that works in carless areas like NYC or areas with horrible parking like LA would necessarily be applicable to the rest of the US.
  - 10y ago
LordHumungous 10y ago
"Zero expenses". The cars must be maintained, and the drivers must be paid one way or another.
- fullshark 10y ago
  The car owner maintains the car, and the customer pays the driver for the ride. Uber is the platform and just takes a little off the top each time. That's the idea at least.
  - LordHumungous 10y ago
    The owner maintains the car, but Uber has to pay the driver enough to cover the cost. So it's a cost for Uber even though it's not on their balance sheet. "The rider pays the driver" is just semantics since Uber decides the percentage.
    - fullshark 10y ago
      Well the idea (originally) was that the driver is already driving and so they are sharing/renting out their open seat to get a little bit of money. Uber would just skim off the top for matching riders with drivers. The reality of the economics is likely different but that's how it works in theory. Now they are likely paying drivers to be out looking for rides to ensure that service isn't disrupted, and yes they need to subsidize that as others are mentioning.

leothekim 10y ago

It's a Fabian strategy to establish market dominance. Uber is spending like crazy to expand for market share. On the surface at least, they are similar to how Amazon was operating in its early days - investing in itself early to expand and not expecting to generate a profit for many years.

sharemywin 10y ago
the problem is most of amazons profits are in cloud services. moving something from point a to b is expensive and hard to get economy of scale.
- wastedhours 10y ago
  Part of the argument is the Uber is building product infrastructure of their own - Amazon built AWS as part of their everyday working, Uber could roll out delivery, autonomous tech or even their financial services as separate strands once they've reached pervasiveness.
  - SyneRyder 10y ago
    Indeed, Uber already has their UberEATS program where they offer home delivered food from restaurants that don't yet have their own delivery service. So they're already experimenting with providing delivery & mobile payment processing services.
    - Guyag 10y ago
      I'd be interested to see how UberEATS turns out. Deliveroo has had a year on them, and at least where I am I think the latter is still the favourite.
      - wastedhours 10y ago
        Yep - much bigger fan of Deliveroo, but whilst UberEATS might fail, could almost see them being more of a delivery API and last mile brand than the full restaurant service stack.
samfisher83 10y ago
AWS already makes more money than the entire Amazon retail side. The Amazon retail margins are still razor thin.
- toomuchtodo 10y ago
  I appreciate all of those VC dollars siphoned off by AWS-using startups subsidizing my consumer goods.
- thwarted 10y ago
  It's currently pretty even, despite higher margins for AWS, and "already" is saying a lot despite how long AWS has been around. I covered this 64 days ago in [0], but here's the relevant part again. Looking at Amazon's Q1 2016 Financial Results [1], page 8, we see that net sales of non-AWS amounts to ~$26B, and AWS is ~$2.5B. From the Segment Highlights section (same page), AWS sales is 9% of total sales. AWS beats non-AWS income only because there were losses in international; ignoring international, it's a $16m difference. Looking at page 14, Media sales in North America and International sum to $5.6B. Media sales alone is double AWS's sales of $2.5B (page 13). Profit margins are way higher for AWS, so there's still a lot of room for a larger income difference between the two segments. [0] https://news.ycombinator.com/item?id=11951577 https://news.ycombinator.com/item?id=11951577 [1] http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjMxNjA2fENoaWxkSUQ9MzM2MTM4fFR5cGU9MQ==&t=1 http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9N...
  - samfisher83 10y ago
    Look at their most recent 10q http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=2189731 http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-new... Retail Profits = (702 (Domestic) + (- 135) (International)) < 718 (AWS) Amazon made more money on AWS than their retail side.
- ctdonath 10y ago
  That's fine so long as they're not losing money. Someone can fill us in about how much Amazon sunk into startup costs before breaking even. Amazon is perceived by customers as usually the cheapest place to go for products/services. My concern is that Uber is already considered "expensive" by customers, and that's at a massively subsidized rate - how will customers react when Uber wins the price war, destroys the competition, and then has to actually raise prices? and not just raise prices to break even, and not just to make a profit, and not just to grow the currently non-existent fleet of physical vehicles (self-driving or not), but to also make back the US$billions lost to win the war of attrition?

adventured 10y ago

It's pretty simple: they've hired a vast number of employees, they're spending an immense sum on building out a reliable global infrastructure (not an MVP product), and they're not making nearly enough money in relation to their current organization's size. Their bet is that later on that ratio will invert. Facebook as one example also lost a lot of money (not $1.2b in six months mind you) for years before finally turning profitable. What was there for them to lose money on, social networks are just a couple servers, right? No, they were building out a massive foundation for the future. And now they're a money printing machine.

thesimon 10y ago
>Their bet is that later on that ratio will invert. Because later when the subsidies are dropped and the product price rises, the demand will increase?
- wastedhours 10y ago
  But they have enough runway that it doesn't have to be one day cheap rides, the next expensive ones. You simple optimise the rate at which prices increase so as not to immediately alienate customers (isn't it something like we only feel a price rise pain if it's over 5/10% in one go?).

cstejerean 10y ago

bootstrapping both sides of the marketplace at once is very expensive. They need drivers before riders will bother using their service, but drivers will only sign up if they get paid. So uber has to heavily subsidize the drivers to stick with their platform while they then ramp up customers usage. Over time organic customer demand should be sufficient and drivers shouldn't need subsidies but that can take a while and in the mean time you are burning a lot of cash.

nradov 10y ago
Why shouldn't drivers need subsidies? In high cost areas, the subsidies are the only reason that drivers are willing to work. If the pay dropped much they would be better off finding other jobs, or not working at all.
- cstejerean 10y ago
  They pay doesn't need to drop. Ridership needs to increase. As long as drivers are driving and not staying idle they should be able to earn enough to sustain itself. But early on there is a lot of idle time and that's where subsidies are important.
  - bryanlarsen 10y ago
    Always having idle drivers available is crucial to keeping wait times low.
cookiecaper 10y ago
I wonder if Uber shouldn't stay hyper-focused on markets where people usually don't have cars or where using a car is pretty difficult. In most of America, people already have their own vehicles which they prefer to drive. Occasion to use an Uber/cab is fairly rare for most people. At least, it doesn't seem like the same hyper-expansion strategy that works in carless areas like NYC or areas with horrible parking like LA would necessarily be applicable to the rest of the US.
- 10y ago

LordHumungous 10y ago

"Zero expenses". The cars must be maintained, and the drivers must be paid one way or another.

fullshark 10y ago
The car owner maintains the car, and the customer pays the driver for the ride. Uber is the platform and just takes a little off the top each time. That's the idea at least.
- LordHumungous 10y ago
  The owner maintains the car, but Uber has to pay the driver enough to cover the cost. So it's a cost for Uber even though it's not on their balance sheet. "The rider pays the driver" is just semantics since Uber decides the percentage.
  - fullshark 10y ago
    Well the idea (originally) was that the driver is already driving and so they are sharing/renting out their open seat to get a little bit of money. Uber would just skim off the top for matching riders with drivers. The reality of the economics is likely different but that's how it works in theory. Now they are likely paying drivers to be out looking for rides to ensure that service isn't disrupted, and yes they need to subsidize that as others are mentioning.