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TFA and a lot of commenters here don't seem to understand that Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en ro

by avn2109 10y ago

TFA and a lot of commenters here don't seem to understand that Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers. That's their dream. They even admit this in public. [0] The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry, they'll open up the biggest transport market ever created (the intentionally-inefficient American built environment). They're taking all this VC money and expanding so aggressively not because they like the scale, but rather because that's the only way to compete with private car ownership. [0] https://twitter.com/travisk/status/564065776005808128 https://twitter.com/travisk/status/564065776005808128

SatvikBeri 10y ago
I agree that Uber is trying to replace private car ownership, and I expect ride-sharing services like Uber/Lyft to succeed at this. But given those assumptions, is there any reason to expect them to be massively profitable? The current market seems to involve Uber & Lyft (& other competitors in different locations) competing on price, do you expect that to stop?
- avn2109 10y ago
  Presumably the (publicly) unacknowledged plan is to severely wound private car ownership and then collude with Lyft to fix prices, similar to how it worked with Didi in China [0]. There will likely be some regulatory capture on the side to discourage other competitors. [0] http://www.wsj.com/articles/china-opens-antitrust-investigation-of-didi-uber-deal-1472794452 http://www.wsj.com/articles/china-opens-antitrust-investigat...
  - erispoe 10y ago
    Airlines used to collude on price, too.
vannevar 10y ago
This is a good point, but it doesn't change the prognosis. Uber will run out of runway long before that vision can be realized. And even if by some miracle it doesn't, it will find itself in a low-margin commodity business. Unless it can muscle its way into a monopoly, it can't win. Which explains the company's aggressiveness and anti-competitive nature.
- dageshi 10y ago
  Amazon is in a low margin commodity business with massive amounts of competition, but they're still massive and becoming even bigger because they do what everyone else can do just that little bit better that there's no real reason to switch away.
  - vannevar 10y ago
    Also a good point. Low margin doesn't have to mean unsuccessful. But it's taken 20 years for Amazon to get where it is. Uber's valuation seems pretty premature. Amazon lost money for years because it was building infrastructure. Uber is losing money because it is subsidizing its sales. Amazon may have been low margin, but I don't know that they ever took investor money and gave it directly to customers in the form of price subsidies.
    - rcach001 10y ago
      Great contrast – and you're not really saying that Uber is not building infrastructure but that one is happening faster than the other one: 1) Uber: a) subsidize sales b) build infrastructure 2) Amazon: a) build infrastructure, b) grow sales at a sustainable rate even if it takes 20 years. I think Zappos had the same business model. But we'll see.
      - ghaff 10y ago
        Zappos is an Amazon subsidiary even if it does operate quasi-independently (and quirkily from a management perspective). It looks a lot more like Amazon though with generally far less emphasis on building out infrastructure. Ultimately it's sort of a niche because of the nature of selling shoes online.
chasing 10y ago
I believe the argument, though, is that transportation is a commodity product and, therefore, pricing is a race to the bottom. Say all cars are autonomous and on-demand. You need a car. Uber costs $20. Lyft costs $15. Who do you go with? What happens to overall pricing over time?
- brokenmachine 10y ago
  What I seem to never hear people mentioning is that it's nice to have your own car. I have my car all set up how I like it, with a nice aftermarket stereo and amp and hundreds of gigabytes of mp3s because music is important to me, the seat is exactly set up how I like it, etc etc. I specifically bought a car that I actually enjoy driving. I have an umbrella in the car in case it rains, and a jumper in there if it is cold outside, so I don't have to carry those things with me all the time. Also, I know that there was no smelly/dirty/messy person in the car before me. Public transport is a yucky experience overall so why would a super cheap Uber end up being any different? I will personally pay a premium for that comfort and convenience, and I can't be the only one, can I? How much cheaper can an Uber be compared to owning my own car? I guess it all depends on how much the premium is...
  - ams6110 10y ago
    I'm right with you. Buses, cabs, and subways are all disgusting, smelly, unsightly, uncomfortable and inconvenient compared to one's own car.
secabeen 10y ago
I think that market is smaller than you may think. There are lots of factors that will drive people to own their own self-driving cars rather than rely exclusively on Uber/Lyft/Tesla Mobility, etc.
- dinkumthinkum 10y ago
  You mean parents won't want to constantly move their car seats from vehicle to another on a regular basis?
  - secabeen 10y ago
    Yeah, that's one big one. It's really anyone with a dependent that has equipment needs (car seats, hockey gear, etc.) "But, but, you can rent a car with a car seat!" That response ignores the fact that there are 4 different major categories of car seats, most kids need a specific one at different times of their lives, and if you have multiple kids you need the specific combination of seats. And of course, car seat installation is hard and takes time, even with LATCH, and I wouldn't trust a random Uber driver just handed a seat to install it properly.
    - BurningFrog 10y ago
      A car seat that can be adjusted into different sizes sounds like a minor part of the R&D needed for Ubertopia.
      - dinkumthinkum 10y ago
        Nah ... Ever met a parent before? Many of them are pretty serious about their car seats and brands.
  - TheCoelacanth 10y ago
    So buy one car for the 10 years in your life where you have kids that need cars seats and then rent for the other 50 years of your adult life. It wouldn't need to cover literally every use case in the world to have a major impact on the economy.
LordHumungous 10y ago
>Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car ...which is exactly what cabs are. In major cities cabs exist because it's cheaper and easier to hire a cab than to drive yourself. That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.
- discodave 10y ago
  Removing the driver reduces the price significantly, so the business model of cars on demand is probably viable outside of dense areas with self driving cars. That being said, for Uber to win the self driving car race they have to beat Google, Apple, Tesla, Didi and the automotive incumbents as Sarah Lacy has been pointing out for at least 12 months.
  - metaphorm 10y ago
    they don't have to beat those companies, they have to negotiate good rates for vendor services with those companies.
    - code_duck 10y ago
      Or be acquired by one of them.
    - GVIrish 10y ago
      What does Uber have that would not be feasible for any of those companies to build? Uber doesn't lock in customers or create any switching pain whatsoever so their current customer base doesn't given them much of an advantage. Their software is slick and robust but it's not so technically advanced that a competitor couldn't create their own ride-calling and dispatch system (as evidenced by Lyft).
      - metaphorm 10y ago
        > What does Uber have that would not be feasible for any of those companies to build? usage data. they know where people that use their app actually go on a daily basis, and how much they're willing to pay for that service.
notahacker 10y ago
I can believe that's their goal: I see little reason to believe they'll succeed in it, beyond making the market a bit bigger than the current taxi/minicab market. Just because they're very good at supplying an unlicensed minicab service (apparently subsidised by VC money in many areas) doesn't mean they can (i) run a minicab business at a profit so much more efficiently than every other minicab business in history that the average American decides they can sell off their four-wheeled status symbol and commute in a surge-priced Uber or (ii) compete with the manufacturers in supplying self driving cars on demand, whilst likely operating at a huge disadvantage in vehicle acquisition and maintenance costs
- oculusthrift 10y ago
  at the very least their drivers will still own cars.. if buying a car is all of a sudden not normal, then it would cost A LOT to become an Uber driver.
  - memco 10y ago
    Car ownership is already not necessary. Both Uber and Lyft offer a car "rental" or leasing program where you will be given a car to use for the job for a fee which will be waived or reduced if you drive enough and do enough business with the car. They profit off of this or at least recoup money if you fail to hold up your end of the contract or in certain cases, you pay for the mileage you drive outside of work hours. This drastically reduces the capital necessary to start driving for these companies.
    - oculusthrift 10y ago
      either way this drives up cost because it raises the amount a driver must make a month. obviously we dont have concrete numbers but if people are switching to uber only they probably would want to save a lot every month versus owning a car.
      - pstuart 10y ago
        But when the driver is a computer those wages become effectively zero.
oculusthrift 10y ago
if they succeed at this, then no one will own a car. therefore to become a driver one would have to buy one instead of already having one. This makes it not worth it to drive.
sonotwhat 10y ago
I live in Singapore and this is already happening here. In Singapore to own a car you've to get a certificate of ownership that can cost around $70-$100k and you've to bid for this. Ever since Uber began to get popular here we've had rental companies (who only rent if you become an Uber driver, essentially partners of Uber) try to undermine the bidding system by artificially boosting prices. It has never been easy (or cheap) to privately own a car in Singapore but the situation right now is exactly like you mentioned in your comment. However I'm also a resident of the US and I don't think it's gonna happen over there anytime soon.
- tannhauser23 10y ago
  That's a weird market where the government artificially inflates the cost of car ownership. Like you say, that's never going to happen in the U.S.
  - avar 10y ago
    Singapore is doing it because the alternative would be to use much more of their tiny island for car-related infrastructure. The total cost of that infrastructure would be much higher than what the sum of the COE's[1] would cost. Are you sure Singapore is artificially inflating the cost, or that where you live isn't artificially subsidizing the cost of car ownership? 1. https://en.wikipedia.org/wiki/Certificate_of_Entitlement#History https://en.wikipedia.org/wiki/Certificate_of_Entitlement#His...
sfifs 10y ago
Warren Buffett's famous lesson is that in a competitive commodity business, any cost savings will get passed on to the consumer and investing in such a business is value destroying in the long term. Monopolization doesn't seem to be happening really in the business Uber is competing in and it seems as likely that any of the half a dozen other players in self driving car business will succeed as Uber.
aetherson 10y ago
The article and your parent poster are basically saying: "They lose money on every ride, and they have no way to ever turn that around (outside of a monopoly on driverless cars which they won't have), because any time they gain money on a ride, they'll attract indistinguishable competition." Your response is: "Yes, they'll lose money on every ride, but they'll make it up with volume."
neuronexmachina 10y ago
> It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers. It's close to competing with my own car. I'm in West LA and use Uber daily, but only use my own car once or twice a week.
sly010 10y ago
> they'll open up the biggest transport market ever created And others will see the opportunity and jump in to compete on a market Uber spent all it's money to create. And there will be very little Uber can do to stop them. Perhaps, Uber may be able to be a few percent more efficient if they have more cars around and more data to use for predictions. The question is can uber be materially cheaper with it's data in the long term?
ldec 10y ago
Thats the level they are already at in São Paulo - people here are giving up their cars as it no longer makes financial sense to have one.
prostoalex 10y ago
> The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry Car makers have falling commodity prices (when they're indeed falling) and rising automation working in their favor. What does Uber have working in its favor? It seems that scenarios with rising car ownership costs involve mainly cost of parking or general low ridership pattern. Those specific scenarios are associated with dense urban environments, which also have a competitive vector of public transportation, frequently already subsidized by the taxpayer. I will admit though that Uber has a very attractive offering in LA, with $5 UberPOOL downtown to West side or a UberX ride cheaper for 3-4 people than the cost of metro/bus. Don't know whether LA market is profitable for them or subsidized.
nerfhammer 10y ago
Is there a reason to believe that Uber will be able to beat a Toyotas On Demand service that Toyota will inevitably launch? Seems to me that the manufacturers will always be able to undercut on price once cars are fully self-driving, eliminating the value of the driver network.
- dasil003 10y ago
  Considering Toyota's publicized software problems with relatively simple embedded systems, I wouldn't be surprised if they are culturally unable to field a competitive on-demand driving service at all.
  - ghaff 10y ago
    >culturally unable to field a competitive on-demand driving service Or, they could easily decide that that's not their business model. Being a car manufacturer is different from being a fleet operator is different from being a finance company is different from (for that matter) being a car sales and service organization. A company may decide to do one or more of those connected things and they frequently do in ways that are more direct or less direct. Culture's part of it. But it's also about focusing on capital requirements, core competency, etc.
plink 10y ago
I’ll imagine that scenario when I can imagine the day car interiors are manufactured out of one seamless, waterproof plastic that can be hosed-out in between rides, but are still more comfortable than a commuter subway or bus.
xbmcuser 10y ago
Uber is going to make a market for but car manufacturers are going to eat its lunch. When Ai becomes good enough which I think will in the next 5 years they will flood the market with their own cars and taxi services.

by avn2109 10y ago

SatvikBeri 10y ago

I agree that Uber is trying to replace private car ownership, and I expect ride-sharing services like Uber/Lyft to succeed at this. But given those assumptions, is there any reason to expect them to be massively profitable? The current market seems to involve Uber & Lyft (& other competitors in different locations) competing on price, do you expect that to stop?

avn2109 10y ago
Presumably the (publicly) unacknowledged plan is to severely wound private car ownership and then collude with Lyft to fix prices, similar to how it worked with Didi in China [0]. There will likely be some regulatory capture on the side to discourage other competitors. [0] http://www.wsj.com/articles/china-opens-antitrust-investigation-of-didi-uber-deal-1472794452 http://www.wsj.com/articles/china-opens-antitrust-investigat...
- erispoe 10y ago
  Airlines used to collude on price, too.

vannevar 10y ago

This is a good point, but it doesn't change the prognosis. Uber will run out of runway long before that vision can be realized. And even if by some miracle it doesn't, it will find itself in a low-margin commodity business. Unless it can muscle its way into a monopoly, it can't win. Which explains the company's aggressiveness and anti-competitive nature.

dageshi 10y ago
Amazon is in a low margin commodity business with massive amounts of competition, but they're still massive and becoming even bigger because they do what everyone else can do just that little bit better that there's no real reason to switch away.
- vannevar 10y ago
  Also a good point. Low margin doesn't have to mean unsuccessful. But it's taken 20 years for Amazon to get where it is. Uber's valuation seems pretty premature. Amazon lost money for years because it was building infrastructure. Uber is losing money because it is subsidizing its sales. Amazon may have been low margin, but I don't know that they ever took investor money and gave it directly to customers in the form of price subsidies.
  - rcach001 10y ago
    Great contrast – and you're not really saying that Uber is not building infrastructure but that one is happening faster than the other one: 1) Uber: a) subsidize sales b) build infrastructure 2) Amazon: a) build infrastructure, b) grow sales at a sustainable rate even if it takes 20 years. I think Zappos had the same business model. But we'll see.
    - ghaff 10y ago
      Zappos is an Amazon subsidiary even if it does operate quasi-independently (and quirkily from a management perspective). It looks a lot more like Amazon though with generally far less emphasis on building out infrastructure. Ultimately it's sort of a niche because of the nature of selling shoes online.

chasing 10y ago

I believe the argument, though, is that transportation is a commodity product and, therefore, pricing is a race to the bottom. Say all cars are autonomous and on-demand. You need a car. Uber costs $20. Lyft costs $15. Who do you go with? What happens to overall pricing over time?

brokenmachine 10y ago
What I seem to never hear people mentioning is that it's nice to have your own car. I have my car all set up how I like it, with a nice aftermarket stereo and amp and hundreds of gigabytes of mp3s because music is important to me, the seat is exactly set up how I like it, etc etc. I specifically bought a car that I actually enjoy driving. I have an umbrella in the car in case it rains, and a jumper in there if it is cold outside, so I don't have to carry those things with me all the time. Also, I know that there was no smelly/dirty/messy person in the car before me. Public transport is a yucky experience overall so why would a super cheap Uber end up being any different? I will personally pay a premium for that comfort and convenience, and I can't be the only one, can I? How much cheaper can an Uber be compared to owning my own car? I guess it all depends on how much the premium is...
- ams6110 10y ago
  I'm right with you. Buses, cabs, and subways are all disgusting, smelly, unsightly, uncomfortable and inconvenient compared to one's own car.

secabeen 10y ago

I think that market is smaller than you may think. There are lots of factors that will drive people to own their own self-driving cars rather than rely exclusively on Uber/Lyft/Tesla Mobility, etc.

dinkumthinkum 10y ago
You mean parents won't want to constantly move their car seats from vehicle to another on a regular basis?
- secabeen 10y ago
  Yeah, that's one big one. It's really anyone with a dependent that has equipment needs (car seats, hockey gear, etc.) "But, but, you can rent a car with a car seat!" That response ignores the fact that there are 4 different major categories of car seats, most kids need a specific one at different times of their lives, and if you have multiple kids you need the specific combination of seats. And of course, car seat installation is hard and takes time, even with LATCH, and I wouldn't trust a random Uber driver just handed a seat to install it properly.
  - BurningFrog 10y ago
    A car seat that can be adjusted into different sizes sounds like a minor part of the R&D needed for Ubertopia.
    - dinkumthinkum 10y ago
      Nah ... Ever met a parent before? Many of them are pretty serious about their car seats and brands.
- TheCoelacanth 10y ago
  So buy one car for the 10 years in your life where you have kids that need cars seats and then rent for the other 50 years of your adult life. It wouldn't need to cover literally every use case in the world to have a major impact on the economy.

LordHumungous 10y ago

>Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with your car ...which is exactly what cabs are. In major cities cabs exist because it's cheaper and easier to hire a cab than to drive yourself. That cabs only really exist in densely populated urban areas should tell us something about the economics of this business model.

discodave 10y ago
Removing the driver reduces the price significantly, so the business model of cars on demand is probably viable outside of dense areas with self driving cars. That being said, for Uber to win the self driving car race they have to beat Google, Apple, Tesla, Didi and the automotive incumbents as Sarah Lacy has been pointing out for at least 12 months.
- metaphorm 10y ago
  they don't have to beat those companies, they have to negotiate good rates for vendor services with those companies.
  - code_duck 10y ago
    Or be acquired by one of them.
  - GVIrish 10y ago
    What does Uber have that would not be feasible for any of those companies to build? Uber doesn't lock in customers or create any switching pain whatsoever so their current customer base doesn't given them much of an advantage. Their software is slick and robust but it's not so technically advanced that a competitor couldn't create their own ride-calling and dispatch system (as evidenced by Lyft).
    - metaphorm 10y ago
      > What does Uber have that would not be feasible for any of those companies to build? usage data. they know where people that use their app actually go on a daily basis, and how much they're willing to pay for that service.

notahacker 10y ago

I can believe that's their goal: I see little reason to believe they'll succeed in it, beyond making the market a bit bigger than the current taxi/minicab market. Just because they're very good at supplying an unlicensed minicab service (apparently subsidised by VC money in many areas) doesn't mean they can (i) run a minicab business at a profit so much more efficiently than every other minicab business in history that the average American decides they can sell off their four-wheeled status symbol and commute in a surge-priced Uber or (ii) compete with the manufacturers in supplying self driving cars on demand, whilst likely operating at a huge disadvantage in vehicle acquisition and maintenance costs

oculusthrift 10y ago
at the very least their drivers will still own cars.. if buying a car is all of a sudden not normal, then it would cost A LOT to become an Uber driver.
- memco 10y ago
  Car ownership is already not necessary. Both Uber and Lyft offer a car "rental" or leasing program where you will be given a car to use for the job for a fee which will be waived or reduced if you drive enough and do enough business with the car. They profit off of this or at least recoup money if you fail to hold up your end of the contract or in certain cases, you pay for the mileage you drive outside of work hours. This drastically reduces the capital necessary to start driving for these companies.
  - oculusthrift 10y ago
    either way this drives up cost because it raises the amount a driver must make a month. obviously we dont have concrete numbers but if people are switching to uber only they probably would want to save a lot every month versus owning a car.
    - pstuart 10y ago
      But when the driver is a computer those wages become effectively zero.

oculusthrift 10y ago

if they succeed at this, then no one will own a car. therefore to become a driver one would have to buy one instead of already having one. This makes it not worth it to drive.

sonotwhat 10y ago

I live in Singapore and this is already happening here. In Singapore to own a car you've to get a certificate of ownership that can cost around $70-$100k and you've to bid for this. Ever since Uber began to get popular here we've had rental companies (who only rent if you become an Uber driver, essentially partners of Uber) try to undermine the bidding system by artificially boosting prices. It has never been easy (or cheap) to privately own a car in Singapore but the situation right now is exactly like you mentioned in your comment. However I'm also a resident of the US and I don't think it's gonna happen over there anytime soon.

tannhauser23 10y ago
That's a weird market where the government artificially inflates the cost of car ownership. Like you say, that's never going to happen in the U.S.
- avar 10y ago
  Singapore is doing it because the alternative would be to use much more of their tiny island for car-related infrastructure. The total cost of that infrastructure would be much higher than what the sum of the COE's[1] would cost. Are you sure Singapore is artificially inflating the cost, or that where you live isn't artificially subsidizing the cost of car ownership? 1. https://en.wikipedia.org/wiki/Certificate_of_Entitlement#History https://en.wikipedia.org/wiki/Certificate_of_Entitlement#His...

sfifs 10y ago

Warren Buffett's famous lesson is that in a competitive commodity business, any cost savings will get passed on to the consumer and investing in such a business is value destroying in the long term. Monopolization doesn't seem to be happening really in the business Uber is competing in and it seems as likely that any of the half a dozen other players in self driving car business will succeed as Uber.

aetherson 10y ago

The article and your parent poster are basically saying: "They lose money on every ride, and they have no way to ever turn that around (outside of a monopoly on driverless cars which they won't have), because any time they gain money on a ride, they'll attract indistinguishable competition." Your response is: "Yes, they'll lose money on every ride, but they'll make it up with volume."

neuronexmachina 10y ago

> It wants to compete with your car - imagine 12 lanes of L.A. traffic composed mostly of Ubers. It's close to competing with my own car. I'm in West LA and use Uber daily, but only use my own car once or twice a week.

sly010 10y ago

> they'll open up the biggest transport market ever created And others will see the opportunity and jump in to compete on a market Uber spent all it's money to create. And there will be very little Uber can do to stop them. Perhaps, Uber may be able to be a few percent more efficient if they have more cars around and more data to use for predictions. The question is can uber be materially cheaper with it's data in the long term?

ldec 10y ago

Thats the level they are already at in São Paulo - people here are giving up their cars as it no longer makes financial sense to have one.

prostoalex 10y ago

> The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry Car makers have falling commodity prices (when they're indeed falling) and rising automation working in their favor. What does Uber have working in its favor? It seems that scenarios with rising car ownership costs involve mainly cost of parking or general low ridership pattern. Those specific scenarios are associated with dense urban environments, which also have a competitive vector of public transportation, frequently already subsidized by the taxpayer. I will admit though that Uber has a very attractive offering in LA, with $5 UberPOOL downtown to West side or a UberX ride cheaper for 3-4 people than the cost of metro/bus. Don't know whether LA market is profitable for them or subsidized.

nerfhammer 10y ago

Is there a reason to believe that Uber will be able to beat a Toyotas On Demand service that Toyota will inevitably launch? Seems to me that the manufacturers will always be able to undercut on price once cars are fully self-driving, eliminating the value of the driver network.

dasil003 10y ago
Considering Toyota's publicized software problems with relatively simple embedded systems, I wouldn't be surprised if they are culturally unable to field a competitive on-demand driving service at all.
- ghaff 10y ago
  >culturally unable to field a competitive on-demand driving service Or, they could easily decide that that's not their business model. Being a car manufacturer is different from being a fleet operator is different from being a finance company is different from (for that matter) being a car sales and service organization. A company may decide to do one or more of those connected things and they frequently do in ways that are more direct or less direct. Culture's part of it. But it's also about focusing on capital requirements, core competency, etc.

plink 10y ago

I’ll imagine that scenario when I can imagine the day car interiors are manufactured out of one seamless, waterproof plastic that can be hosed-out in between rides, but are still more comfortable than a commuter subway or bus.

xbmcuser 10y ago

Uber is going to make a market for but car manufacturers are going to eat its lunch. When Ai becomes good enough which I think will in the next 5 years they will flood the market with their own cars and taxi services.