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Isn't Uber like a Ponzi scheme in some way? They use investors money to subsidize drivers so that prices are low and they get more users, and with more users th

Isn't Uber like a Ponzi scheme in some way? They use investors money to subsidize drivers so that prices are low and they get more users, and with more users they are valued better and get more investors money. When investors money or/and user growth stops, prices go up, people stop using it, and the system collapses (or at least the user base shrinks).

tarunm 10y ago
Probably the most effective economic trickle down.
mcgannon2007 10y ago
To be fair, you could make a similar argument with a lot of these high-growth VC backed companies.
jfoster 10y ago
Like Amazon & Tesla? Some companies just have a much bigger ramp up than others. Amazon has so many markets to build warehousing & logistics in. Uber has so many markets to establish drivers in. The subsidising of rides makes complete sense; subsidised rides are loss-leaders aimed towards building habits. I haven't seen their data, but it seems like a good plan.
- MegaButts 10y ago
  Both Amazon and Tesla build physical infrastructure to lower their costs in the future. Uber is banking on self-driving cars to save them. The ironic thing though is Uber is racing to spend as much as money as possible before that happens, effectively gaining them nothing more than mindshare. As soon as another company pops up with self-driving vehicles, they can compete with Uber and they haven't wasted $10 billion making everybody hate them.
  - jfoster 10y ago
    This seems to be the biggest risk with Uber. I think they will probably end up working with the first company to have autonomous cars "ready". The big question is what happens next. Will Uber be at the mercy of that supplier every few years as the contact comes up for renewal, or will autonomous cars become so commodity that there will be multiple players competing to be Uber's supplier? Another possibility is an M&A event.
- tarunm 10y ago
  Amazon spent capital on building an efficient supply chain based on technology which is a huge entry barrier for any competitor. They did not use VC on exclusively providing any discounts. Uber, on the other hand, is using VC almost entirely on discounts hoping that users will stick around. Their product is essentially an app which has been replicated in every major economy with considerable success.
  - jfoster 10y ago
    Agreed, except that it seems quite likely that users stick around. Where else would they go? The options seem to be an Uber competitor or taxis. Is there anything that will motivate Uber customers toward those? Uber's service is more than just an app. They have operations teams in every market they operate in to onboard drivers, deal with local issues, etc.
    - ufo 10y ago
      The main attractive of uber is the price. Many people won't think twice about jumping to a competitor if one shows up that is cheaper than Uber.
      - jfoster 10y ago
        How could it be the case that a traditional Uber competitor (eg. Lyft) could be cheaper, though? Only through venture capital. VC aside, Uber have the demand, which gives them the power to squeeze drivers. Think of it from a driver perspective; if a competitor pays less than Uber and has less demand, why drive with them? And if you think there will be a competitor capable of out-spending Uber using venture capital, think of it from the perspective of a VC; why pour so much capital into a business so unlikely to succeed against an incumbent when you could put it into the incumbent itself? I think the primary risk to Uber's business is that of a self-driving competitor being capable of disrupting them; such competitors will have capital already, and will be capable of disruption through all the same ingredients that got Uber to where they are. Those companies would probably work with Uber at least at first, anyway. Uber will be at their mercy every time the contract needs to be renewed.
conistonwater 10y ago
That's not called a Ponzi scheme, though. It's possibly a type of anti-competitive behaviour, just not that particular type.
mason55 10y ago
I prefer to think of it as a wealth redistribution plan from the investor class to the upper middle class
- jacques_chester 10y ago
  One of the very few times in history that there's been such a massive, rapid, worldwide and voluntary transfer of wealth from the very wealthy to the merely well-off.
tybit 10y ago
They are aware of this, the goal is to have a large market share when self driving cars make their business model profitable. This may not work, but that in no way makes Uber a Ponzi scheme.
- prostoalex 10y ago
  > self driving cars make their business model profitable In what way? Will they manufacture their own cars? That seems expensive, and from the past experience of GM and Chrysler Fiat not exactly a money-printing machine. Will they partner with manufacturers and buy their cars to add to Uber fleet? That will be a new expense that was externalised to the driver before, but now affects the company's bottom line. Will they just become a dispatch software licensee like Flywheel? Enterprise buyers tend to squeeze margins and negotiate tough. What's the scenario where either their top line increases in a massive way or expenses are trimmed way, way down from where they are today?
  - onetozero 10y ago
    Ridesharing is growing year after year, so their top line is growing fast. Self driving cars would remove the biggest expense which is the human driver, so the expenses will drop a lot. Currently it costs $1.50 a mile with a human driver, and should get down to $0.50 without a driver. The lower costs will increase the profit, and way increase the volume of people using Uber.
    - prostoalex 10y ago
      > the biggest expense which is the human driver, so the expenses will drop a lot This only makes sense if Uber driver's net income is pure profit. Instead I hear they have a set of expenses - fuel, insurance, tires, maintenance as well as servicing payments on the car. Some of these Uber is likely to negotiate down, mainly insurance. But some (cleaning, maintenance, parking, car washes, tires) are currently externalised to the driver and will have to be assumed by the company. This is even before we get into the details of who manufactures the cars and how Uber comes into the possession of the vehicle (lease? outright purchase? purchase backed by a loan? etc.)
Drumlin 10y ago
It somehow reminds me of those advert bars that people used to put on their desktops and be paid to view adverts in the late 90s - early 2000s. There was so much money in online advertising back then that businesses created referral pyramids based on it. It also reminds me of those daily deal websites like Groupon, which were controversial yet hyped. That was back when there was a lot of money in 'hyper' local services. Now there's a load of hype in self driving cars, the problem is the technology is probably decades away. It's just the latest hype in a new cycle. Local taxi services will take up the slack once the investment dries up.
- ec109685 10y ago
  Way more money is spent advertising online now than in the 90s and early 2000s. The delivery mechanism has simply been optimized and figured out.
deepsun 10y ago
It's called "dumping": https://en.wikipedia.org/wiki/Dumping_(pricing_policy) https://en.wikipedia.org/wiki/Dumping_(pricing_policy)
savanaly 10y ago
A Ponzi scheme involves early investors being paid with the money of later investors. Unless you sell your shares, you're not getting money out of Uber right now. Instead, Uber appears to be as Yglesias famously said of Amazon: "a charitable organization being run by elements of the investment community for the benefit of consumers."

tarunm 10y ago

Probably the most effective economic trickle down.

mcgannon2007 10y ago

To be fair, you could make a similar argument with a lot of these high-growth VC backed companies.

jfoster 10y ago

Like Amazon & Tesla? Some companies just have a much bigger ramp up than others. Amazon has so many markets to build warehousing & logistics in. Uber has so many markets to establish drivers in. The subsidising of rides makes complete sense; subsidised rides are loss-leaders aimed towards building habits. I haven't seen their data, but it seems like a good plan.

MegaButts 10y ago
Both Amazon and Tesla build physical infrastructure to lower their costs in the future. Uber is banking on self-driving cars to save them. The ironic thing though is Uber is racing to spend as much as money as possible before that happens, effectively gaining them nothing more than mindshare. As soon as another company pops up with self-driving vehicles, they can compete with Uber and they haven't wasted $10 billion making everybody hate them.
- jfoster 10y ago
  This seems to be the biggest risk with Uber. I think they will probably end up working with the first company to have autonomous cars "ready". The big question is what happens next. Will Uber be at the mercy of that supplier every few years as the contact comes up for renewal, or will autonomous cars become so commodity that there will be multiple players competing to be Uber's supplier? Another possibility is an M&A event.
tarunm 10y ago
Amazon spent capital on building an efficient supply chain based on technology which is a huge entry barrier for any competitor. They did not use VC on exclusively providing any discounts. Uber, on the other hand, is using VC almost entirely on discounts hoping that users will stick around. Their product is essentially an app which has been replicated in every major economy with considerable success.
- jfoster 10y ago
  Agreed, except that it seems quite likely that users stick around. Where else would they go? The options seem to be an Uber competitor or taxis. Is there anything that will motivate Uber customers toward those? Uber's service is more than just an app. They have operations teams in every market they operate in to onboard drivers, deal with local issues, etc.
  - ufo 10y ago
    The main attractive of uber is the price. Many people won't think twice about jumping to a competitor if one shows up that is cheaper than Uber.
    - jfoster 10y ago
      How could it be the case that a traditional Uber competitor (eg. Lyft) could be cheaper, though? Only through venture capital. VC aside, Uber have the demand, which gives them the power to squeeze drivers. Think of it from a driver perspective; if a competitor pays less than Uber and has less demand, why drive with them? And if you think there will be a competitor capable of out-spending Uber using venture capital, think of it from the perspective of a VC; why pour so much capital into a business so unlikely to succeed against an incumbent when you could put it into the incumbent itself? I think the primary risk to Uber's business is that of a self-driving competitor being capable of disrupting them; such competitors will have capital already, and will be capable of disruption through all the same ingredients that got Uber to where they are. Those companies would probably work with Uber at least at first, anyway. Uber will be at their mercy every time the contract needs to be renewed.

conistonwater 10y ago

That's not called a Ponzi scheme, though. It's possibly a type of anti-competitive behaviour, just not that particular type.

mason55 10y ago

I prefer to think of it as a wealth redistribution plan from the investor class to the upper middle class

jacques_chester 10y ago
One of the very few times in history that there's been such a massive, rapid, worldwide and voluntary transfer of wealth from the very wealthy to the merely well-off.

tybit 10y ago

They are aware of this, the goal is to have a large market share when self driving cars make their business model profitable. This may not work, but that in no way makes Uber a Ponzi scheme.

prostoalex 10y ago
> self driving cars make their business model profitable In what way? Will they manufacture their own cars? That seems expensive, and from the past experience of GM and Chrysler Fiat not exactly a money-printing machine. Will they partner with manufacturers and buy their cars to add to Uber fleet? That will be a new expense that was externalised to the driver before, but now affects the company's bottom line. Will they just become a dispatch software licensee like Flywheel? Enterprise buyers tend to squeeze margins and negotiate tough. What's the scenario where either their top line increases in a massive way or expenses are trimmed way, way down from where they are today?
- onetozero 10y ago
  Ridesharing is growing year after year, so their top line is growing fast. Self driving cars would remove the biggest expense which is the human driver, so the expenses will drop a lot. Currently it costs $1.50 a mile with a human driver, and should get down to $0.50 without a driver. The lower costs will increase the profit, and way increase the volume of people using Uber.
  - prostoalex 10y ago
    > the biggest expense which is the human driver, so the expenses will drop a lot This only makes sense if Uber driver's net income is pure profit. Instead I hear they have a set of expenses - fuel, insurance, tires, maintenance as well as servicing payments on the car. Some of these Uber is likely to negotiate down, mainly insurance. But some (cleaning, maintenance, parking, car washes, tires) are currently externalised to the driver and will have to be assumed by the company. This is even before we get into the details of who manufactures the cars and how Uber comes into the possession of the vehicle (lease? outright purchase? purchase backed by a loan? etc.)

Drumlin 10y ago

It somehow reminds me of those advert bars that people used to put on their desktops and be paid to view adverts in the late 90s - early 2000s. There was so much money in online advertising back then that businesses created referral pyramids based on it. It also reminds me of those daily deal websites like Groupon, which were controversial yet hyped. That was back when there was a lot of money in 'hyper' local services. Now there's a load of hype in self driving cars, the problem is the technology is probably decades away. It's just the latest hype in a new cycle. Local taxi services will take up the slack once the investment dries up.

ec109685 10y ago
Way more money is spent advertising online now than in the 90s and early 2000s. The delivery mechanism has simply been optimized and figured out.

deepsun 10y ago

It's called "dumping": https://en.wikipedia.org/wiki/Dumping_(pricing_policy) https://en.wikipedia.org/wiki/Dumping_(pricing_policy)

savanaly 10y ago

A Ponzi scheme involves early investors being paid with the money of later investors. Unless you sell your shares, you're not getting money out of Uber right now. Instead, Uber appears to be as Yglesias famously said of Amazon: "a charitable organization being run by elements of the investment community for the benefit of consumers."