9 ms·

The Wheels Come Off Uber

102 points by itamarst 9y ago

dr_ 9y ago
If this is true if uber, that it has no path to profitability, isn't it also true of ubers competitors? Their price points are fairly similar and they all, at some point, offer incentives to ensure you keep using their service.
- lmm 9y ago
  Yes. The argument is that there simply isn't $80 billion to be made in the taxi industry; it's inherently a comodity business where boring companies should be able to make a steady 2% return rather than the kind of industry where a company that manages to sieze the market can make it back in monopoly rents.
  - samstave 9y ago
    What would be interesting would be to see how far all the ridesharing revenues would have gone in actually really good public and municipal transportation and many other lifestyle changes (i.e. what if every company reduced to a 4-day work week, or at least a mandatory 1-day work from home in applicable industries.) it would be interesting to see where ridesharing investment money and the revenues the companies made could have ad a differing/better/other impact, just as a matter of looking at all possible outcomes as opposed to simply taken the state of things as a given.
- the_mitsuhiko 9y ago
  I think there are lots of companies that can capture the market better and for less money. Just look at mytaxi in Europe for a smaller scale conpany that is expanding rapidly.
  - Finnucane 9y ago
    It's expanding rapidly because it can reach into Daimler-Benz's pockets.
    - the_mitsuhiko 9y ago
      Sure. And the service is inferior. But it's still sigificantly cheaper to operate.
- bryanlarsen 9y ago
  There are lots of companies out there that would be happy making tens of millions. Uber needs to make tens of billions.
- onion2k 9y ago
  If this is true if uber, that it has no path to profitability, isn't it also true of ubers competitors? A lot of Uber's costs to date have been proving that ride-sharing is a thing that consumers want to do (market education) and that governments don't want to stop (lobbying). Their competition get the benefit of that Uber's investment in those things for free, so it might be the case that Uber will fail and their competition won't. That's by no means saying it's definitely the case, but being the first mover has downsides as well as advantages.
  - gaius 9y ago
    Forgive me if I am being slow but what is the actual difference between "ride sharing" and "unlicensed minicab"? I mean that seems to be the crux of all Uber's regulatory woes - that they are either unwilling or unable to articulate it.
    - dragonwriter 9y ago
      The difference is ride sharing is when the driver was going to do the ride anyway, and the passengers are just sharing the ride, hence the name. It's historically been mildly popular, for instance, on weekends and other breaks with trips originating at and returning to college campuses. Of course, none of the big “ride sharing companies” have anything to do with actual ride sharing.
    - onion2k 9y ago
      On the face of it there is no difference. Uber's reasoning seems to be that even if the driver is the same as a minicab that's nothing to do with Uber. All they claim to do is connect drivers with passengers in a convenient app. They say they're no more liable for the legality of the ride as the phone company is if you call a cab company that isn't compliant with the law. Many people disagree.
    - emodendroket 9y ago
      Their lobbying has actually been pretty successful; a lot of states have enshrined this stuff into law. Consider the linked (in the link) article: https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regulators-to-shut-it-down https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regu...
andriesm 9y ago
Is it just me or is this author overlaying a very strong political bias over the story of Uber?
- Finnucane 9y ago
  It's Naked Capitalism, so that's pretty much taken as given.
- slantedview 9y ago
  You can hold political bias and still present a strong analysis.
  - malandrew 9y ago
    You can also hold political bias and fake a "strong" analysis, especially if your audience already agrees with or desires the outcome in your conclusion.
    - sidlls 9y ago
      True. Do you have reason to suspect that's the case in this instance?
      - malandrew 9y ago
        Many reasons, but I can't/won't elaborate. What I will say is that the author's bias has given him/her some major blinders and that s/he's become incapable of seeing ways in which s/he is wrong. My suggestion is that the author engage in a forecasting technique developed at Royal Dutch Shell known as scenario planning. One of the key features of scenario planning is that whenever you finish arriving at a conclusion, you then ask yourself the question, "the future that I predicted turned out to be wildly incorrect and X happened instead of Y. Which of my assumptions or expectations turned out to be incorrect that could lead to X happening instead of Y?" These days, this is actually a hallmark feature I look for in anyone forecasting or making predictions of any sort. If someone making a prediction has not given sufficient thought to being their own devil's advocate, it's a telltale sign of poor analysis. If you don't spend enough time doing this, you quickly get sucked into believing your own bullshit. Given the tone of this blog, do you think this author has spent enough time time poking holes in their own arguments? Have you seen many or any lines like "I believe X will happen leading to A, but it's possible that Y could happen leading to B instead and this is how it would change my predictions...". If someone's predictions don't present any possibilities for branching, they aren't being critical in their analysis, if you can even call it that. https://en.wikipedia.org/wiki/Scenario_planning https://en.wikipedia.org/wiki/Scenario_planning The list of cognitive biases the author falls victim too are numerous. Over several posts I've definitely seen lots of examples of anchoring for example. https://en.wikipedia.org/wiki/Anchoring https://en.wikipedia.org/wiki/Anchoring
blisterpeanuts 9y ago
By some measures Uber has been fabulously successful, coming from nowhere to the largest privately held company in seven years, and now a $70 billion g/publicly traded/private/ company. Uber has done a stunning job of disrupting a crony-capitalist, monopolistic system. If they are still searching for a way to make a profit, surely they'll figure it out before long. * updated to remove publicly traded
- sjg007 9y ago
  Uber isn't publically traded.
  - the_mitsuhiko 9y ago
    Yet. The goal clearly is to rush to an IPO.
    - hluska 9y ago
      Eight months ago, I would have absolutely agreed. Heck, even a few months ago when Travis Kalanick started recruting a COO, I would have agreed that the company is trying to rush to a liquidity event. Today though, I think that rushing to an IPO would be completely irrational and end with Uber trading at a small fraction of their most recent private valuation. Right now, there is a huge vacuum at the CEO/COO/CFO troika. That, combined with the sordid Waymo lawsuit, would give any institutional investor pause before buying a strong position. Consequently, I would argue that Uber needs some strong leadership at the top, and some sort of resolution on the Waymo lawsuit before they can consider going public. I wouldn't be surprised if Uber was acquired, but I would be very surprised if Uber goes public in the next two years.
      - the_mitsuhiko 9y ago
        > Today though, I think that rushing to an IPO would be completely irrational and end with Uber trading at a small fraction of their most recent private valuation. I tend to agree. I don't think that at this point they would try to IPO but if the numbers circulating are correct they will need cash in less than a year time and it might be tricky to raise this.
cs702 9y ago
The most worrisome aspect of this essay is that it questions whether Uber has a viable business model. The OP argues that Uber will never be able to charge prices in excess of the level required by a traditional taxi/limo operator to be profitable for long enough to recoup the billions of dollars the company has burned by subsidizing the price of rides. Put another way, even if Uber drives every competing taxi/limo operator out of business, as soon as the company raises prices to cover costs -- vehicle, insurance, maintenance, fuel, credit card processing, license fees, and (at least for now) labor -- new entrants (and revived old entrants) would quickly come into the market, preventing Uber from keeping prices up. If the OP is right, Uber is truly in a precarious situation, because, as Brad Feld recently wrote: "the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment."[1] Uber doesn't seem to have a plan to make the switch. If the markets start demanding profitability (or at least a convincing plan for reaching profitability), Uber's wheels could indeed come off very quickly. [1] https://www.feld.com/archives/2017/06/lessons-internet-bubble-growth-vs-profitability.html https://www.feld.com/archives/2017/06/lessons-internet-bubbl...
- deleted 9y ago
  [deleted]
- jballanc 9y ago
  Gee, it's almost as if a municipality that valued the good provided by a shared-ride or car-for-hire service to their community would have an interest in creating an artificial monopoly for the sake of allowing such a service to operate in a profitable manner...
- clairity 9y ago
  the article is frustratingly light on actual reasoning about why uber can't become profitable. the tl;dr is basically "it looks bad so they're going to fail". it does look very bad but that in itself (even with the various details mentioned) doesn't shine a light on the path that uber will take to failure. it only shows that any path they could take is treacherous. it's an opinion piece with a bunch of facts thrown around but no reasoning to thread it together. i wouldn't bother putting any weight on it's conclusions (or wasting your time reading it, if you haven't).
Noxchi 9y ago
It's a question if uber can race to self driving cars fast enough. That's really the only way their financial model can make sense. They should really be seeing this as essential to their survival, like nuclear bombs in WWII. Nazi Germany had maybe 1000 people working on their version. USA had 180,000(!). I suspect in this analogy, uber is not USA. Someone else will get this rolled out first. But I'm not 100% sure.
- deleted 9y ago
  [deleted]
- slantedview 9y ago
  Not a chance they make it to self-driving in time. Maybe in 20 years we'll look back at Uber as just another company that was "too early".
- Analemma_ 9y ago
  > It's a question if uber can race to self driving cars fast enough. I'm not sure that's true though; I don't get the oft-repeated logic that self-driving cars will save Uber. OK, they save on labor costs, but right one now of Uber's (slimy, IMO, but significant nonetheless) major savings is pushing vehicle maintenance and deprecation costs onto their drivers. They won't be able to do that with self-driving cars: they'll have to pay operate a fleet, in direct competition with automakers.
  - TheSpiceIsLife 9y ago
    > Uber's (slimy, IMO, but significant nonetheless) major savings is pushing vehicle maintenance and deprecation costs onto their drivers. This is fallacious. The end-user pays for vehicle maintenance and depreciation. There cannot be any savings by pushing around which party writes the cheque as the only source of income to pay that cheque can be the end-user.
    - ghostly_s 9y ago
      Oh really? So drivers are sending their maintenance bills into Uber and getting reimbursed for them?
alejohausner 9y ago
People misunderstand Uber's motives. They are not slimy. Quite the opposite: they are a public good. The company is the front end for a giant charitable effort by venture capitalists. They are pouring money into uber, to help it drive down the costs of urban transportation, enabling people in cities to have more money available for necessities like rent, diapers, and food.
- emodendroket 9y ago
  Is this satire or what?
  - r00fus 9y ago
    It's the same reason for why "investor class" let Amazon run on negative to slim profits for so long (allowing them to compete with others that could not do this). Some (I think it was Gruber) said it's like a subsidy from Wall Street to Amazon customers. I feel that reasoning is short-sighted and dangerous.
    - emodendroket 9y ago
      Yeah, but they're not doing that out of a sense of charity; the idea is that eventually they are entrenched enough that they can jack up the prices.
    - alejohausner 9y ago
      Of course capitalists want to make money. Their primary goal is very far from charity. They don't want to improve the common weal (although publicly they say they want to help, and some even convince themselves they mean to help society, to rationalize their selfish motives). I'm a bit disturbed that people took my satire seriously. Are rich people different now? Is that what people think?
      - emodendroket 9y ago
        Frankly you could find lots of posts like this on HN which are entirely earnest.
MooBah 9y ago
Uber will live on. Just talk to the drivers - you will get it. Uber can continue churning their workforce for at least 15+ years as automation continues to whittle down the blue collar workforce.
- ohsnapman 9y ago
  This is incorrect. Ask anyone who has had an insider peek of any on-demand company's finances. The largest cost to all of these companies is employee acquisition, which continues to rise. Take your own advice and do the unscientific thing of talking to the drivers. How many of them are new? How many are old? Surprising how many of those fall into the first category.

102 points by itamarst 9y ago

dr_ 9y ago

If this is true if uber, that it has no path to profitability, isn't it also true of ubers competitors? Their price points are fairly similar and they all, at some point, offer incentives to ensure you keep using their service.

lmm 9y ago
Yes. The argument is that there simply isn't $80 billion to be made in the taxi industry; it's inherently a comodity business where boring companies should be able to make a steady 2% return rather than the kind of industry where a company that manages to sieze the market can make it back in monopoly rents.
- samstave 9y ago
  What would be interesting would be to see how far all the ridesharing revenues would have gone in actually really good public and municipal transportation and many other lifestyle changes (i.e. what if every company reduced to a 4-day work week, or at least a mandatory 1-day work from home in applicable industries.) it would be interesting to see where ridesharing investment money and the revenues the companies made could have ad a differing/better/other impact, just as a matter of looking at all possible outcomes as opposed to simply taken the state of things as a given.
the_mitsuhiko 9y ago
I think there are lots of companies that can capture the market better and for less money. Just look at mytaxi in Europe for a smaller scale conpany that is expanding rapidly.
- Finnucane 9y ago
  It's expanding rapidly because it can reach into Daimler-Benz's pockets.
  - the_mitsuhiko 9y ago
    Sure. And the service is inferior. But it's still sigificantly cheaper to operate.
bryanlarsen 9y ago
There are lots of companies out there that would be happy making tens of millions. Uber needs to make tens of billions.
onion2k 9y ago
If this is true if uber, that it has no path to profitability, isn't it also true of ubers competitors? A lot of Uber's costs to date have been proving that ride-sharing is a thing that consumers want to do (market education) and that governments don't want to stop (lobbying). Their competition get the benefit of that Uber's investment in those things for free, so it might be the case that Uber will fail and their competition won't. That's by no means saying it's definitely the case, but being the first mover has downsides as well as advantages.
- gaius 9y ago
  Forgive me if I am being slow but what is the actual difference between "ride sharing" and "unlicensed minicab"? I mean that seems to be the crux of all Uber's regulatory woes - that they are either unwilling or unable to articulate it.
  - dragonwriter 9y ago
    The difference is ride sharing is when the driver was going to do the ride anyway, and the passengers are just sharing the ride, hence the name. It's historically been mildly popular, for instance, on weekends and other breaks with trips originating at and returning to college campuses. Of course, none of the big “ride sharing companies” have anything to do with actual ride sharing.
  - onion2k 9y ago
    On the face of it there is no difference. Uber's reasoning seems to be that even if the driver is the same as a minicab that's nothing to do with Uber. All they claim to do is connect drivers with passengers in a convenient app. They say they're no more liable for the legality of the ride as the phone company is if you call a cab company that isn't compliant with the law. Many people disagree.
  - emodendroket 9y ago
    Their lobbying has actually been pretty successful; a lot of states have enshrined this stuff into law. Consider the linked (in the link) article: https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regulators-to-shut-it-down https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regu...

andriesm 9y ago

Is it just me or is this author overlaying a very strong political bias over the story of Uber?

Finnucane 9y ago
It's Naked Capitalism, so that's pretty much taken as given.
slantedview 9y ago
You can hold political bias and still present a strong analysis.
- malandrew 9y ago
  You can also hold political bias and fake a "strong" analysis, especially if your audience already agrees with or desires the outcome in your conclusion.
  - sidlls 9y ago
    True. Do you have reason to suspect that's the case in this instance?
    - malandrew 9y ago
      Many reasons, but I can't/won't elaborate. What I will say is that the author's bias has given him/her some major blinders and that s/he's become incapable of seeing ways in which s/he is wrong. My suggestion is that the author engage in a forecasting technique developed at Royal Dutch Shell known as scenario planning. One of the key features of scenario planning is that whenever you finish arriving at a conclusion, you then ask yourself the question, "the future that I predicted turned out to be wildly incorrect and X happened instead of Y. Which of my assumptions or expectations turned out to be incorrect that could lead to X happening instead of Y?" These days, this is actually a hallmark feature I look for in anyone forecasting or making predictions of any sort. If someone making a prediction has not given sufficient thought to being their own devil's advocate, it's a telltale sign of poor analysis. If you don't spend enough time doing this, you quickly get sucked into believing your own bullshit. Given the tone of this blog, do you think this author has spent enough time time poking holes in their own arguments? Have you seen many or any lines like "I believe X will happen leading to A, but it's possible that Y could happen leading to B instead and this is how it would change my predictions...". If someone's predictions don't present any possibilities for branching, they aren't being critical in their analysis, if you can even call it that. https://en.wikipedia.org/wiki/Scenario_planning https://en.wikipedia.org/wiki/Scenario_planning The list of cognitive biases the author falls victim too are numerous. Over several posts I've definitely seen lots of examples of anchoring for example. https://en.wikipedia.org/wiki/Anchoring https://en.wikipedia.org/wiki/Anchoring

blisterpeanuts 9y ago

By some measures Uber has been fabulously successful, coming from nowhere to the largest privately held company in seven years, and now a $70 billion g/publicly traded/private/ company. Uber has done a stunning job of disrupting a crony-capitalist, monopolistic system. If they are still searching for a way to make a profit, surely they'll figure it out before long. * updated to remove publicly traded

sjg007 9y ago
Uber isn't publically traded.
- the_mitsuhiko 9y ago
  Yet. The goal clearly is to rush to an IPO.
  - hluska 9y ago
    Eight months ago, I would have absolutely agreed. Heck, even a few months ago when Travis Kalanick started recruting a COO, I would have agreed that the company is trying to rush to a liquidity event. Today though, I think that rushing to an IPO would be completely irrational and end with Uber trading at a small fraction of their most recent private valuation. Right now, there is a huge vacuum at the CEO/COO/CFO troika. That, combined with the sordid Waymo lawsuit, would give any institutional investor pause before buying a strong position. Consequently, I would argue that Uber needs some strong leadership at the top, and some sort of resolution on the Waymo lawsuit before they can consider going public. I wouldn't be surprised if Uber was acquired, but I would be very surprised if Uber goes public in the next two years.
    - the_mitsuhiko 9y ago
      > Today though, I think that rushing to an IPO would be completely irrational and end with Uber trading at a small fraction of their most recent private valuation. I tend to agree. I don't think that at this point they would try to IPO but if the numbers circulating are correct they will need cash in less than a year time and it might be tricky to raise this.

cs702 9y ago

The most worrisome aspect of this essay is that it questions whether Uber has a viable business model. The OP argues that Uber will never be able to charge prices in excess of the level required by a traditional taxi/limo operator to be profitable for long enough to recoup the billions of dollars the company has burned by subsidizing the price of rides. Put another way, even if Uber drives every competing taxi/limo operator out of business, as soon as the company raises prices to cover costs -- vehicle, insurance, maintenance, fuel, credit card processing, license fees, and (at least for now) labor -- new entrants (and revived old entrants) would quickly come into the market, preventing Uber from keeping prices up. If the OP is right, Uber is truly in a precarious situation, because, as Brad Feld recently wrote: "the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment."[1] Uber doesn't seem to have a plan to make the switch. If the markets start demanding profitability (or at least a convincing plan for reaching profitability), Uber's wheels could indeed come off very quickly. [1] https://www.feld.com/archives/2017/06/lessons-internet-bubble-growth-vs-profitability.html https://www.feld.com/archives/2017/06/lessons-internet-bubbl...

deleted 9y ago
[deleted]
jballanc 9y ago
Gee, it's almost as if a municipality that valued the good provided by a shared-ride or car-for-hire service to their community would have an interest in creating an artificial monopoly for the sake of allowing such a service to operate in a profitable manner...
clairity 9y ago
the article is frustratingly light on actual reasoning about why uber can't become profitable. the tl;dr is basically "it looks bad so they're going to fail". it does look very bad but that in itself (even with the various details mentioned) doesn't shine a light on the path that uber will take to failure. it only shows that any path they could take is treacherous. it's an opinion piece with a bunch of facts thrown around but no reasoning to thread it together. i wouldn't bother putting any weight on it's conclusions (or wasting your time reading it, if you haven't).

Noxchi 9y ago

It's a question if uber can race to self driving cars fast enough. That's really the only way their financial model can make sense. They should really be seeing this as essential to their survival, like nuclear bombs in WWII. Nazi Germany had maybe 1000 people working on their version. USA had 180,000(!). I suspect in this analogy, uber is not USA. Someone else will get this rolled out first. But I'm not 100% sure.

deleted 9y ago
[deleted]
slantedview 9y ago
Not a chance they make it to self-driving in time. Maybe in 20 years we'll look back at Uber as just another company that was "too early".
Analemma_ 9y ago
> It's a question if uber can race to self driving cars fast enough. I'm not sure that's true though; I don't get the oft-repeated logic that self-driving cars will save Uber. OK, they save on labor costs, but right one now of Uber's (slimy, IMO, but significant nonetheless) major savings is pushing vehicle maintenance and deprecation costs onto their drivers. They won't be able to do that with self-driving cars: they'll have to pay operate a fleet, in direct competition with automakers.
- TheSpiceIsLife 9y ago
  > Uber's (slimy, IMO, but significant nonetheless) major savings is pushing vehicle maintenance and deprecation costs onto their drivers. This is fallacious. The end-user pays for vehicle maintenance and depreciation. There cannot be any savings by pushing around which party writes the cheque as the only source of income to pay that cheque can be the end-user.
  - ghostly_s 9y ago
    Oh really? So drivers are sending their maintenance bills into Uber and getting reimbursed for them?

alejohausner 9y ago

People misunderstand Uber's motives. They are not slimy. Quite the opposite: they are a public good. The company is the front end for a giant charitable effort by venture capitalists. They are pouring money into uber, to help it drive down the costs of urban transportation, enabling people in cities to have more money available for necessities like rent, diapers, and food.

emodendroket 9y ago
Is this satire or what?
- r00fus 9y ago
  It's the same reason for why "investor class" let Amazon run on negative to slim profits for so long (allowing them to compete with others that could not do this). Some (I think it was Gruber) said it's like a subsidy from Wall Street to Amazon customers. I feel that reasoning is short-sighted and dangerous.
  - emodendroket 9y ago
    Yeah, but they're not doing that out of a sense of charity; the idea is that eventually they are entrenched enough that they can jack up the prices.
  - alejohausner 9y ago
    Of course capitalists want to make money. Their primary goal is very far from charity. They don't want to improve the common weal (although publicly they say they want to help, and some even convince themselves they mean to help society, to rationalize their selfish motives). I'm a bit disturbed that people took my satire seriously. Are rich people different now? Is that what people think?
    - emodendroket 9y ago
      Frankly you could find lots of posts like this on HN which are entirely earnest.

MooBah 9y ago

Uber will live on. Just talk to the drivers - you will get it. Uber can continue churning their workforce for at least 15+ years as automation continues to whittle down the blue collar workforce.

ohsnapman 9y ago
This is incorrect. Ask anyone who has had an insider peek of any on-demand company's finances. The largest cost to all of these companies is employee acquisition, which continues to rise. Take your own advice and do the unscientific thing of talking to the drivers. How many of them are new? How many are old? Surprising how many of those fall into the first category.