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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 pri
by 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 agoGee, 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 agothe 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).
- cs702 9y agoFYI, the OP links to a 10-part series of posts about Uber's economics by someone with decades of experience in the transportation industry. Here's a link to part one: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
- frgtpsswrdlame 9y ago*ten-part It's still going: http://www.nakedcapitalism.com/2017/06/can-uber-ever-deliver-part-ten-uber-death-watch-begins.html http://www.nakedcapitalism.com/2017/06/can-uber-ever-deliver...
- cs702 9y agoThanks. I fixed it.
- Animats 9y agoFrom that series: Uber’s real problem is that it is a staggeringly unprofitable company with fundamentally uncompetitive economics. It lost $2 billion in 2015, $3 billion in 2016, and another billion in China. It is a higher cost, less efficient producer of taxi service than traditional operators; all of its growth is explained by these multi-billion dollar subsidies as it has flooded markets with additional capacity offering unprofitably low fares. It has none of the scale or network economies that allowed other startups to quickly grow into profitability. In its fifth year of operation Facebook had achieved 25% profit margins; in Uber’s fifth year its profit margins were negative 149%. Absolute Uber losses have continued to worsen with recent growth. Margins improved somewhat in 2016, but only because Uber unilaterally reduced driver compensation by $1 billion, leading to news reports of drivers sleeping in the cars in order to make ends meet. Uber never had any hope of profitability in a competitive market, even at its present scale. That's Uber's big problem.
- curun1r 9y ago
- epistasis 9y agoHN's discussion last year on this blog's more thorough analysis of the economics: https://news.ycombinator.com/item?id=13079023 https://news.ycombinator.com/item?id=13079023
- SilasX 9y ago> 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. Not true -- Uber has a permanent moat, which is their steadfast, solitary willingness to be a no-tipping oasis, which others equally refuse to replicate. Oh, wait: https://news.ycombinator.com/item?id=14596529 https://news.ycombinator.com/item?id=14596529
- emodendroket 9y agoEven if they didn't do that, there's nothing stopping a competitor from having the same policy.
- SilasX 9y agoNothing except the fact that there seems to be an extreme taboo that makes everyone steadfastly refuse to do it with the same fervor.
- emodendroket 9y agoIf it were really the only thing giving Uber a monopoly on the market I guarantee somebody else would lose their scruples.
- vec 9y agoTipping isn't about scruples. Businesses with scruples would pay their employees a fair wage and price accordingly. And then immediately go out of business as everyone flocks to the competitor that's magically 20% cheaper (before the essentially mandatory 20% tip). Tipping is entirely about being able to advertise a lower price than the actual customer cost. Unfortunately that is extremely effective, so if one company in a market accepts tips all the others basically have to.
- emodendroket 9y agoWell, yeah, exactly, that's what the guys on Naked Capitalism have been saying for a while. Even if they establish their monopoly there is no barrier to entry for new competitors.
- Kurtz79 9y agoThe same could be said for Google.
- emodendroket 9y agoHow do you figure? How can somebody replicate Google's services without a tremendous investment in both hardware and software?
- gknoy 9y agoI think that's the point, though. To compete (as a new entrant) with Uber+Lyft, wouldn't you need to build infrastructure, win mindshare with drivers + passengers, and all the other things that Lyft and Uber have been spending years doing?
- emodendroket 9y agoThe argument of the 10-part series they put out on Uber is that main expense is the actual transportation, and you can't achieve meaningful economies of scale, which is the reason that livery services never expanded beyond regional monopolies previously. Relatively speaking the software is a commodity (and traditional taxi services remain competitors to Uber anyway -- likely more attractive in many cases if you take away the subsidized price difference).
- Kurtz79 9y agoYes, that was more or less my point. And also Uber (more than Lyft) it's by far the major player, it's entrenched in people's imagination as the representative of the very service it provides, and it just works. "Call an Uber" is as idiomatic today as "Google something".
- prostoalex 9y agoPrice comparison against current taxi services operating in the US is akin to a price comparison of a complex medical procedure across US medical providers - there's a lack of transparency around pricing, and a bunch of gotchas, such as the driver not taking the optimal route or frowning at you for a mere 10% tip. So until taxicab operators in major cities get a nifty app with guaranteed pricing most of people would just limit the price comparison to Uber vs Lyft.
- xbmcuser 9y agoIn Singapore grab has added taxi's to it's fixed price or you can book a taxi with normal meter fare. At peak periods taxi with meter is about 25-35% cheaper and without peak 5-10% cheaper. The government has also allowed taxi companies to offer fixed fares from their apps the way things are going I don't think uber will be able to compete very long if it actually tries to be profitable.
- SimbaOnSteroids 9y agoI don't believe this non-equitable business model holds true when automated vehicles become an option. That is, I don't think Uber itself has a viable business model because they've sunk too much cash too quickly to be around long enough for it to be a great model. However whomever has a fleet of automated vehicles could easily divert resources into an uber-like ride sharing app.
- concede_pluto 9y agoCities that limit the number of taxi drivers allowed to work are demonstrating that there's a viable market-clearing price lower than current taxi rates.