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It's the true COST of Uber rides that is in question, not the price. In other words, does Uber have a viable business model? Some analysts think the answer is

by cs702 9y ago

It's the true COST of Uber rides that is in question, not the price. In other words, does Uber have a viable business model? Some analysts think the answer is no.[1] They argue 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. [1] For example, see http://www.nakedcapitalism.com/2017/06/wheels-come-off-uber.html http://www.nakedcapitalism.com/2017/06/wheels-come-off-uber....

mathattack 9y ago
This is why autonomous vehicles are so vital for them, no? They can undercut if they don't have to pay for drivers.
- Avshalom 9y ago
  maybe. if they basically 'rent' autonomous vehicles from people then so can any other competitor, if they have their own autonomous tech then they have to pay for upkeep of vehicles which may negate the difference and even then only they have an advantage for the theoretical slice of time between when they have the tech and others don't
  - mulmen 9y ago
    It also assumes they can make more using it for ride sharing themselves rather than licensing it to everyone.
- MaysonL 9y ago
  Are their autonomous vehicles ever going to be as good as Tesla's?
  - mulmen 9y ago
    Why would they not just buy autonomous Teslas? Or better yet, make their drivers buy autonomous Teslas.
    - mattnewton 9y ago
      Because there goes their margin?
    - Aron 9y ago
      Tesla is not allowing their vehicles to be used outside the Tesla Network e.g for Uber. It's already in the fine print.
- mulmen 9y ago
  The only way this is an advantage is if Uber themselves are the only ones with autonomous cars. With the number of other companies working on this that seems unlikely. Autonomous cars will be a commodity, I think it's unreasonable for Uber to point to that as their competitive advantage.
  - ethbro 9y ago
    From an article on here yesterday, there are also network effects to consider. Who actually has continually refreshed map and traffic data from users? Google, Apple, Uber, Lyft, Tesla, possibly some other auto manufacturers. Better data allows you to provide better autonomous route planning, which causes more people to use your app, which gives you better data, etc.
- nsgi 9y ago
  Fully autonomous cars that don't require a driver are decades away, Uber may not have that much time. When they do arrive there's sure to be a lot of competition in that space.
- microtherion 9y ago
  Even if there WERE reliable autonomous cabs in the next 10 years (and I have serious doubts), switching to them would cause new problems for Uber: (1) Right now, Uber benefits from drivers underpricing the capital costs of their cars. Maintaining their own fleet would increase their costs. (2) Part of fleet maintenance is to replace vehicles every few years. This would flood the market with autonomous vehicles, each of which could potentially become part of a competitor's network (Think Lyft, but instead of driving your car, you'd have it drop you off at work in the morning, pick you up in the evening, and in between accept autonomous rides from the public).
deleted 9y ago
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thedevil 9y ago
> as soon as the company raises prices to cover costs ... new entrants (and revived old entrants) would quickly come into the market Is it really that easy to create an Uber competitor once it's established a monopoly? If you're a driver, would you spend your time on an upstart with very few customers and similar prices? And if you're a passenger, would you use an upstart with few drivers? I'd have to have a significant financial incentive to do so (and that amount represents the excess profit Uber can charge). This is what Warren Buffett calls an "economic moat", caused by what Silicon Valley calls "network effects". Those effect looks pretty powerful in Uber's case. I think a competitor would have to come in with heavy subsidies (heavier than what Uber offers now) once Uber is established. Why do you think it will be cheaper to take monopoly power from Uber once they are established than it is for Uber now to establish monopoly power? I think it goes the other way. Of course, Uber could be thrown off by regulation or lawsuits or a technological shift. Without one of those, I would pretty confidently bet on Uber.
- robk 9y ago
  Consumers seem to be motivated by coddy and availability. If an upstart has lower prices and enough drivers I think there isn't as much of a moat. But this would require a lot of cash to subsidize. Solvable surely if not improbable.
  - valuearb 9y ago
    It's not lower prices + enough drivers, it's lower prices + enough drivers + enough app installs. It's a huge moat.
    - nrhk 9y ago
      You can run multiple apps as a driver and obviously have multiple as a consumer. They would need to subsidize rides and pay drivers more but if they do it region by region it could definitely work without being exorbitant.
valuearb 9y ago
Hubert Horan's comments and analysis on Uber have been childish since the beginning. It should not cost Uber more than a few cents to book a ride, and they should be averaging several dollars per ride in revenues. That's a huge amount of gross profit to pay marketing, development, and G&A with.

by cs702 9y ago

mathattack 9y ago

This is why autonomous vehicles are so vital for them, no? They can undercut if they don't have to pay for drivers.

Avshalom 9y ago
maybe. if they basically 'rent' autonomous vehicles from people then so can any other competitor, if they have their own autonomous tech then they have to pay for upkeep of vehicles which may negate the difference and even then only they have an advantage for the theoretical slice of time between when they have the tech and others don't
- mulmen 9y ago
  It also assumes they can make more using it for ride sharing themselves rather than licensing it to everyone.
MaysonL 9y ago
Are their autonomous vehicles ever going to be as good as Tesla's?
- mulmen 9y ago
  Why would they not just buy autonomous Teslas? Or better yet, make their drivers buy autonomous Teslas.
  - mattnewton 9y ago
    Because there goes their margin?
  - Aron 9y ago
    Tesla is not allowing their vehicles to be used outside the Tesla Network e.g for Uber. It's already in the fine print.
mulmen 9y ago
The only way this is an advantage is if Uber themselves are the only ones with autonomous cars. With the number of other companies working on this that seems unlikely. Autonomous cars will be a commodity, I think it's unreasonable for Uber to point to that as their competitive advantage.
- ethbro 9y ago
  From an article on here yesterday, there are also network effects to consider. Who actually has continually refreshed map and traffic data from users? Google, Apple, Uber, Lyft, Tesla, possibly some other auto manufacturers. Better data allows you to provide better autonomous route planning, which causes more people to use your app, which gives you better data, etc.
nsgi 9y ago
Fully autonomous cars that don't require a driver are decades away, Uber may not have that much time. When they do arrive there's sure to be a lot of competition in that space.
microtherion 9y ago
Even if there WERE reliable autonomous cabs in the next 10 years (and I have serious doubts), switching to them would cause new problems for Uber: (1) Right now, Uber benefits from drivers underpricing the capital costs of their cars. Maintaining their own fleet would increase their costs. (2) Part of fleet maintenance is to replace vehicles every few years. This would flood the market with autonomous vehicles, each of which could potentially become part of a competitor's network (Think Lyft, but instead of driving your car, you'd have it drop you off at work in the morning, pick you up in the evening, and in between accept autonomous rides from the public).

deleted 9y ago

[deleted]

thedevil 9y ago

> as soon as the company raises prices to cover costs ... new entrants (and revived old entrants) would quickly come into the market Is it really that easy to create an Uber competitor once it's established a monopoly? If you're a driver, would you spend your time on an upstart with very few customers and similar prices? And if you're a passenger, would you use an upstart with few drivers? I'd have to have a significant financial incentive to do so (and that amount represents the excess profit Uber can charge). This is what Warren Buffett calls an "economic moat", caused by what Silicon Valley calls "network effects". Those effect looks pretty powerful in Uber's case. I think a competitor would have to come in with heavy subsidies (heavier than what Uber offers now) once Uber is established. Why do you think it will be cheaper to take monopoly power from Uber once they are established than it is for Uber now to establish monopoly power? I think it goes the other way. Of course, Uber could be thrown off by regulation or lawsuits or a technological shift. Without one of those, I would pretty confidently bet on Uber.

robk 9y ago
Consumers seem to be motivated by coddy and availability. If an upstart has lower prices and enough drivers I think there isn't as much of a moat. But this would require a lot of cash to subsidize. Solvable surely if not improbable.
- valuearb 9y ago
  It's not lower prices + enough drivers, it's lower prices + enough drivers + enough app installs. It's a huge moat.
  - nrhk 9y ago
    You can run multiple apps as a driver and obviously have multiple as a consumer. They would need to subsidize rides and pay drivers more but if they do it region by region it could definitely work without being exorbitant.

valuearb 9y ago

Hubert Horan's comments and analysis on Uber have been childish since the beginning. It should not cost Uber more than a few cents to book a ride, and they should be averaging several dollars per ride in revenues. That's a huge amount of gross profit to pay marketing, development, and G&A with.