9 ms·

The true cost of an Uber ride is higher than it seems

pyrale 9y ago
> "This is critical because it suggests we're dealing with a charity case in disguise." Since when has dumping become "charity in disguise" ?
- conanbatt 9y ago
  Dumping IS charity.
wskinner 9y ago
This is 10 months old. Can we add a (2016)?
tristanj 9y ago
>Uber passengers were paying only 41% of the actual cost of their trips ... That means your $25 trip into Manhattan from Brooklyn should actually cost around $60. Investors in the private company are currently footing the other $35 (most!) of your fare. Ehhh I don't buy the thesis. The author is suggesting all Uber rides run at a loss, but Uber makes a killing on some rides. Not every ride is subsidized, I've paid $60 for a 20 minute ride through LA during surge pricing, and I'm certain both Uber and the drive made a profit off me. I've seen stories of $300+ Uber rides too. There's no way Uber and drivers don't make money off these. I know many rides are subsidized and Uber loses some money on them, but implying Uber's business model is a failure based off average cost is a fallacy.
- gtm1260 9y ago
  I agree, there is no way that anyone outside of Uber has accurate figures on the profit/loss of any ride.
- onlyrealcuzzo 9y ago
  Looks like the author is being intentionally deceptive. Uber lost $1.27bn globally (mostly in China AFAIK), but only $100m in the US. The author spent all his time talking about the US, and then tried to group the global loss onto the price of all rides. Not all rides are equal. Not all loses come from driver wages. Big overhead and marketing costs trying out the Chinese market. Uber booked well over 100M US rides. I think 400M, but I can't find a reliable source ATM. You do the math. Uber rides don't cost an average of $2 in the US. Uber isn't paying 50% of our bill in the US.
  - Retric 9y ago
    You can't run a company at break even, you need profit from the average ride. So, if it's a ~50 billion dollar company making 4% or 2 billion in profit per year, and the US is 10% of that profit they need to charge an average of 6$ more per ride. Which is flat out not going to happen without reducing the number of riders thus pushing up prices even more. Which is why it's not a 50 Billion dollar company long term.
    - mseebach 9y ago
      The argument is that they are turning a profit on the average ride in mature markets, and losing money on the average ride in emerging ones. Right now, because they are trying to grow quickly, they have a lot more emerging market rides than mature market rides, and so the average across all rides looks pretty bad. This is perfectly common for companies starting up business in new markets. The trick is to turn emerging markets into mature ones. If indeed Uber is losing money on their local operations plus non-growth overhead, then it's bad. But we don't have those numbers.
      - Retric 9y ago
        Uber is 8 years old and still losing money on the US market. I have no problem saying they could eventually break even by adding ~2$ a ride in the US. But, that's only enough to be a multi million dollar company to be a multi billion dollar company they need to raise the price 5+$ in the US and the rest of the world without losing ridership. Now, increasing prices reduces demand... So, to be a 50 billion dollar company they would need to keep a huge ridership while charging ~twice as much on average. Or charge ~5+$ more per ride while becoming a monopoly. QED: They have zero paths to maintain their current valuation let alone growth to offset the risk of failure.
chairmanwow 9y ago
I'm not sure that I buy the logic of "Winner take all" in the TNC space. The service is intrinsically localized. There were competitors in NYC that I had never heard of before after living in SF, and SF companies that New Yorkers had never heard of. Furthermore, their is little efficiency to operating such a business at scale. The marginal cost of each ride is the same. I can see some strong network effects from travelers, but that doesn't prevent a service from cropping up in a local market that can compete with Uber. All of the scenarios that I see where Uber can grind out competitors is by continually operating at a loss? I would imagine that eventually investors would tire of such a position.
- amelius 9y ago
  Uber looks increasingly like a Ponzi scheme, where early investors get all the money (salary) and late investors pay the bills.
- saimiam 9y ago
  Wait till Uber (and others) launches a rewards points system. All they have to do is to give regular riders some multiple of their number of completed rides. People will willingly lock themselves inside the Uber World network to earn points. Leading the charge will be people like The Points Guy. Then comes co-branded credit cards. The endgame is to replicate the airline industry - 4-5 companies controlling everything.
  - mattnewport 9y ago
    Seems they're already replicating the airline industry by constantly losing money.
    - lenley 9y ago
      This. Airlines are not a favorable model. Airlines irrationally invest, deal with fuel costs they have to partially hedge, can't store capacity... the list goes on.
  - gnicholas 9y ago
zurn 9y ago
What's the "actual cost" they compare to? It needs to include environmental externalities like CO2 contribution to global warming.
- vixen99 9y ago
  And there's endless debate about what that is. If you disagree with that statement then please give a definitive universally-accepted (by those able to assess the methodology) value for the climate sensitivity. There isn't one. Currently as far as I can tell, values up for that debate range from < 1 to 5.5.
  - fulafel 9y ago
    That applies to costs in general though. Prices are noisy signals. But there is price information available in co2 credit trading systems.
otakucode 9y ago
>"Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares." Wouldn't that constitute very clear violation of the Sherman Antitrust Act and be considered profound anticompetitive behavior? I'm fuzzy on specifics, but I thought offering your product at a loss to drive away or outlast competitors was one of the big giant no-nos alongside price-fixing. Is the person doing the analysis just interpreting the numbers in that way because they're not showing a profit? Or, in other words, would the FTC be likely to interpret the situation in the same way?
- tossaway1 9y ago
  Wouldn't that just be the same as any loss leader, which are not illegal in general...
  - rayiner 9y ago
    Loss leaders are products priced under cost to get customers in the door to buy your other products. Selling your only product below cost in order to kill competitors is antitrust dumping. Luckily, antitrust enforcement in the US is a joke.
- yjftsjthsd-h 9y ago
  I could very easily be wrong, but I thought that only counted if you were a monopoly or coordinating with other companies? I mean, it's the "Antitrust" act. Would love it if anybody could clarify this.
  - gnicholas 9y ago
    Correct. You can only get in trouble under antitrust laws if you're a big fish in the "relevant market". Defining this term is generally where all the fighting centers, because it makes or breaks the case. And in the case of Uber, they would argue that cabs are part of the same market. Including cabs (and not just Lyft) would make the market big enough that Uber would not be considered to have monopoly power. (Even with just Lyft, this is probably also the case.) Source: I was a summer law clerk for the antitrust department of the CA DOJ.
devdad 9y ago
This is so absurd - a company that loses $1.27 billion is seen as a market leader. Only in tech is this a possibility. A manufacturing company would be closed for years before they can even achieve such losses.
- amelius 9y ago
  Their pricing scheme is also illegal or of dubious character, [1]: > Predatory pricing (also undercutting) is a risky and dubious pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. > ... > Nowadays predatory pricing is considered anti-competitive in many jurisdictions and is illegal under competition laws. However, it can be difficult to prove that prices dropped because of deliberate predatory pricing rather than legitimate price competition. In any case, competitors may be driven out of the market before the case is ever heard. [1] https://en.wikipedia.org/wiki/Predatory_pricing https://en.wikipedia.org/wiki/Predatory_pricing
- blarbspecial 9y ago
  @devdad sorry for posting here - could not respond to an old thread - can you disclose what's your consultancy domain / focus? thx
newscracker 9y ago
In my opinion, the true cost of a Uber ride is much higher on society, rules, ethics and other aspects. The money that Uber loses (or the rider gains) isn't even on my radar. Massive VC funding, "winner takes all" assumptions, and the primary goal being "acquire the entire world market" are propelling many companies forward and making our world a comparatively worse place (when looked at along side benefits).
- an_account 9y ago
  In the case of “ridesharing”, how is it making the world a worse place? It’s not clear that this market is winner take all. Rides are very cheap for consumers on Uber or Lyft. The experience is MUCH better than cabs in every city except maybe NYC. Drunk drivers are reduced. So far it looks like the loser is going to be VCs. What’s wrong with that?
  - kesselvon 9y ago
    Turns taxi industry into a subsistence workforce. Uber drivers get screwed in the equation once you factor in all the costs and depreciation, then uber sucks up the profits and takes them out of local communities. The sharing/on-demand economy is incredibly cruel to the 1099s doing the heavy lifting
valuearb 9y ago
The Naked Capitalism analysis was a joke, and there literally is no evidence supporting their conclusions. Imagine Uber issues a financial report saying they lose $3B in a year on $2B in revenues (total spending $5B). We also know they opened over 100 new markets that year, and in new markets spend an average of over $100 each to recruit new drivers. So what’s the truth? That passengers are only paying 40% if Uber’s ride costs? Or that Uber front loaded billions in new market development costs internationally, while more mature markets like the US are already close to profitability? Naked Capitalism would have you believe the first scenario, without enough detail in Uber financial reports to give any idea which scenario is true. Some of us despise Uber so much, that unfounded speculation by NC tells them what they want to hear, so they turn off all critical thinking about it. Not only does this article ignore rapidly improving Uber financials since the NC takedown, but that booking a ride costs Uber pennies. Their share of the ride revenues is dollars. How is that not going to be super profitable once new market development costs ramp down?
- graycat 9y ago
  > that booking a ride costs Uber pennies. Their share of the ride revenues is dollars. How is that not going to be super profitable once new market development costs ramp down? Because Uber has no business "barrier to entry" for the ride booking: Other people can write smartphone apps that talk to the cloud or whatever also. If the money involved in the app is dollars from pennies, then others will be highly motivated to write the app. So, the taxi business can return to small, local operators who also use a smartphone app. Then the dollars Uber is getting stay with the driver and/or their local company. Uh, mostly the taxi business is a local business. To me, for a centralized company to hope to make big bucks, or even any bucks at all, in the taxi business is wack-o. For self-driving taxis, okay, for Level 3 automation, but that doesn't help much. What might help would be Level 5 automation, but IMHO that would require essentially full, real AI, and no one knows how to do that. Thus, to me, the idea that the taxi business will be affected by self-driving cars is just nonsense hype -- the media likes to have hype to get clicks.
  - valuearb 9y ago
    The Taxi business used to be a local business. It used to be insular and protected from competition by cozy relationships with regulators. That’s no longer true. Uber is on hundreds of millions of phones. It’s incredibly expensive to get your apps on phones nowadays. And saying other people can write apps that talk to the cloud is a massive oversimplification, building a system that tracks tend of thousands of simultaneous transactions while giving real-time updates to drivers and riders, with 99.xx% uptime, and web/android/ios front ends, is a massively expensive effort. Lastly even if you spend hundreds of millions getting your apps on phones and building real-time infrastructure, no one is going to use your service until you acquire a massive amount of drivers in their market. Uber’s brand, which includes that massive bases of installed apps and active drivers, is a huge competitive advantage. It’s the reason 6x more riders choose Uber over Lyft every day, despite Lyft having app installs, drivers, real time software, and despite Uber itself spending the last year or so shutting on their own brand with their tawdry behavior. Even if you target Uber in a single market or small set of markets to reduce your investment costs for acquiring app installs and drivers, but now your infrastructure costs can’t be amortized over as large a base, making you a high cost competitor.
graycat 9y ago
Yes, maybe Uber loses money on each ride, but they make it up on the volume?
deleted 9y ago
[deleted]

> "This is critical because it suggests we're dealing with a charity case in disguise." Since when has dumping become "charity in disguise" ?

conanbatt 9y ago
Dumping IS charity.

wskinner 9y ago

This is 10 months old. Can we add a (2016)?

tristanj 9y ago

>Uber passengers were paying only 41% of the actual cost of their trips ... That means your $25 trip into Manhattan from Brooklyn should actually cost around $60. Investors in the private company are currently footing the other $35 (most!) of your fare. Ehhh I don't buy the thesis. The author is suggesting all Uber rides run at a loss, but Uber makes a killing on some rides. Not every ride is subsidized, I've paid $60 for a 20 minute ride through LA during surge pricing, and I'm certain both Uber and the drive made a profit off me. I've seen stories of $300+ Uber rides too. There's no way Uber and drivers don't make money off these. I know many rides are subsidized and Uber loses some money on them, but implying Uber's business model is a failure based off average cost is a fallacy.

gtm1260 9y ago
I agree, there is no way that anyone outside of Uber has accurate figures on the profit/loss of any ride.
onlyrealcuzzo 9y ago
Looks like the author is being intentionally deceptive. Uber lost $1.27bn globally (mostly in China AFAIK), but only $100m in the US. The author spent all his time talking about the US, and then tried to group the global loss onto the price of all rides. Not all rides are equal. Not all loses come from driver wages. Big overhead and marketing costs trying out the Chinese market. Uber booked well over 100M US rides. I think 400M, but I can't find a reliable source ATM. You do the math. Uber rides don't cost an average of $2 in the US. Uber isn't paying 50% of our bill in the US.
- Retric 9y ago
  You can't run a company at break even, you need profit from the average ride. So, if it's a ~50 billion dollar company making 4% or 2 billion in profit per year, and the US is 10% of that profit they need to charge an average of 6$ more per ride. Which is flat out not going to happen without reducing the number of riders thus pushing up prices even more. Which is why it's not a 50 Billion dollar company long term.
  - mseebach 9y ago
    The argument is that they are turning a profit on the average ride in mature markets, and losing money on the average ride in emerging ones. Right now, because they are trying to grow quickly, they have a lot more emerging market rides than mature market rides, and so the average across all rides looks pretty bad. This is perfectly common for companies starting up business in new markets. The trick is to turn emerging markets into mature ones. If indeed Uber is losing money on their local operations plus non-growth overhead, then it's bad. But we don't have those numbers.
    - Retric 9y ago
      Uber is 8 years old and still losing money on the US market. I have no problem saying they could eventually break even by adding ~2$ a ride in the US. But, that's only enough to be a multi million dollar company to be a multi billion dollar company they need to raise the price 5+$ in the US and the rest of the world without losing ridership. Now, increasing prices reduces demand... So, to be a 50 billion dollar company they would need to keep a huge ridership while charging ~twice as much on average. Or charge ~5+$ more per ride while becoming a monopoly. QED: They have zero paths to maintain their current valuation let alone growth to offset the risk of failure.

chairmanwow 9y ago

I'm not sure that I buy the logic of "Winner take all" in the TNC space. The service is intrinsically localized. There were competitors in NYC that I had never heard of before after living in SF, and SF companies that New Yorkers had never heard of. Furthermore, their is little efficiency to operating such a business at scale. The marginal cost of each ride is the same. I can see some strong network effects from travelers, but that doesn't prevent a service from cropping up in a local market that can compete with Uber. All of the scenarios that I see where Uber can grind out competitors is by continually operating at a loss? I would imagine that eventually investors would tire of such a position.

amelius 9y ago
Uber looks increasingly like a Ponzi scheme, where early investors get all the money (salary) and late investors pay the bills.
saimiam 9y ago
Wait till Uber (and others) launches a rewards points system. All they have to do is to give regular riders some multiple of their number of completed rides. People will willingly lock themselves inside the Uber World network to earn points. Leading the charge will be people like The Points Guy. Then comes co-branded credit cards. The endgame is to replicate the airline industry - 4-5 companies controlling everything.
- mattnewport 9y ago
  Seems they're already replicating the airline industry by constantly losing money.
  - lenley 9y ago
    This. Airlines are not a favorable model. Airlines irrationally invest, deal with fuel costs they have to partially hedge, can't store capacity... the list goes on.
- gnicholas 9y ago

zurn 9y ago

What's the "actual cost" they compare to? It needs to include environmental externalities like CO2 contribution to global warming.

vixen99 9y ago
And there's endless debate about what that is. If you disagree with that statement then please give a definitive universally-accepted (by those able to assess the methodology) value for the climate sensitivity. There isn't one. Currently as far as I can tell, values up for that debate range from < 1 to 5.5.
- fulafel 9y ago
  That applies to costs in general though. Prices are noisy signals. But there is price information available in co2 credit trading systems.

otakucode 9y ago

>"Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares." Wouldn't that constitute very clear violation of the Sherman Antitrust Act and be considered profound anticompetitive behavior? I'm fuzzy on specifics, but I thought offering your product at a loss to drive away or outlast competitors was one of the big giant no-nos alongside price-fixing. Is the person doing the analysis just interpreting the numbers in that way because they're not showing a profit? Or, in other words, would the FTC be likely to interpret the situation in the same way?

tossaway1 9y ago
Wouldn't that just be the same as any loss leader, which are not illegal in general...
- rayiner 9y ago
  Loss leaders are products priced under cost to get customers in the door to buy your other products. Selling your only product below cost in order to kill competitors is antitrust dumping. Luckily, antitrust enforcement in the US is a joke.
yjftsjthsd-h 9y ago
I could very easily be wrong, but I thought that only counted if you were a monopoly or coordinating with other companies? I mean, it's the "Antitrust" act. Would love it if anybody could clarify this.
- gnicholas 9y ago
  Correct. You can only get in trouble under antitrust laws if you're a big fish in the "relevant market". Defining this term is generally where all the fighting centers, because it makes or breaks the case. And in the case of Uber, they would argue that cabs are part of the same market. Including cabs (and not just Lyft) would make the market big enough that Uber would not be considered to have monopoly power. (Even with just Lyft, this is probably also the case.) Source: I was a summer law clerk for the antitrust department of the CA DOJ.

devdad 9y ago

This is so absurd - a company that loses $1.27 billion is seen as a market leader. Only in tech is this a possibility. A manufacturing company would be closed for years before they can even achieve such losses.

amelius 9y ago
Their pricing scheme is also illegal or of dubious character, [1]: > Predatory pricing (also undercutting) is a risky and dubious pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. > ... > Nowadays predatory pricing is considered anti-competitive in many jurisdictions and is illegal under competition laws. However, it can be difficult to prove that prices dropped because of deliberate predatory pricing rather than legitimate price competition. In any case, competitors may be driven out of the market before the case is ever heard. [1] https://en.wikipedia.org/wiki/Predatory_pricing https://en.wikipedia.org/wiki/Predatory_pricing
blarbspecial 9y ago
@devdad sorry for posting here - could not respond to an old thread - can you disclose what's your consultancy domain / focus? thx

newscracker 9y ago

In my opinion, the true cost of a Uber ride is much higher on society, rules, ethics and other aspects. The money that Uber loses (or the rider gains) isn't even on my radar. Massive VC funding, "winner takes all" assumptions, and the primary goal being "acquire the entire world market" are propelling many companies forward and making our world a comparatively worse place (when looked at along side benefits).

an_account 9y ago
In the case of “ridesharing”, how is it making the world a worse place? It’s not clear that this market is winner take all. Rides are very cheap for consumers on Uber or Lyft. The experience is MUCH better than cabs in every city except maybe NYC. Drunk drivers are reduced. So far it looks like the loser is going to be VCs. What’s wrong with that?
- kesselvon 9y ago
  Turns taxi industry into a subsistence workforce. Uber drivers get screwed in the equation once you factor in all the costs and depreciation, then uber sucks up the profits and takes them out of local communities. The sharing/on-demand economy is incredibly cruel to the 1099s doing the heavy lifting

valuearb 9y ago

The Naked Capitalism analysis was a joke, and there literally is no evidence supporting their conclusions. Imagine Uber issues a financial report saying they lose $3B in a year on $2B in revenues (total spending $5B). We also know they opened over 100 new markets that year, and in new markets spend an average of over $100 each to recruit new drivers. So what’s the truth? That passengers are only paying 40% if Uber’s ride costs? Or that Uber front loaded billions in new market development costs internationally, while more mature markets like the US are already close to profitability? Naked Capitalism would have you believe the first scenario, without enough detail in Uber financial reports to give any idea which scenario is true. Some of us despise Uber so much, that unfounded speculation by NC tells them what they want to hear, so they turn off all critical thinking about it. Not only does this article ignore rapidly improving Uber financials since the NC takedown, but that booking a ride costs Uber pennies. Their share of the ride revenues is dollars. How is that not going to be super profitable once new market development costs ramp down?

graycat 9y ago
> that booking a ride costs Uber pennies. Their share of the ride revenues is dollars. How is that not going to be super profitable once new market development costs ramp down? Because Uber has no business "barrier to entry" for the ride booking: Other people can write smartphone apps that talk to the cloud or whatever also. If the money involved in the app is dollars from pennies, then others will be highly motivated to write the app. So, the taxi business can return to small, local operators who also use a smartphone app. Then the dollars Uber is getting stay with the driver and/or their local company. Uh, mostly the taxi business is a local business. To me, for a centralized company to hope to make big bucks, or even any bucks at all, in the taxi business is wack-o. For self-driving taxis, okay, for Level 3 automation, but that doesn't help much. What might help would be Level 5 automation, but IMHO that would require essentially full, real AI, and no one knows how to do that. Thus, to me, the idea that the taxi business will be affected by self-driving cars is just nonsense hype -- the media likes to have hype to get clicks.
- valuearb 9y ago
  The Taxi business used to be a local business. It used to be insular and protected from competition by cozy relationships with regulators. That’s no longer true. Uber is on hundreds of millions of phones. It’s incredibly expensive to get your apps on phones nowadays. And saying other people can write apps that talk to the cloud is a massive oversimplification, building a system that tracks tend of thousands of simultaneous transactions while giving real-time updates to drivers and riders, with 99.xx% uptime, and web/android/ios front ends, is a massively expensive effort. Lastly even if you spend hundreds of millions getting your apps on phones and building real-time infrastructure, no one is going to use your service until you acquire a massive amount of drivers in their market. Uber’s brand, which includes that massive bases of installed apps and active drivers, is a huge competitive advantage. It’s the reason 6x more riders choose Uber over Lyft every day, despite Lyft having app installs, drivers, real time software, and despite Uber itself spending the last year or so shutting on their own brand with their tawdry behavior. Even if you target Uber in a single market or small set of markets to reduce your investment costs for acquiring app installs and drivers, but now your infrastructure costs can’t be amortized over as large a base, making you a high cost competitor.

graycat 9y ago

Yes, maybe Uber loses money on each ride, but they make it up on the volume?

deleted 9y ago

[deleted]