9 ms·

Then apparently it is impossible to run a SaaS app connecting drivers and passengers for a ~25% cut of current prices. That seems pretty unlikely. We need to m

Then apparently it is impossible to run a SaaS app connecting drivers and passengers for a ~25% cut of current prices. That seems pretty unlikely. We need to move on from this unsupportable "ride sharing pricing is unsustainable" narrative.

UncleEntity 9y ago
Unsupportable for the drivers or the company? A driver tears up their car there's a ton of people to replace them but that isn't very supportable on the individual level.
- moduspol 9y ago
  If the individual driver doesn't think they're getting paid enough, that's fine. They don't have to drive for a ride-sharing company. But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. That means the only way VCs could be "subsidizing" the price is if the remainder of the price (the cut Uber takes) is too low, which is difficult to imagine. We already know what's actually happening--they're spending a ton of money expanding into new geographic areas and new markets (like Uber Eats). Yet that doesn't stop every Uber discussion on HN from becoming about the bubble popping on "subsidized" ride prices.
  - Jasper_ 9y ago
    > But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. Why do you say that? It's well-known that they've toyed in every possible way with driver rates, including showing different rates to the consumer and the driver in an attempt to hide lower-than-market-rate wages.
    - dnautics 9y ago
      In the end the driver has to eat, so whatever deception Uber does on the driver pay side is not really sustainable if it doesn't in the end meet the driver market (I was a driver for 1.5 yrs)
    - moduspol 9y ago
      They still have the drivers. I'm not even endorsing it--but even at worst, that means drivers are subsidizing the ride prices, not investors. I don't think they are, though. If they were, they'd be having trouble keeping drivers working and we'd see complaints about long waits and unavailability.
      - emodendroket 9y ago
        If the prices they have are too low to pay the drivers and maintain a profit then the drivers are not the party subsidizing anything.
        moduspol 9y ago
        The prices are verifiably not too low to pay the drivers because they do pay the drivers at the prices they're using. If the drivers are being paid below market rate and still driving for them, then they are the ones subsidizing.
        emodendroket 9y ago
        I don't think you understand. Uber loses money on every ride. The only reason they can set such low prices is they're burning through investors' money.
        moduspol 9y ago
        No--the only reason they can pursue growth into new geographic areas and pursue new business models (like Uber eats) is because they're burning through investors' money. That in no way implies that their rides would not profitable if they were not spending so much on growth. But that's basically every business focused on growth.
        emodendroket 9y ago
        Here is a short summary of their earlier series on the topic: https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22-billion-9-months https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22... > In an epic five-part series of blog posts, transportation industry analyst Hubert Horan lays out the case for skepticism about Uber’s hype. In his view, Uber just doesn’t have a cost advantage over its competitors the way Amazon did. Amazon saved money by getting rid of expensive retail stores and sales clerks. In contrast, an Uber ride still requires a car, a driver, and some fuel just like a conventional taxi ride. So there isn’t much room for Uber to undercut its competitors. > “This industry has a simple cost structure,” Horan told me in January. “Labor is about 58 percent, fuel is 9 percent, and so forth.” > Of course, this flies in the face of many customers’ experiences. It sure seems like Uber has figured out how to provide a cleaner, faster ride at a lower fare. But Horan argues that this is entirely a reflection of the subsidies provided by Uber’s investors. Uber rides aren’t actually cheaper to provide than conventional taxi rides, Horan believes, it just seems like it because Uber is taking a loss on every ride. > An obvious objection here is that Uber’s investors are not idiots. They know perfectly well that “lose money on every ride and make it up on volume” isn’t a viable business model. And when they made their investments, they presumably had access to internal financial data that isn’t available to the rest of us. It seems very unlikely that Uber could convince investors to give it $11 billion to continue pursuing a business model whose numbers didn’t add up. > Horan told me Uber is accepting big losses now in an effort to drive conventional taxi companies and rivals like Lyft out of business. “Their growth is predatory,” Horan argued. “They are trying to displace more efficient producers.” The article I linked also offers an argument against this logic, but I'm not persuaded by it.
  - UncleEntity 9y ago
    > But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. Sure they have drivers still...a whole lot of people who are basically just cashing out the equity on their cars today to make a couple bucks on the side.
emodendroket 9y ago
I don't think I follow. There's nothing impossible about running a livery service with a cell phone application for hailing, but I don't think current prices are sustainable. It is not a business with substantial economies of sale.
- moduspol 9y ago
  Well, drivers are voluntarily choosing to drive for what they're getting paid. Riders are voluntarily choosing to pay the quoted price. Uber takes a cut from the price to run the part of the business that isn't actually driving cars. The only way the price is subsidized is if the business couldn't be run without Uber's cut covering the non-driving parts of the business, which is unlikely. They're taking ~25% (or more) on each fare. That's a huge margin for a SaaS app and administrative work. If Uber disappeared tomorrow, it would not be that difficult for someone to build something similarly and price it the same way. In many areas, it's already happened. That suggests the price is not unsustainable.
  - emodendroket 9y ago
    On the other hand, they're losing billions of dollars.
    - moduspol 9y ago
      Yep. It does cost money to expand into new geographic areas or markets (like Uber eats). That doesn't indicate that ride prices are subsidized, though.
      - alonmower 9y ago
        As I understood it when they enter new markets (and maybe in other cases?) they sometimes end up paying out the drivers more than the rider paid. I personally remember a handful of occasions in SF when they had absurdly low rates for some period of time (like the two dollar rides when UberPool first started) where they were definitely losing money on every ride.
Jasper_ 9y ago
The expensive part of Uber isn't the SaaS app or even the engineers. It's the overhead of running a law-avoiding lobbying business that explicitly seeks out to just do everything as evil as possible. Hell, Uber tried being a predatory car loan business for quite some time, which you would think would be one of the easiest ways to make surefire money, but they lost on that one too: http://www.businessinsider.com/uber-subprime-auto-loans-running-it-off-the-road-2017-8 http://www.businessinsider.com/uber-subprime-auto-loans-runn...
- moduspol 9y ago
  Even if your claim were supportable, it wouldn't explain how competitors not "seeking out to just do everything as evil as possible" have competitive prices.
  - zanny 9y ago
    Because the competitors are like comparing Sonic to Comcast. One operates in one state between two cities and has a hundred thousand customers. The other is a national monopoly that abuses over a hundred million people. Sonic can be competitive with Comcast where it operates, but it is still a tiny blip on Comcasts radar. Uber has way, way more market volume and penetration than any one competitor, and in many places are the only game in town.
  - Jasper_ 9y ago
    There can be an argument that Uber's expensive policy-mongering is enabling the competition. Lyft doesn't have to do any lobbying, it just has to lie in its wake while Uber does everything for it pretending to be the nicer company. As long as Uber is out there wreaking regulation havoc, Lyft is happy to sit back and let Uber do that. Perhaps Lyft doesn't want Uber to die, since they're basically the ones spending money to make Lyft viable at all.
    - moduspol 9y ago
      Then it's very polite of Lyft to price competitively to allow Uber to stay relevant when they could easily undercut them, due to their much smaller line item for "expensive policy-mongering." This is conspiracy-theory level evidence and rationalizing.
Someone 9y ago
Such a business can be sustainable, but the questions are whether it warrants Uber’s valuation and whether getting customers is worth the amount of money Uber pays for it. Apparently some investors think the answer to both is yes. Otherwise, Uber wouldn’t get the money they get. Other people disagree, though. I’m one of them. I think it is worthwhile to invest in getting some users to your platform, but I fear they attract way too many customers who are cost conscious, and will move to a different provider without blinking an eye.
- moduspol 9y ago
  I'm responding to this question: > what if the model of both businesses just isn't actually viable without massive injections of funds? I don't know if Uber's valuation or investors are correct. The question is whether or not the business (or one like it) can fundamentally exist without investors pouring money into it. By your claim, it sounds like you'd agree with me because a competitor is likely to emerge with similar or cheaper rates. I agree. But that in no way supports parent's claim that the price (or business model) may be unsustainable.

UncleEntity 9y ago

Unsupportable for the drivers or the company? A driver tears up their car there's a ton of people to replace them but that isn't very supportable on the individual level.

moduspol 9y ago
If the individual driver doesn't think they're getting paid enough, that's fine. They don't have to drive for a ride-sharing company. But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. That means the only way VCs could be "subsidizing" the price is if the remainder of the price (the cut Uber takes) is too low, which is difficult to imagine. We already know what's actually happening--they're spending a ton of money expanding into new geographic areas and new markets (like Uber Eats). Yet that doesn't stop every Uber discussion on HN from becoming about the bubble popping on "subsidized" ride prices.
- Jasper_ 9y ago
  > But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. Why do you say that? It's well-known that they've toyed in every possible way with driver rates, including showing different rates to the consumer and the driver in an attempt to hide lower-than-market-rate wages.
  - dnautics 9y ago
    In the end the driver has to eat, so whatever deception Uber does on the driver pay side is not really sustainable if it doesn't in the end meet the driver market (I was a driver for 1.5 yrs)
  - moduspol 9y ago
    They still have the drivers. I'm not even endorsing it--but even at worst, that means drivers are subsidizing the ride prices, not investors. I don't think they are, though. If they were, they'd be having trouble keeping drivers working and we'd see complaints about long waits and unavailability.
    - emodendroket 9y ago
      If the prices they have are too low to pay the drivers and maintain a profit then the drivers are not the party subsidizing anything.
      - moduspol 9y ago
        The prices are verifiably not too low to pay the drivers because they do pay the drivers at the prices they're using. If the drivers are being paid below market rate and still driving for them, then they are the ones subsidizing.
        emodendroket 9y ago
        I don't think you understand. Uber loses money on every ride. The only reason they can set such low prices is they're burning through investors' money.
        moduspol 9y ago
        No--the only reason they can pursue growth into new geographic areas and pursue new business models (like Uber eats) is because they're burning through investors' money. That in no way implies that their rides would not profitable if they were not spending so much on growth. But that's basically every business focused on growth.
        emodendroket 9y ago
        Here is a short summary of their earlier series on the topic: https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22-billion-9-months https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22... > In an epic five-part series of blog posts, transportation industry analyst Hubert Horan lays out the case for skepticism about Uber’s hype. In his view, Uber just doesn’t have a cost advantage over its competitors the way Amazon did. Amazon saved money by getting rid of expensive retail stores and sales clerks. In contrast, an Uber ride still requires a car, a driver, and some fuel just like a conventional taxi ride. So there isn’t much room for Uber to undercut its competitors. > “This industry has a simple cost structure,” Horan told me in January. “Labor is about 58 percent, fuel is 9 percent, and so forth.” > Of course, this flies in the face of many customers’ experiences. It sure seems like Uber has figured out how to provide a cleaner, faster ride at a lower fare. But Horan argues that this is entirely a reflection of the subsidies provided by Uber’s investors. Uber rides aren’t actually cheaper to provide than conventional taxi rides, Horan believes, it just seems like it because Uber is taking a loss on every ride. > An obvious objection here is that Uber’s investors are not idiots. They know perfectly well that “lose money on every ride and make it up on volume” isn’t a viable business model. And when they made their investments, they presumably had access to internal financial data that isn’t available to the rest of us. It seems very unlikely that Uber could convince investors to give it $11 billion to continue pursuing a business model whose numbers didn’t add up. > Horan told me Uber is accepting big losses now in an effort to drive conventional taxi companies and rivals like Lyft out of business. “Their growth is predatory,” Horan argued. “They are trying to displace more efficient producers.” The article I linked also offers an argument against this logic, but I'm not persuaded by it.
- UncleEntity 9y ago
  > But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. Sure they have drivers still...a whole lot of people who are basically just cashing out the equity on their cars today to make a couple bucks on the side.

emodendroket 9y ago

I don't think I follow. There's nothing impossible about running a livery service with a cell phone application for hailing, but I don't think current prices are sustainable. It is not a business with substantial economies of sale.

moduspol 9y ago
Well, drivers are voluntarily choosing to drive for what they're getting paid. Riders are voluntarily choosing to pay the quoted price. Uber takes a cut from the price to run the part of the business that isn't actually driving cars. The only way the price is subsidized is if the business couldn't be run without Uber's cut covering the non-driving parts of the business, which is unlikely. They're taking ~25% (or more) on each fare. That's a huge margin for a SaaS app and administrative work. If Uber disappeared tomorrow, it would not be that difficult for someone to build something similarly and price it the same way. In many areas, it's already happened. That suggests the price is not unsustainable.
- emodendroket 9y ago
  On the other hand, they're losing billions of dollars.
  - moduspol 9y ago
    Yep. It does cost money to expand into new geographic areas or markets (like Uber eats). That doesn't indicate that ride prices are subsidized, though.
    - alonmower 9y ago
      As I understood it when they enter new markets (and maybe in other cases?) they sometimes end up paying out the drivers more than the rider paid. I personally remember a handful of occasions in SF when they had absurdly low rates for some period of time (like the two dollar rides when UberPool first started) where they were definitely losing money on every ride.

Jasper_ 9y ago

The expensive part of Uber isn't the SaaS app or even the engineers. It's the overhead of running a law-avoiding lobbying business that explicitly seeks out to just do everything as evil as possible. Hell, Uber tried being a predatory car loan business for quite some time, which you would think would be one of the easiest ways to make surefire money, but they lost on that one too: http://www.businessinsider.com/uber-subprime-auto-loans-running-it-off-the-road-2017-8 http://www.businessinsider.com/uber-subprime-auto-loans-runn...

moduspol 9y ago
Even if your claim were supportable, it wouldn't explain how competitors not "seeking out to just do everything as evil as possible" have competitive prices.
- zanny 9y ago
  Because the competitors are like comparing Sonic to Comcast. One operates in one state between two cities and has a hundred thousand customers. The other is a national monopoly that abuses over a hundred million people. Sonic can be competitive with Comcast where it operates, but it is still a tiny blip on Comcasts radar. Uber has way, way more market volume and penetration than any one competitor, and in many places are the only game in town.
- Jasper_ 9y ago
  There can be an argument that Uber's expensive policy-mongering is enabling the competition. Lyft doesn't have to do any lobbying, it just has to lie in its wake while Uber does everything for it pretending to be the nicer company. As long as Uber is out there wreaking regulation havoc, Lyft is happy to sit back and let Uber do that. Perhaps Lyft doesn't want Uber to die, since they're basically the ones spending money to make Lyft viable at all.
  - moduspol 9y ago
    Then it's very polite of Lyft to price competitively to allow Uber to stay relevant when they could easily undercut them, due to their much smaller line item for "expensive policy-mongering." This is conspiracy-theory level evidence and rationalizing.

Someone 9y ago

Such a business can be sustainable, but the questions are whether it warrants Uber’s valuation and whether getting customers is worth the amount of money Uber pays for it. Apparently some investors think the answer to both is yes. Otherwise, Uber wouldn’t get the money they get. Other people disagree, though. I’m one of them. I think it is worthwhile to invest in getting some users to your platform, but I fear they attract way too many customers who are cost conscious, and will move to a different provider without blinking an eye.

moduspol 9y ago
I'm responding to this question: > what if the model of both businesses just isn't actually viable without massive injections of funds? I don't know if Uber's valuation or investors are correct. The question is whether or not the business (or one like it) can fundamentally exist without investors pouring money into it. By your claim, it sounds like you'd agree with me because a competitor is likely to emerge with similar or cheaper rates. I agree. But that in no way supports parent's claim that the price (or business model) may be unsustainable.