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There's a painful math error in this piece. Uber's financial losses currently amount to about 10% of gross bookings. Details are here: http://www.businessinside

by GCA10 9y ago

There's a painful math error in this piece. Uber's financial losses currently amount to about 10% of gross bookings. Details are here: http://www.businessinsider.com/ubers-losses-grow-in-q3-but-bookings-rise-2017-12 http://www.businessinsider.com/ubers-losses-grow-in-q3-but-b... Ergo, Uber could operate at breakeven by raising prices slightly more than 10%. (Not every dollar of extra revenue would benefit parent Uber, but let's assume that most of it would.) Uber could be highly profitable by raising prices 20%. Author Stephen Hill, a "journalist in residence," makes a rhetorical point by implying that today's $5 Uber fare really ought to be $10 if Uber weren't subsidizing passengers, and that today's customers are "only paying half the cost of the ride." Uber's willingness to incur losses in the name of growth is still quite astonishing, and a measured analysis of its growth strategy would be worth reading. But the gap between 10% and a rhetorical 2x is huge. Many other journalists are taking time to do the math. I'm not sure why this math-impaired version found itself a big headline.

jnty 9y ago
Unfortunately for them, this is a thing: https://en.wikipedia.org/wiki/Price_elasticity_of_demand https://en.wikipedia.org/wiki/Price_elasticity_of_demand If it's more expensive, many previous Uber customers will take a 'real' cab, public transport, or simply not travel at all.
- GCA10 9y ago
  Cab companies have been raising fares for a long time without losing much business. Bus companies, too. Yes, a 30% or larger price increase vs. the competition will cost you a lot of business. But existing transit providers get away with smaller increases with impunity. If Uber is 10% away from breakeven, it can probably close that gap in stages without ruinous consequences from demand elasticity.
  - chadash 9y ago
    I agree that a 10% price increase may not make a big difference, but as far as the comparison to cab companies raising prices, I think that Uber has a fundamental difference in that many people use it far more frequently than they ever used cabs in the past. I now own two cars (between me and my wife), but there was a period last year where I was living relatively close to my office and using uber relatively frequently instead of owning a second car. I did the math and it boiled down to Uber/Lyft being cheaper than a second car, even if I used it relatively frequently. Five or six years ago this wouldn't have even been an option, and I would have just bought a car, since traditional cabs just aren't as convenient. My point is that many people use uber in their day to day life, such that they pay close attention to pricing. Traditional cabs are something that I used almost exclusively on vacation (and still do in places with uber), so I am much less cost conscious on those.
bertil 9y ago
This makes all the more sense as the journalist explicitly considers New York, or at least a city with extensive and reliable public transport option, where I would expect Uber to be profitable. There certainly are places where Uber subsidies rides by half, but those are generally new territories or places where they have closer competitors.
crdb 9y ago
> Uber could operate at breakeven by raising prices slightly more than 10%. [...] Uber could be highly profitable by raising prices 20%. No, because the demand would be different at those price points, and lower demand might not compensate for high fixed costs. I got a timely reminder yesterday in (newly Grab-monopoly) Singapore, taking a Grab for $15 that used to cost me $3-6 on Uber. I took public transport back. One ride was enough to shake me out of my years-trained habit of taking Uber/Grab everywhere when it cost only twice the MRT or bus ride, never really looking at the price. Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work, in the same way that Standard Oil's massive facilities dropped the price low enough for Rockefeller to bankrupt all his competitors.
- JumpCrisscross 9y ago
  > the demand would be different at those price points Quantity demanded. Demand describes the entire curve [1]. :) [1] https://en.m.wikipedia.org/wiki/Demand_curve https://en.m.wikipedia.org/wiki/Demand_curve
- uptown 9y ago
  "Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work" The WSJ summarized it nicely in print: https://twitter.com/neilanalien/status/627873374505562112?lang=en https://twitter.com/neilanalien/status/627873374505562112?la...
- lotsofpulp 9y ago
  Difference was you were in Singapore, where they have clean and reliable public transit. Many people would definitely pay $10 to $15 more to take a private car rather than public transit in the US.
- hardlianotion 9y ago
  Possibly, but 10% is a lot smaller than the 250%-500% rise you experienced.
- 9y ago
tryitnow 9y ago
The link you provide is only for the first three quarters of 2017 and the add up to $25.9B. The NYT article indicates Uber's 2017 losses are $4.5B. If their losses amount to 10% of gross bookings that would imply 2017 gross bookings of $45B, which implies 2017 Q4 gross bookings of ~$20B, is that correct? Where does the author make this "math error"? I don't see it. I think the error he makes is just asserting that the "real cost" is $10. I have no idea where the author gets the notion that $10 is the real cost and Uber is charging half of it, but it doesn't appear to be backed out of the financials as you imply. And no, it's not at all clear that Uber could breakeven by raising prices by 10%. For that to be true you would have to assume that the price increase wouldn't affect demand, an unlikely outcome in a market where Lyft is competing aggressively. Stephen Hill's article is a joke, it's poorly reasoned and has scant supporting evidence, but I don't think he made a math error, I just think he didn't do any math at all.
- dibstern 9y ago
  I’m pretty sure by ‘math-impaired’ he meant that he didn’t do the math, not that he tried and failed. His use of the word ‘rhetoric’ implies the author knew he was pulling them from his arse and was using those numbers to make an argument.
  - GCA10 9y ago
    Yes, thanks. "Math fabrication" would have been the best way of expressing it in the first sentence. But the basic message is the same.
mundo 9y ago
> Uber's willingness to incur losses in the name of growth What a delightful euphemism for predatory pricing! Supposing the $10 value in the article were changed to $6 or $8 or $12 or whatever the correct value is, do you dispute the author's overall point that a huge corporation burning investor money to secure a monopoly and undercut more efficient municipal transport is a bad thing?

by GCA10 9y ago

jnty 9y ago

Unfortunately for them, this is a thing: https://en.wikipedia.org/wiki/Price_elasticity_of_demand https://en.wikipedia.org/wiki/Price_elasticity_of_demand If it's more expensive, many previous Uber customers will take a 'real' cab, public transport, or simply not travel at all.

GCA10 9y ago
Cab companies have been raising fares for a long time without losing much business. Bus companies, too. Yes, a 30% or larger price increase vs. the competition will cost you a lot of business. But existing transit providers get away with smaller increases with impunity. If Uber is 10% away from breakeven, it can probably close that gap in stages without ruinous consequences from demand elasticity.
- chadash 9y ago
  I agree that a 10% price increase may not make a big difference, but as far as the comparison to cab companies raising prices, I think that Uber has a fundamental difference in that many people use it far more frequently than they ever used cabs in the past. I now own two cars (between me and my wife), but there was a period last year where I was living relatively close to my office and using uber relatively frequently instead of owning a second car. I did the math and it boiled down to Uber/Lyft being cheaper than a second car, even if I used it relatively frequently. Five or six years ago this wouldn't have even been an option, and I would have just bought a car, since traditional cabs just aren't as convenient. My point is that many people use uber in their day to day life, such that they pay close attention to pricing. Traditional cabs are something that I used almost exclusively on vacation (and still do in places with uber), so I am much less cost conscious on those.

bertil 9y ago

This makes all the more sense as the journalist explicitly considers New York, or at least a city with extensive and reliable public transport option, where I would expect Uber to be profitable. There certainly are places where Uber subsidies rides by half, but those are generally new territories or places where they have closer competitors.

crdb 9y ago

> Uber could operate at breakeven by raising prices slightly more than 10%. [...] Uber could be highly profitable by raising prices 20%. No, because the demand would be different at those price points, and lower demand might not compensate for high fixed costs. I got a timely reminder yesterday in (newly Grab-monopoly) Singapore, taking a Grab for $15 that used to cost me $3-6 on Uber. I took public transport back. One ride was enough to shake me out of my years-trained habit of taking Uber/Grab everywhere when it cost only twice the MRT or bus ride, never really looking at the price. Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work, in the same way that Standard Oil's massive facilities dropped the price low enough for Rockefeller to bankrupt all his competitors.

JumpCrisscross 9y ago
> the demand would be different at those price points Quantity demanded. Demand describes the entire curve [1]. :) [1] https://en.m.wikipedia.org/wiki/Demand_curve https://en.m.wikipedia.org/wiki/Demand_curve
uptown 9y ago
"Travis Kalanick's apparent vision was to create an enormous amount of demand for private drivers by dropping the price to the floor, thus creating the volume needed to make the numbers work" The WSJ summarized it nicely in print: https://twitter.com/neilanalien/status/627873374505562112?lang=en https://twitter.com/neilanalien/status/627873374505562112?la...
lotsofpulp 9y ago
Difference was you were in Singapore, where they have clean and reliable public transit. Many people would definitely pay $10 to $15 more to take a private car rather than public transit in the US.
hardlianotion 9y ago
Possibly, but 10% is a lot smaller than the 250%-500% rise you experienced.
9y ago

tryitnow 9y ago

The link you provide is only for the first three quarters of 2017 and the add up to $25.9B. The NYT article indicates Uber's 2017 losses are $4.5B. If their losses amount to 10% of gross bookings that would imply 2017 gross bookings of $45B, which implies 2017 Q4 gross bookings of ~$20B, is that correct? Where does the author make this "math error"? I don't see it. I think the error he makes is just asserting that the "real cost" is $10. I have no idea where the author gets the notion that $10 is the real cost and Uber is charging half of it, but it doesn't appear to be backed out of the financials as you imply. And no, it's not at all clear that Uber could breakeven by raising prices by 10%. For that to be true you would have to assume that the price increase wouldn't affect demand, an unlikely outcome in a market where Lyft is competing aggressively. Stephen Hill's article is a joke, it's poorly reasoned and has scant supporting evidence, but I don't think he made a math error, I just think he didn't do any math at all.

dibstern 9y ago
I’m pretty sure by ‘math-impaired’ he meant that he didn’t do the math, not that he tried and failed. His use of the word ‘rhetoric’ implies the author knew he was pulling them from his arse and was using those numbers to make an argument.
- GCA10 9y ago
  Yes, thanks. "Math fabrication" would have been the best way of expressing it in the first sentence. But the basic message is the same.

mundo 9y ago

> Uber's willingness to incur losses in the name of growth What a delightful euphemism for predatory pricing! Supposing the $10 value in the article were changed to $6 or $8 or $12 or whatever the correct value is, do you dispute the author's overall point that a huge corporation burning investor money to secure a monopoly and undercut more efficient municipal transport is a bad thing?