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Uber has a low cost because it doesn't use monopoly power to gouge consumers like cities do when issuing medallions. So Uber's secret sauce is the fact that it
by cornholio 8y ago
Uber has a low cost because it doesn't use monopoly power to gouge consumers like cities do when issuing medallions.
So Uber's secret sauce is the fact that it breaks the law, not VC money.
The medallion laws are unjust and should be broken, other laws like insurance, driver training and vehicle safety are not. This is what makes the debate so complex and passionate, with people taking one side or the other depending on their personal incentives and political bias.
- newfoundglory 8y agoUber loses money, so at most you could argue that it is law breaking AND VC money. And without a lot of numbers on the cost of medallions, etc in each city it operates, you're actually just asserting your belief, not making an argument.
- xapata 8y ago> Uber loses money, at most you could argue that it is law breaking AND VC money. I don't follow the logic. Many companies have negative cash flow while they invest in growth. What is "it" in your sentence? If you're saying there are only two possible factors for the relatively low ride fares, I think you're forgetting the reduction of transaction costs. Hailing a cab on the street is frustrating. Hailing a cab by phone call even more frustrating and uncertain. Decreasing the transaction cost increases demand, which encourages supply, which lowers cost, which ... Anyway, there's a new equilibrium price.
- newfoundglory 8y agoUber has a low cost because they are not charging you enough to cover their own costs, they are making up the difference with VC money. Any factors that make the cost of providing an Uber lower than the cost of providing a taxi are unimportant because they are not pricing based on the cost. If they had to pay for taxi medallions they could still undercut existing taxis if they wanted to.
- xapata 8y ago> not charging you enough to cover their own costs Are you an Uber employee revealing private information? If not, it seems you're making a big assumption about the proportion of their expenses that are marketing and growth versus steady-state marginal cost. Amazon didn't make profit for a while and everyone wondered if they could. Oh, it's a low margin business, they'll never be profitable, blah, blah. Turns out they can, in fact, make a bit of money. Maybe Uber and Lyft can, too. Delta can, even though flights are a commodity business.
- newfoundglory 8y agowow, you're really attached to this narrative you have, to be so desperately reaching for a reason to discredit the impact of VC money on their operation. I think my previous comments have already said everything relevant about the breakdown of their marketing costs vs steady state marginal costs.
- xapata 8y ago> really attached to this narrative you have Oddly enough, I was thinking the same thing. You've asserted that they're ignoring cost in their pricing, but have provided no evidence for it. Uber and Lyft have claimed to be profitable in their biggest markets. Doesn't that suggest they set prices above marginal cost?
- newfoundglory 8y agoWow. They were apparently profitable for two minutes in 2016, might be what you're referring to? I haven't provided any evidence because I assumed you had access to the same real world information as I do, but if you don't have internet I can mail you some stuff.
- xapata 8y agoYou're confusing company aggregate profit for profit within each market.