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Yeah. And while this says a lot about Lyft, for me it really really says a lot about Uber too. It has never been impossible to run a company by injecting money

Yeah. And while this says a lot about Lyft, for me it really really says a lot about Uber too. It has never been impossible to run a company by injecting money into it to cover the difference between how much customers 'value' the product versus what it costs to provide the product. But the dot com days showed that without a point in the business model where the value exceeds the cost by enough margin to keep the business going, such businesses don't survive. What neither Lyft, nor Uber, has yet provided is a credible 'size' at which they would be a going concern (covering all their costs), nor a really good idea of how being larger scales revenues more than costs in sufficient measure to become profitable. I would love to see a document that describes the 'per driver' costs that these companies incur on a location basis (so costs per driver in Los Angeles CA, and per driver in Minot ND) vs revenue expectations per driver vs total available livery miles (how many people would have to want to go somewhere to support those numbers). Then you could at least see if there were any islands of profitability in that solution space. So far, I've yet to see anything where the answer is net positive. Worse, any positive solution will be very fragile by definition because the barrier to entry is zero and so a third party can unilaterally drain profits out of a ride share company by starting up an unprofitable competitor and funding it out of pocket until it has done the required amount of damage.

bunderbunder 8y ago
To your last point, my read on the history of taxis in the USA is that that was roughly what was happening during the early 20th century, until some regulation came along to create artificial barriers to entry. Uber broke down those barriers to entry, which allowed them to disrupt the incumbent taxi companies. But it also means that there's not much to protect them from being disrupted themselves. The taxi situation in most cities was awful before rideshare came long, and the taxi cartels' rent-seeking behavior produced produced some gross externalities (the lack of any train lines going to LGA comes to mind), so this has perhaps been a net benefit to consumers. But Uber and Lyft are not charities, and that fact has no bearing on their viability as businesses.
- xvf22 8y ago
  The lack of any meaningful rail / subway connection at LGA is something I have to deal with on a regular basis. Probably won't change anytime soon either which is unfortunate.
  - bunderbunder 8y ago
    And is something that I would presume Uber is just as happy to lobby against as the taxi companies are.
    - xvf22 8y ago
      Agreed, we're still left with the same fundamental problems.
    - Fazel94 8y ago
      Uber could be willing, but there could be others trying to disrupt Uber who try and stop it.
slg 8y ago
These ride-sharing companies are still in their mailing DVDs phase of their business. The ultimate goal is clearly to use self-driving tech to cut the costly human labor out of the system and that remains the most obvious path to eventual profitability. The questions then just become which is the first company to get this tech safe enough to deploy to general consumers and which players can survive being unprofitable long enough to make it there. It remains to be seen which companies in the ride-sharing space are the Netflixs and which are the Blockbusters.
- jlarocco 8y ago
  Won't self-driving cars only make the problem worse? Many people use Uber because they don't want to drive when they go out, but if their car can drive itself, why bother with Uber?
  - yomly 8y ago
    Why buy a 10-100k car when you can pay the incrementally per use? You pay per use with AWS instead of buying physical servers right?
    - jlarocco 8y ago
      > Why buy a 10-100k car when you can pay the incrementally per use? Because it's cheaper over the long run.
      - hopler 8y ago
        Not if you have access to public transit but need "last mile" support.
    - godot 8y ago
      Conversely, bulk buying saves money -- you buy toilet paper and paper towels in bulk, buy a bag of 20 lbs of rice instead of 2 lbs at a time, etc. So it probably depends on the individual's financial situation and where a car ride falls in terms of buying bulk vs incrementally. A lot of the expense about physical servers is also the maintenance and having employees' time to manage them. A car requires some maintenance but arguably less so than that, so perhaps not the closest comparison.
lhorie 8y ago
(disclaimer: I work at Uber, but opinions are my own, etc) On my employee orientation a few years ago, we were shown charts from the finances team with breakdown of gross income vs the various cost centers and they were talking about how established cities were profitable and new cities were not due to various reasons (see my other comment downthread) My personal take on this is that eventually the world will run out of cities for Uber to expand into and every city will either be profitable or deemed not worth entering. I don't really buy the argument that any fat slob willing to burn money can displace Uber in an established market in any significant way. The stealing marketshare strategy only works while all parties are still growing in a given market. Once the growth stops, it's a race to the bottom, and I don't think any investor wants that. Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale, and at some point, the law of diminishing returns will probably make it not worth for someone else to try to be the third or fourth competitor in a given market. At that point, if I were investing, I'd be pressuring those companies to either partner up, be acquired or cut some sort of exclusivity deal, giving Uber a share of profits. And from history, that's exactly what has been happening. Uber left China by cutting a deal to take a cut of the pie, it partnered in Russia, and now there's the rumour about the Careem deal.
- vkou 8y ago
  > Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale So, the end-game is driving competitors out of local markets, by using profits from other markets? This sounds like a great argument for Uber getting broken up, as a monopoly - if it actually achieves this endgame.
  - aey 8y ago
    How is that different from any company using profits from one product to build another one?
    - chii 8y ago
      Using the profits is OK (not considered monopolistic). Using a large marketshare in one area to gain an unfair advantage in another area is monopolistic.
bane 8y ago
What's really interesting, and I think what's unclear is this: what's costs these services so much that they can't turn a profit? Their costs, other than taking a haircut on the ride, doesn't seem entirely clear, or obviously large. A 2017 number says Lyft completes about 360 million rides per year. For fun, let's say they make $1 per ride, are they really not able to run their front-end operations with around 1,000 employees? (assuming an employee costs about $250k-300k/yr)? That seems crazy to me, but I don't know what hidden costs there are. From an outside PoV it appears they need to run a more or less static website, about 4 smartphone apps with some back-end routefinding and accounting systems. What am I missing?
- hopler 8y ago
  Lyft charges $2/ride plus some wiggle around discounts and surge pricing.
- mosdl 8y ago
  Which is why I expect massive layoffs at uber/lyft, they have too many employees for the simple things they do.
- lazyasciiart 8y ago
  I'd guess you're underestimating the cost per employee by about half, is one factor.
  - bane 8y ago
    If your cost per employee is approaching half a million dollars or more on average, you've probably messed up somewhere. If you're a taxicab company and your non-driving staff is making that, you've definitely screwed up somewhere.
- nabaraz 8y ago
  Last I looked at Uber's financials, 90-95% of their expenses was driver earnings. And then you have operating expenses that includes employees, promotions, r&d, regulatory fees, marketing, support, new investments etc. Uber's margin is probably under 5% which simply isn't enough.
em3rgent0rdr 8y ago
And there's little profitability when your business model could be easily replicated with a simple open-source IRC bot, similar to https://libretaxi.org/ https://libretaxi.org/

bunderbunder 8y ago

To your last point, my read on the history of taxis in the USA is that that was roughly what was happening during the early 20th century, until some regulation came along to create artificial barriers to entry. Uber broke down those barriers to entry, which allowed them to disrupt the incumbent taxi companies. But it also means that there's not much to protect them from being disrupted themselves. The taxi situation in most cities was awful before rideshare came long, and the taxi cartels' rent-seeking behavior produced produced some gross externalities (the lack of any train lines going to LGA comes to mind), so this has perhaps been a net benefit to consumers. But Uber and Lyft are not charities, and that fact has no bearing on their viability as businesses.

xvf22 8y ago
The lack of any meaningful rail / subway connection at LGA is something I have to deal with on a regular basis. Probably won't change anytime soon either which is unfortunate.
- bunderbunder 8y ago
  And is something that I would presume Uber is just as happy to lobby against as the taxi companies are.
  - xvf22 8y ago
    Agreed, we're still left with the same fundamental problems.
  - Fazel94 8y ago
    Uber could be willing, but there could be others trying to disrupt Uber who try and stop it.

slg 8y ago

These ride-sharing companies are still in their mailing DVDs phase of their business. The ultimate goal is clearly to use self-driving tech to cut the costly human labor out of the system and that remains the most obvious path to eventual profitability. The questions then just become which is the first company to get this tech safe enough to deploy to general consumers and which players can survive being unprofitable long enough to make it there. It remains to be seen which companies in the ride-sharing space are the Netflixs and which are the Blockbusters.

jlarocco 8y ago
Won't self-driving cars only make the problem worse? Many people use Uber because they don't want to drive when they go out, but if their car can drive itself, why bother with Uber?
- yomly 8y ago
  Why buy a 10-100k car when you can pay the incrementally per use? You pay per use with AWS instead of buying physical servers right?
  - jlarocco 8y ago
    > Why buy a 10-100k car when you can pay the incrementally per use? Because it's cheaper over the long run.
    - hopler 8y ago
      Not if you have access to public transit but need "last mile" support.
  - godot 8y ago
    Conversely, bulk buying saves money -- you buy toilet paper and paper towels in bulk, buy a bag of 20 lbs of rice instead of 2 lbs at a time, etc. So it probably depends on the individual's financial situation and where a car ride falls in terms of buying bulk vs incrementally. A lot of the expense about physical servers is also the maintenance and having employees' time to manage them. A car requires some maintenance but arguably less so than that, so perhaps not the closest comparison.

lhorie 8y ago

(disclaimer: I work at Uber, but opinions are my own, etc) On my employee orientation a few years ago, we were shown charts from the finances team with breakdown of gross income vs the various cost centers and they were talking about how established cities were profitable and new cities were not due to various reasons (see my other comment downthread) My personal take on this is that eventually the world will run out of cities for Uber to expand into and every city will either be profitable or deemed not worth entering. I don't really buy the argument that any fat slob willing to burn money can displace Uber in an established market in any significant way. The stealing marketshare strategy only works while all parties are still growing in a given market. Once the growth stops, it's a race to the bottom, and I don't think any investor wants that. Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale, and at some point, the law of diminishing returns will probably make it not worth for someone else to try to be the third or fourth competitor in a given market. At that point, if I were investing, I'd be pressuring those companies to either partner up, be acquired or cut some sort of exclusivity deal, giving Uber a share of profits. And from history, that's exactly what has been happening. Uber left China by cutting a deal to take a cut of the pie, it partnered in Russia, and now there's the rumour about the Careem deal.

vkou 8y ago
> Uber has a lot more leeway in how it can reallocate resources if one local competitor decides to spring up in some random market, just from its sheer scale So, the end-game is driving competitors out of local markets, by using profits from other markets? This sounds like a great argument for Uber getting broken up, as a monopoly - if it actually achieves this endgame.
- aey 8y ago
  How is that different from any company using profits from one product to build another one?
  - chii 8y ago
    Using the profits is OK (not considered monopolistic). Using a large marketshare in one area to gain an unfair advantage in another area is monopolistic.

bane 8y ago

What's really interesting, and I think what's unclear is this: what's costs these services so much that they can't turn a profit? Their costs, other than taking a haircut on the ride, doesn't seem entirely clear, or obviously large. A 2017 number says Lyft completes about 360 million rides per year. For fun, let's say they make $1 per ride, are they really not able to run their front-end operations with around 1,000 employees? (assuming an employee costs about $250k-300k/yr)? That seems crazy to me, but I don't know what hidden costs there are. From an outside PoV it appears they need to run a more or less static website, about 4 smartphone apps with some back-end routefinding and accounting systems. What am I missing?

hopler 8y ago
Lyft charges $2/ride plus some wiggle around discounts and surge pricing.
mosdl 8y ago
Which is why I expect massive layoffs at uber/lyft, they have too many employees for the simple things they do.
lazyasciiart 8y ago
I'd guess you're underestimating the cost per employee by about half, is one factor.
- bane 8y ago
  If your cost per employee is approaching half a million dollars or more on average, you've probably messed up somewhere. If you're a taxicab company and your non-driving staff is making that, you've definitely screwed up somewhere.
nabaraz 8y ago
Last I looked at Uber's financials, 90-95% of their expenses was driver earnings. And then you have operating expenses that includes employees, promotions, r&d, regulatory fees, marketing, support, new investments etc. Uber's margin is probably under 5% which simply isn't enough.

em3rgent0rdr 8y ago

And there's little profitability when your business model could be easily replicated with a simple open-source IRC bot, similar to https://libretaxi.org/ https://libretaxi.org/