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(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 breakdo
by 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 agoHow is that different from any company using profits from one product to build another one?
- chii 8y agoUsing the profits is OK (not considered monopolistic). Using a large marketshare in one area to gain an unfair advantage in another area is monopolistic.
- aey 8y agoThey using profits from one area to reduce their prices and grow their driver fleet in another.
- hopler 8y agoThat's dumping and the source of funding is irrelevant.
- aey 8y agoSo a startup shouldn’t try to gain market share with a free product? Is Linux dumping on Windows?
- femto113 8y agoDumping is about selling at a marginal loss. For example if it cost you $7 to make a widget but you sell it at a loss for $5 because you’re trying to drive a competitor who can make a widget for $6 out of the market. Linux (like most software) has no marginal cost so unless you pay someone to use it dumping doesn’t really apply (Google did do that with Android). For Uber and Lyft I think a reasonable case could be made that they are dumping if they take a marginal loss on each ride to force a lower cost provider out of a market, but companies get a lot of leeway for money spent on “marketing”, eg the losses can be structured as “new driver bonuses” and “new customer discounts” rather than a cost per ride.
- aey 8y agoMicrosoft is spending X per year on engineering. So Windows has a marginal cost. Because I am overcompensated and have spare engineering time I can dump it into a free Linux product to force Windows out of a market. Redhat is actually taking my free engineering time and monetizing it! The villains!!!
- Retric 8y agoProfit in a city is not enough to ensure a high valuation. They can clearly survive as a ~1 Billion dollar company, but that would represent huge investor losses. The risk is not an unprofitable competitor it’s a lower margin competitor. Large cities have long supported multiple cab companies which caps Uber’s profit per city, and worldwide their are not that many large cities. Really, they would need to be making 100+ million in profit just in just NYC to avoid that crash. But, those kinds of profits would clearly attract competitors long term.
- lhorie 8y agoThat's a good point. Unfortunately I don't have much information on how the current valuation was calculated (and I wouldn't be allowed to talk about it even if I did) Where I think Uber has a competitive advantage is the multitude of spin-off services it provides. Cab companies only compete on a fraction of the transportation market. Uber has its hands on a lot of different segments and it's a household brand at this point. We'll see what the market thinks when the IPO happens, I guess.
- beambot 8y agoAny idea how much revenue & profit all those NYC cab companies we're bringing in?
- thaumasiotes 8y agoIt would have to be tons, based on market prices for medallions before Uber.
- bunderbunder 8y agoThat was a result of a huge economic rent (caps on the supply of medallions in order to prevent competition) that Uber crushed. Rides are a bit like diamonds: The only thing keeping the prices up was a cartel.
- deleted 8y ago[deleted]
- hopler 8y agoI don't see how being a "fat slob" is relevant to the discussion in any way. It's just toxic for no reason, and it doesn't belong here.
- lhorie 8y agoSorry, I was thinking of fatness as the symbolism for having money, but yes, that was poor choice of words on my part and it seems I can no longer edit it out. s/whatever bothers you/unicorns and rainbows/ and let's not derail on nitpicks.