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Where does the money go for Lyft/Uber? The software platform can't be that expensive amortized across a million+ drivers. It's not like the drivers are overpai

Where does the money go for Lyft/Uber? The software platform can't be that expensive amortized across a million+ drivers. It's not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs) What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?

nemothekid 8y ago
Engineers, Rider Incentives (aka marketing), Driver Incentives (aka marketing)
duado 8y ago
They spend it on artificially low prices, often charging the riders even less than they pay the drivers in markets where they are new and growing. The idea is that they will get a sticky network of riders and drivers and then raise prices later. It certainly worked on me.
staybythebay 8y ago
The article hints at it. “all these companies are deliberately spending profligately now to build their brands and win over dense populations of customers, so that in the future they can be more efficiently served. This is the exact playbook that once worked for Amazon.com” I can’t count how many free Uber/Grubhub promo codes I’ve seen. How much they subsidize their orders, etc.
- dragonwriter 8y ago
  It's also the the exact model that's failed for countless companies you've never heard of, because they failed. Amazon was (at least for a long time, maybe this has been forgotten) been noted for being unusually, perhaps uniquely, successfully at both the customer side and investor side when it came to executing on this.
  - Johnny555 8y ago
    Though I wonder how successful they'd have been if they didn't discover a goldmine (AWS) that helps fund the retail side. It'd be a lot harder to compete against entrenched retailers like Walmart if they didn't have the money from the AWS side (not to mention essentially unlimited compute power to handle shopping traffic spikes).
b_tterc_p 8y ago
The drivers are overpaid for the price Uber charges. That’s not to say they shouldn’t be paid more as human beings, but they currently pay unsustainably high wages to drivers in many areas that will need to be fixed with higher prices to compensate whenever Uber feels they are safe from competition (likely never).
awalton 8y ago
You should look at the S-1 filed by Lyft - their marketing budget losses was huge - $800M last year, compared to the operating deficit of $977M for that year. Doesn't seem like it would take a business magician to get this company into the black, albeit at the cost of running red for a year or two more to the tune of a couple more billion dollars burned.
mlinsey 8y ago
From what I've seen at other on-demand co's, the three most likely culprits are: 1- User acquisition costs (discounts, marketing, etc - for both sides of the platform). this gets more expensive in the face of competition, and there's some hope that if you can "win" the market then eventually these costs will be reduced sharply. 2- Money as a band-aid for reliability/support issues. Frequently, an Uber driver refuses to take me on a long trip (SF to Mountain View, for example), makes me get out of the car, then marks me as a no-show or that I canceled the ride. Fortunately, my rider score is high enough that I just fill out the form describing what happened, and Uber (usually almost instantly) refunds the fee and sometimes also gives me a make-up $5 credit to apologize. With food delivery options, a non-trivial fraction of the time, the wrong order arrives, and similarly any complaint to support usually results in an immediate refund + credit. Without an easy, scalable way for the support team to audit what really happened on the ground, chances are they are not penalizing the driver / restaurant for these incidents unless there is a clear pattern in the data with a particular provider. So this is just loss for the platform. With very small margins it takes a surprisingly low percentage of such cases to really eat away your unit model. 3- Subsidizing low-utilization markets. Markets with a much higher density of supply/demand will be more efficient and profitable; newer markets will often need subsidies to get over the cold start problem (eg when uber launches a new city, you're gonna need to pay some drivers to sit idling on the road, or else someone opening the app won't see a driver; you might also discount rides even more heavily to get past this phase quicker). Compared to the other two factors, this is probably the best-case scenario for why a company might be bleeding money, and why you sometimes hear people say "Uber is profitable in XYZ cities", but it's hard to say from the outside if this is actually what's happening or if there's something more fundamentally wrong.
- jammygit 8y ago
  $5 to apologise for somebody trying to steal from you and leaving you without a ride? That's not a great deal imo
  - mlinsey 8y ago
    Eh, while I was pretty upset in the moment, I could get a ride eventually, and it wasn't enough to make me stop using Uber/Lyft, since in the specific scenario where this would always happen (late on Friday/Saturday nights after going out in SF headed back to MTV), I had very few options besides Uber anyway with Caltrain service stopped and no designated driver lined up. And looking at it from the drivers' perspective, you're asking them to miss out on one of the most valuable times of the week by taking them out of the city, often taking them much further from their home (often East Bay or even Sacramento, where drivers sometimes come all the way to SF for the weekend evening rush specifically). Add into it how easily this could be abused on the passenger side if there was an even bigger incentive, and quick $5 from the app and finding another driver (there were always enough drivers so that even if half of them would pull this trick, I'd find one eventually) wasn't too bad. Much worse would be having to do something more like talking to a rep on the phone or having to go through a lengthy appeals process.
SmellTheGlove 8y ago
Well, Lyft and Uber have large offices here in SF where I now live. And they hire lots of engineers. And Uber, at least, is one of the better paying tech companies in the area. So I can tell you a good chunk of that money is going to bay area landlords! There's never been a better time to have bought a house in 1991 like my landlord did. Barely even pays property taxes on the thing, too.
vkou 8y ago
> Where does the money go for Lyft/Uber? Mostly into customer discounts and driver incentives. Both companies are burning billions of dollars on selling people a $10 taxi ride for $5, while paying the driver $12. Once they stop spending their way to market-share, customer demand, and driver supply will drop. There's a price point where they are a viable, profitable business (After all, taxi firms have existed for centuries), but that price point will be higher for riders and lower for drivers, than it is today.
- Marazan 8y ago
  Taxi firms don't have massive IT departments. That is the key to the "Uber will never be profitable" brigade. Taxi firms are way, way leaner than Uber/Lyft.
  - Tomminn 8y ago
    They have phone operators. Each of which has to sit somewhere. And have some kind of manager. Uber coordinates 15 million rides per day [1], which assuming a phone operator coordinates 20 rides an hour (unrealistically efficient-- in reality, I'm sure plenty are playing candy crush waiting for a call), that 160 a day, or an army of 100,000 phone operators to coordinate those rides. This is ususally done using local office space. Just to pay them a salary of $40,000/yr is $4B/yr. That's ignoring the army of people needed to logistically support a 100,000 ground troops, the office space and the expenses required to so. Uber currently has an army of 16,000 people total performing this coordination [2]. That's 1000 rides coordinated per day, per employee at current efficiency. And it's not difficult to imagine them pushing this efficiency 10x or even 100x. That's a fundamental value proposition that stands the scrutiny of even a hard-nosed conservative investor. [1] http://www.businessofapps.com/data/uber-statistics/ http://www.businessofapps.com/data/uber-statistics/ [2] https://en.wikipedia.org/wiki/Uber https://en.wikipedia.org/wiki/Uber
    - vkou 8y ago
      Many taxi rides are now app-dispatched, or street-hailed, which don't need telephone dispatchers. In Vancouver, when I was taking night taxis 3 times/week, Yellow Cab only had one dispatcher during off-peak times. She'd handle my dispatch in ~30 seconds, and her line was rarely busy. In fact, telephone taxi dispatch was only a big thing in the brief span of time after the ubiquitous nature of cell phones, but before the ubiquitous nature of cell phones with apps.
noelsusman 8y ago
Lot of marketing, but mostly low prices. The whole reason why Uber and Lyft took off wasn't because people were amazed at ordering a ride on their phones. It was because they were cheaper than taxis.

nemothekid 8y ago

Engineers, Rider Incentives (aka marketing), Driver Incentives (aka marketing)

duado 8y ago

They spend it on artificially low prices, often charging the riders even less than they pay the drivers in markets where they are new and growing. The idea is that they will get a sticky network of riders and drivers and then raise prices later. It certainly worked on me.

staybythebay 8y ago

The article hints at it. “all these companies are deliberately spending profligately now to build their brands and win over dense populations of customers, so that in the future they can be more efficiently served. This is the exact playbook that once worked for Amazon.com” I can’t count how many free Uber/Grubhub promo codes I’ve seen. How much they subsidize their orders, etc.

dragonwriter 8y ago
It's also the the exact model that's failed for countless companies you've never heard of, because they failed. Amazon was (at least for a long time, maybe this has been forgotten) been noted for being unusually, perhaps uniquely, successfully at both the customer side and investor side when it came to executing on this.
- Johnny555 8y ago
  Though I wonder how successful they'd have been if they didn't discover a goldmine (AWS) that helps fund the retail side. It'd be a lot harder to compete against entrenched retailers like Walmart if they didn't have the money from the AWS side (not to mention essentially unlimited compute power to handle shopping traffic spikes).

b_tterc_p 8y ago

The drivers are overpaid for the price Uber charges. That’s not to say they shouldn’t be paid more as human beings, but they currently pay unsustainably high wages to drivers in many areas that will need to be fixed with higher prices to compensate whenever Uber feels they are safe from competition (likely never).

awalton 8y ago

You should look at the S-1 filed by Lyft - their marketing budget losses was huge - $800M last year, compared to the operating deficit of $977M for that year. Doesn't seem like it would take a business magician to get this company into the black, albeit at the cost of running red for a year or two more to the tune of a couple more billion dollars burned.

mlinsey 8y ago

From what I've seen at other on-demand co's, the three most likely culprits are: 1- User acquisition costs (discounts, marketing, etc - for both sides of the platform). this gets more expensive in the face of competition, and there's some hope that if you can "win" the market then eventually these costs will be reduced sharply. 2- Money as a band-aid for reliability/support issues. Frequently, an Uber driver refuses to take me on a long trip (SF to Mountain View, for example), makes me get out of the car, then marks me as a no-show or that I canceled the ride. Fortunately, my rider score is high enough that I just fill out the form describing what happened, and Uber (usually almost instantly) refunds the fee and sometimes also gives me a make-up $5 credit to apologize. With food delivery options, a non-trivial fraction of the time, the wrong order arrives, and similarly any complaint to support usually results in an immediate refund + credit. Without an easy, scalable way for the support team to audit what really happened on the ground, chances are they are not penalizing the driver / restaurant for these incidents unless there is a clear pattern in the data with a particular provider. So this is just loss for the platform. With very small margins it takes a surprisingly low percentage of such cases to really eat away your unit model. 3- Subsidizing low-utilization markets. Markets with a much higher density of supply/demand will be more efficient and profitable; newer markets will often need subsidies to get over the cold start problem (eg when uber launches a new city, you're gonna need to pay some drivers to sit idling on the road, or else someone opening the app won't see a driver; you might also discount rides even more heavily to get past this phase quicker). Compared to the other two factors, this is probably the best-case scenario for why a company might be bleeding money, and why you sometimes hear people say "Uber is profitable in XYZ cities", but it's hard to say from the outside if this is actually what's happening or if there's something more fundamentally wrong.

jammygit 8y ago
$5 to apologise for somebody trying to steal from you and leaving you without a ride? That's not a great deal imo
- mlinsey 8y ago
  Eh, while I was pretty upset in the moment, I could get a ride eventually, and it wasn't enough to make me stop using Uber/Lyft, since in the specific scenario where this would always happen (late on Friday/Saturday nights after going out in SF headed back to MTV), I had very few options besides Uber anyway with Caltrain service stopped and no designated driver lined up. And looking at it from the drivers' perspective, you're asking them to miss out on one of the most valuable times of the week by taking them out of the city, often taking them much further from their home (often East Bay or even Sacramento, where drivers sometimes come all the way to SF for the weekend evening rush specifically). Add into it how easily this could be abused on the passenger side if there was an even bigger incentive, and quick $5 from the app and finding another driver (there were always enough drivers so that even if half of them would pull this trick, I'd find one eventually) wasn't too bad. Much worse would be having to do something more like talking to a rep on the phone or having to go through a lengthy appeals process.

SmellTheGlove 8y ago

Well, Lyft and Uber have large offices here in SF where I now live. And they hire lots of engineers. And Uber, at least, is one of the better paying tech companies in the area. So I can tell you a good chunk of that money is going to bay area landlords! There's never been a better time to have bought a house in 1991 like my landlord did. Barely even pays property taxes on the thing, too.

vkou 8y ago

> Where does the money go for Lyft/Uber? Mostly into customer discounts and driver incentives. Both companies are burning billions of dollars on selling people a $10 taxi ride for $5, while paying the driver $12. Once they stop spending their way to market-share, customer demand, and driver supply will drop. There's a price point where they are a viable, profitable business (After all, taxi firms have existed for centuries), but that price point will be higher for riders and lower for drivers, than it is today.

Marazan 8y ago
Taxi firms don't have massive IT departments. That is the key to the "Uber will never be profitable" brigade. Taxi firms are way, way leaner than Uber/Lyft.
- Tomminn 8y ago
  They have phone operators. Each of which has to sit somewhere. And have some kind of manager. Uber coordinates 15 million rides per day [1], which assuming a phone operator coordinates 20 rides an hour (unrealistically efficient-- in reality, I'm sure plenty are playing candy crush waiting for a call), that 160 a day, or an army of 100,000 phone operators to coordinate those rides. This is ususally done using local office space. Just to pay them a salary of $40,000/yr is $4B/yr. That's ignoring the army of people needed to logistically support a 100,000 ground troops, the office space and the expenses required to so. Uber currently has an army of 16,000 people total performing this coordination [2]. That's 1000 rides coordinated per day, per employee at current efficiency. And it's not difficult to imagine them pushing this efficiency 10x or even 100x. That's a fundamental value proposition that stands the scrutiny of even a hard-nosed conservative investor. [1] http://www.businessofapps.com/data/uber-statistics/ http://www.businessofapps.com/data/uber-statistics/ [2] https://en.wikipedia.org/wiki/Uber https://en.wikipedia.org/wiki/Uber
  - vkou 8y ago
    Many taxi rides are now app-dispatched, or street-hailed, which don't need telephone dispatchers. In Vancouver, when I was taking night taxis 3 times/week, Yellow Cab only had one dispatcher during off-peak times. She'd handle my dispatch in ~30 seconds, and her line was rarely busy. In fact, telephone taxi dispatch was only a big thing in the brief span of time after the ubiquitous nature of cell phones, but before the ubiquitous nature of cell phones with apps.

noelsusman 8y ago

Lot of marketing, but mostly low prices. The whole reason why Uber and Lyft took off wasn't because people were amazed at ordering a ride on their phones. It was because they were cheaper than taxis.