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Uber has no viable business model and no way to make money. Their approach to taxi service has none of the economies of scale of a traditional taxi service. It'

Uber has no viable business model and no way to make money. Their approach to taxi service has none of the economies of scale of a traditional taxi service. It's a loser from the get-go.

wahern 8y ago
Uber doesn't have the capital costs of a traditional taxi service, which are born by drivers, so in a sense it has infinite economy of scale. In a perfectly free market the fact that these drivers are individually paying a premium for their cars would matter, but that free market doesn't exist and never will. And if you factor in risk diversification (across many drivers) as it relates to the cost of financing, I'm not sure the overall capital costs are much more expensive for the Uber model. Uber has figured out how to turn humans into security for financing capital assets. The only other examples I can think of off-hand are employee life insurance schemes and slavery. Some quick Googling tells me that Uber's proposed IPO at ~$100 billion is 10x their ride-hailing revenue at ~$10 billion. Nothing seems fishy or unsustainable about that. Their ride-hailing system is mature and could likely be made quite profitable (if not already) if divorced from their other ventures. That said, I don't like Uber. I always walk to the cab stand if I can. If it's too late at night that the stands are empty, or I want to use up my free AMEX credits, I'll hail a licensed cab from the Uber app. My experience in San Francisco is that regular cabs are cheaper, anyhow, notwithstanding the Uber app's grossly inaccurate estimate. Plus, even as an adult male I'm not keen on jumping into random strangers' cars. Cabbies are licensed and undergo more rigorous background checks.
- mimixco 8y ago
  The economy of scale in a taxi business comes from owning a fleet rather than a single vehicle, making the vehicle's purchase and maintenance less expensive than what you or I would pay. This isn't possible when each driver has to buy and service his own car at market rates. The economy tops out at a certain point, after which is isn't beneficial to expand the business further -- which is why taxi companies are local and regional. If more money could be made by having a national taxi company, someone would have done that already.
  - wahern 8y ago
    Right, but Uber doesn't have to pay for that fleet. And even though each individual "contractor" effectively pays a premium over what a volume purchaser could do, because each driver (1) would need and can use the car personally, anyhow, (2) can either leverage their own personal assets or otherwise benefit from our car centric culture that makes individual financing relatively cheap, and (3) is willing to eat the premium because of labor economics which favor employers, it doesn't actually put Uber at much of a disadvantage, if at all. Arguably it puts them at an advantage to competitors, even if the sum of vehicle acquisition costs is greater than a hypothetical competitor at that scale. Emphasis on hypothetical, which alone should be a huge clue about the underlying dynamics relating to capital financing, firm size, and transactional costs. Uber exists and their ride-hailing business is clearly a success. It couldn't possibly cost $10 billion/year to maintain their smartphone app and backend IT services, not in a sustaining mode. Economics 101 doesn't suffice to explain the situation. Uber's business exists past the threshold where the transactional costs (regulation, financing, firm size) of non-perfect markets result in outcomes that contradict classic economic models.
    - mimixco 8y ago
      Here's a good take on it: http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html http://nymag.com/intelligencer/2018/12/will-uber-survive-the... Also mentioned in that story is a link to Hubert Horan's excellent multi-part series "Will Uber Ever Deliver?" It was that series which convinced me of the arguments I'm presenting.

Uber has no viable business model and no way to make money. Their approach to taxi service has none of the economies of scale of a traditional taxi service. It's a loser from the get-go.

wahern 8y ago

Uber doesn't have the capital costs of a traditional taxi service, which are born by drivers, so in a sense it has infinite economy of scale. In a perfectly free market the fact that these drivers are individually paying a premium for their cars would matter, but that free market doesn't exist and never will. And if you factor in risk diversification (across many drivers) as it relates to the cost of financing, I'm not sure the overall capital costs are much more expensive for the Uber model. Uber has figured out how to turn humans into security for financing capital assets. The only other examples I can think of off-hand are employee life insurance schemes and slavery. Some quick Googling tells me that Uber's proposed IPO at ~$100 billion is 10x their ride-hailing revenue at ~$10 billion. Nothing seems fishy or unsustainable about that. Their ride-hailing system is mature and could likely be made quite profitable (if not already) if divorced from their other ventures. That said, I don't like Uber. I always walk to the cab stand if I can. If it's too late at night that the stands are empty, or I want to use up my free AMEX credits, I'll hail a licensed cab from the Uber app. My experience in San Francisco is that regular cabs are cheaper, anyhow, notwithstanding the Uber app's grossly inaccurate estimate. Plus, even as an adult male I'm not keen on jumping into random strangers' cars. Cabbies are licensed and undergo more rigorous background checks.

mimixco 8y ago
The economy of scale in a taxi business comes from owning a fleet rather than a single vehicle, making the vehicle's purchase and maintenance less expensive than what you or I would pay. This isn't possible when each driver has to buy and service his own car at market rates. The economy tops out at a certain point, after which is isn't beneficial to expand the business further -- which is why taxi companies are local and regional. If more money could be made by having a national taxi company, someone would have done that already.
- wahern 8y ago
  Right, but Uber doesn't have to pay for that fleet. And even though each individual "contractor" effectively pays a premium over what a volume purchaser could do, because each driver (1) would need and can use the car personally, anyhow, (2) can either leverage their own personal assets or otherwise benefit from our car centric culture that makes individual financing relatively cheap, and (3) is willing to eat the premium because of labor economics which favor employers, it doesn't actually put Uber at much of a disadvantage, if at all. Arguably it puts them at an advantage to competitors, even if the sum of vehicle acquisition costs is greater than a hypothetical competitor at that scale. Emphasis on hypothetical, which alone should be a huge clue about the underlying dynamics relating to capital financing, firm size, and transactional costs. Uber exists and their ride-hailing business is clearly a success. It couldn't possibly cost $10 billion/year to maintain their smartphone app and backend IT services, not in a sustaining mode. Economics 101 doesn't suffice to explain the situation. Uber's business exists past the threshold where the transactional costs (regulation, financing, firm size) of non-perfect markets result in outcomes that contradict classic economic models.
  - mimixco 8y ago
    Here's a good take on it: http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html http://nymag.com/intelligencer/2018/12/will-uber-survive-the... Also mentioned in that story is a link to Hubert Horan's excellent multi-part series "Will Uber Ever Deliver?" It was that series which convinced me of the arguments I'm presenting.