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Fundamentals question: Can somebody explain how these ridesharing companies expect to turn a profit, eventually? If you lose 50 cents on every ride, how do you

Fundamentals question: Can somebody explain how these ridesharing companies expect to turn a profit, eventually? If you lose 50 cents on every ride, how do you make it up in volume? Every ride is subsidized by the Sand Hill Road crowd. They're a great deal. I took a 40-min ride yesterday for US$12.50 in a high-cost-of-living traffic-clogged city. How can that make sense? A ride in a sketchy 1970s-era New York City gypsy (no-medallion) cab would have cost more. And, without all the magic and overhead of some app. Oh, I get it. They're going to scale up using autonomous vehicles. But, that's also a problem. Right now their business model relies on independent owner-drivers. In other words, from the front office's point of view, their fleets fuel, maintain, garage, and insure themselves. How's that going to work when they replace the drivers' cars with their own capital equipment? Why should I invest for the long term in these companies?

misiti3780 7y ago
Not to mention autonomous vehicles are most likely years away from happening
- return1 7y ago
  if at all, [except for people who absolutely can tolerate their problems, e.g. disabled or elderly]
britch 7y ago
The idea (urban myth?) I've heard for discussion's sake: The long term bet is on them becoming THE way to get around and monopolizing the market (or a chunk of it at least) and THEN jacking up prices. If you undercut cabs and public transit long enough, they'll have to react to lower ridership and reduce availability. Sorry, no late night buses, most people are taking a very inexpensive and convenient Lyft home. Now that there's no late night buses, we can charge 3X the cost.
- asdff 7y ago
  Aside from NYC most cities do not have late night public transport past like midnight in most cases, maybe if you are lucky 2am. On top of that outside of NYC and maybe people commuting to DC, public transport ridership is pretty abysmal. Plus all the cabbies have to do is either assign drivers to third shift or not, it can be done on a whim as demand dictates.
village-idiot 7y ago
I only see two ways: The most discussed is the hope of autonomous vehicles. It seems that predictions about the imminent arrival of autonomous cars were a wee bit optimistic, so that makes this plan dicey. Furthermore I don’t see any evidence that Lyft was pursuing their own autonomous cars, meaning that they were in extreme risk should Uber or Google succeed. The other plan might be to gain total market dominance and then raise prices. I personally suspect that this plan would either trigger a regulatory response, or is exposed to the risk of someone doing to Uber what Uber did to the yellow cabs. For my part, these ride sharing services appear to be quite similar to a public transit system, only for car obsessed America. And one thing we do know from public transit is that it is very hard to run them at a profit, which makes me doubt the ability of any ride sharing company to ever be profitable.
zanny 7y ago
> Why should I invest for the long term in these companies? The pitch for Uber is that operating at a loss and aggressively capturing the market for point to point transit eventually puts their competition (mostly Lyft, often regional startups since the real opportunity cost to make an Uber competitor is so low) out of business that lets them jack up their prices. Basically, aggressively monopolize markets and then drive prices up until competition resurfaces, run in the red until competition dies first from less cash on hand, then resume exploitation. Its also hedging that self driving tech is far out enough to keep reaping profits from this cycle for some time. In the same way people go to Amazon first to buy something in many cases, Uber predicts with enough domination of the market for long enough people will just always go to Uber first for transport regardless of if actual better options exist at some point.
- agumonkey 7y ago
  > Basically, aggressively monopolize markets and then drive prices up until competition resurfaces This should be illegal. It's detrimental to society
alasdair_ 7y ago
>If you lose 50 cents on every ride, how do you make it up in volume? They "lose 50 cents" per ride at the current volume but their fixed costs only go up slightly for each ride, so at double the volume, they could be turning a profit instead of a loss. The number isn't really related to their actual marginal cost of providing the service.
- deusex_ 7y ago
  The loss comes from variable costs, not fixed costs. Early on, they hoped to become monopolies and raise prices, reaching profitability.
DenisM 7y ago
The more people use Lyft every day, the more chances someone else is going the same place you are, so picking up an extra passenger on the road (and spreading the cost) becomes viable. I don't know if it will work, but I think that might be one of the things they are hoping for. One other option would be self-driving cars. Looks like we hit a self-driving winter though. Another one is lobbying for less parking in towns, both improving the area and creating a captive audience and an environment where people are likely to share the ride. It's ambitious, kind of like terra-forming North America, but hey! There is also something to be said about novelty. When Uber/Lyft started there were many people just doing it for fun and beer money, but that sort of fun wears out and what you have is a different demographics - people who actually try to make a living. If Lyft/Uber were not doing demographic analysis of their driver cohorts they might have gone to sleep expecting profits with a bunch of yahoos driving others around for fun, and woken up with a bunch of blu-collar worker demanding rights and wages.
nine_k 7y ago
I wonder if they are making profit where they can, and loss where they are trying to get in? In NYC, a 15-min Lyft ride would cost me $18-20, comparable to the yellow taxi (but more convenient). A 40 min ride, e.g. JFK to midtown Manhattan, would easily be $60 (higher than taxi). I think that on a market like this, Lyft is pretty viable. It could downsize to major metro areas, and become a luxury service in less prosperous places — and become actually profitable.

misiti3780 7y ago

Not to mention autonomous vehicles are most likely years away from happening

return1 7y ago
if at all, [except for people who absolutely can tolerate their problems, e.g. disabled or elderly]

britch 7y ago

The idea (urban myth?) I've heard for discussion's sake: The long term bet is on them becoming THE way to get around and monopolizing the market (or a chunk of it at least) and THEN jacking up prices. If you undercut cabs and public transit long enough, they'll have to react to lower ridership and reduce availability. Sorry, no late night buses, most people are taking a very inexpensive and convenient Lyft home. Now that there's no late night buses, we can charge 3X the cost.

asdff 7y ago
Aside from NYC most cities do not have late night public transport past like midnight in most cases, maybe if you are lucky 2am. On top of that outside of NYC and maybe people commuting to DC, public transport ridership is pretty abysmal. Plus all the cabbies have to do is either assign drivers to third shift or not, it can be done on a whim as demand dictates.

village-idiot 7y ago

I only see two ways: The most discussed is the hope of autonomous vehicles. It seems that predictions about the imminent arrival of autonomous cars were a wee bit optimistic, so that makes this plan dicey. Furthermore I don’t see any evidence that Lyft was pursuing their own autonomous cars, meaning that they were in extreme risk should Uber or Google succeed. The other plan might be to gain total market dominance and then raise prices. I personally suspect that this plan would either trigger a regulatory response, or is exposed to the risk of someone doing to Uber what Uber did to the yellow cabs. For my part, these ride sharing services appear to be quite similar to a public transit system, only for car obsessed America. And one thing we do know from public transit is that it is very hard to run them at a profit, which makes me doubt the ability of any ride sharing company to ever be profitable.

zanny 7y ago

> Why should I invest for the long term in these companies? The pitch for Uber is that operating at a loss and aggressively capturing the market for point to point transit eventually puts their competition (mostly Lyft, often regional startups since the real opportunity cost to make an Uber competitor is so low) out of business that lets them jack up their prices. Basically, aggressively monopolize markets and then drive prices up until competition resurfaces, run in the red until competition dies first from less cash on hand, then resume exploitation. Its also hedging that self driving tech is far out enough to keep reaping profits from this cycle for some time. In the same way people go to Amazon first to buy something in many cases, Uber predicts with enough domination of the market for long enough people will just always go to Uber first for transport regardless of if actual better options exist at some point.

agumonkey 7y ago
> Basically, aggressively monopolize markets and then drive prices up until competition resurfaces This should be illegal. It's detrimental to society

alasdair_ 7y ago

>If you lose 50 cents on every ride, how do you make it up in volume? They "lose 50 cents" per ride at the current volume but their fixed costs only go up slightly for each ride, so at double the volume, they could be turning a profit instead of a loss. The number isn't really related to their actual marginal cost of providing the service.

deusex_ 7y ago
The loss comes from variable costs, not fixed costs. Early on, they hoped to become monopolies and raise prices, reaching profitability.

DenisM 7y ago

The more people use Lyft every day, the more chances someone else is going the same place you are, so picking up an extra passenger on the road (and spreading the cost) becomes viable. I don't know if it will work, but I think that might be one of the things they are hoping for. One other option would be self-driving cars. Looks like we hit a self-driving winter though. Another one is lobbying for less parking in towns, both improving the area and creating a captive audience and an environment where people are likely to share the ride. It's ambitious, kind of like terra-forming North America, but hey! There is also something to be said about novelty. When Uber/Lyft started there were many people just doing it for fun and beer money, but that sort of fun wears out and what you have is a different demographics - people who actually try to make a living. If Lyft/Uber were not doing demographic analysis of their driver cohorts they might have gone to sleep expecting profits with a bunch of yahoos driving others around for fun, and woken up with a bunch of blu-collar worker demanding rights and wages.

nine_k 7y ago

I wonder if they are making profit where they can, and loss where they are trying to get in? In NYC, a 15-min Lyft ride would cost me $18-20, comparable to the yellow taxi (but more convenient). A 40 min ride, e.g. JFK to midtown Manhattan, would easily be $60 (higher than taxi). I think that on a market like this, Lyft is pretty viable. It could downsize to major metro areas, and become a luxury service in less prosperous places — and become actually profitable.