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Uber's marketing / customer acquisition cost is their highest non-driver line item by a significant multiple. They spent ~$3,200,000,000 ($3.2 billion) on sale

Uber's marketing / customer acquisition cost is their highest non-driver line item by a significant multiple. They spent ~$3,200,000,000 ($3.2 billion) on sales & marketing in 2018 of which ~$1,800,000,000 is direct media / HR cost to drive customer acquisition. In 2019 this number, as of the first quarter, has gone up substantially to a >$4b run rate. With a burdened cost of $150k/yr for every single member of the 1,200 marketing team that makes up $180m of the total. Uber operates in 600+ international major markets. 1200 employees (5% of organization total) covering and executing nuanced marketplace approaches for a budget of that scale is not out of range. (1) https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spends-its-money/ https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spend...

twic 7y ago
Have you got the right number of zeroes there? Three billion per year?
- knicholes 7y ago
  I don't see aresant saying "per year" but just in 2018.
- aresant 7y ago
  Yep - $3.2b is the headline cost of sales and marketing in 2018. In 2019 that number as of Q1 has shot up to a $4b+ run rate: https://investor.uber.com/news-events/news/press-release-details/2019/Uber-Q1-2019-Earnings/ https://investor.uber.com/news-events/news/press-release-det... - - Even more interesting in that number. The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts". This is the line item for costs where they pay a driver more than they collect from a customer. So they put the "customer discounts" number, which represented $1,400,000,000 in total expense, into the marketing budget. Leaving ~$1,800,000,000 spread for all other sales & marketing activities. I am very in the weeds in the 2-sided logistics marketplace customer acquisition data if you have other questions :).
  - MetalGuru 7y ago
    What’s your take on the sustainability of these subsidized rides? Will drivers still drive if this incentive is taken away? What are some of your favorite interesting insights from that data?
    - aresant 7y ago
      (1) What’s your take on the sustainability of these subsidized rides? -=> The gigantic and unsustainable CAC numbers experienced by Uber, Lyft, and others is due to the present level of competition for these drivers & customers. This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach. This cost has now been handed off (in the USA anyways) to Lyft & Uber stock holders. Somebody is going to run out of capital or experience a precipitous drop in stock valuation that will force the market's hand here and reduce demand and re-normalize. It is financially unsustainable for this # to keep climbing as a percentage of revenue barring a massive change to the cost structures. The only massive change imaginable in the structure was when Travis got away for a few years claiming autonomous would cure all, this is obviously not going to happen in the timeline he was pitching. I think that the CEO taking a hard position and firing 400 people in his marketing department is a good indicator that when they next report earnings CAC is going to be a huge mess and maybe shed some light on how UBER plans to navigate that downshift. (2) Will drivers still drive if this incentive is taken away? -=> Yes, following my comment above I think that the current CAC and retention numbers will normalize (for one or other other of the major players) and that the delta savings will be pushed back into increased driver wages. (3) What are some of your favorite interesting insights from that data? -=> Outta steam sorry :)
      - inflatableDodo 7y ago
        >This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach. Do you think it is even possible to have a winner takes all in the global hire car market? The barrier to entry is exceedingly low.
    - 7y ago
- uponcoffee 7y ago
  They even cited a source
SilasX 7y ago
Echoing twic's disbelief here. A quick googling turned up Coca-Cola's global advertising budget as being $4 billion/year [1]. >Coca-Cola has made a yearly commitment to large ad spends. In 2017, the beverage manufacturer spent $3.96 billion, in 2016, $4 billion, and in 2015 $3.96 billion on global advertising. But I'm not sure if that's a comparable figure, as "advertising" is only a subset of "marketing". Still, if the latter is basically just the former plus salaries, it still suggests Uber is overpaying and/or has some inefficiencies in how they operate here. [1] https://www.investopedia.com/articles/markets/081315/look-cocacolas-advertising-expenses.asp https://www.investopedia.com/articles/markets/081315/look-co...
- nemothekid 7y ago
  I think driver incentives falls under marketing spend at Uber. Driver Incentives are they will pay driver $X to make $Y trips. Essentially riders are paying $5 and drivers are making $6. I believe this is where most of the money is burned at Lyft as well.
  - CamelCaseName 7y ago
    From their S-1: >Driver incentives. Driver incentives refer to payments that we make to Drivers, which are separate from and in addition to the Driver’s portion of the fare paid by the consumer. For example, Driver incentives could include payments we make to Drivers should they choose to take advantage of an incentive offer and complete a consecutive number of trips or a cumulative number of trips on the platform over a defined period of time. Driver incentives are recorded as a reduction of revenue to the extent they are not excess Driver incentives (as defined below). >Driver referrals. Driver referrals refer to payments that we make to existing Drivers to refer new Drivers onto our platform. Driver referrals are recorded in sales and marketing expenses, as they represent the receipt of a distinct service of customer acquisition for which there is evidence of fair value. https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm https://www.sec.gov/Archives/edgar/data/1543151/000119312519... (pp. iii)
  - aresant 7y ago
    UBER masks this real number across many of their general line items. EG they put ~$300,000,000 of the "Driver Incentive" cost into "Cost of Revenue" line item that represents: - "Any amount paid to a driver that exceeds the revenue earned by that driver (for instance, if a driver’s earnings from a trip exceed the fare for that trip). Excess driver incentives jumped by about $300 million in 2018 from the previous year, largely due to Uber Eats." And then they stick $1,800,000,000 into "Sales & Marketing" representing: - "Discounts, promotions, refunds, and credits for customers," - - - - A popular criticism of UBER is that their unit economics are not sound - eg they can't make money at scale on a per ride basis. So this giant $2.1b glut of Driver Incentives and Customer Incentives is one of the areas to deeply study and build a position around if you'd like to be an UBER stock holder :)
user5994461 7y ago
Just fire half of them to save half the money. Marketing has large budgets to spend (multiple of their salaries) on marketing campaigns. They're usually incentivized to spend as much as possible on whichever marketing campaign they can come up with, with little accountability on whether it brings any ROI. It's the equivalent of software engineers wanting to use the latest tools for resume building, no matter the situation. The difference is that marketing lives on spending money, hence cutting headcount there has a big multiplier on cost savings.
- lapnitnelav 7y ago
  I don't know when was the last time you got involved in anything marketing but if anything, marketing teams are fairly metrics driven nowadays.
  - user5994461 7y ago
    I don't know when is the last time you got involved in marketing but if anything, the metrics driven culture is precisely a free pass allowing to justify any decision whatsoever, through a careful selection of data points and scale, whether intentional or accidental. God forbids having to point out to your manager that he mixed up the X/Y axis and sales have been decreasing month over month, not increasing. By the way, a lot of marketing is still not quite metrics driven. Unlike the internet, when spending money on national TV, sports teams, tube station ads, there is little feedback that can be captured. And even on the internet, how do the new junior marketer learns that google/facebook ads don't have a positive ROI for his use case, assuming he's measuring at all? That's by spending a few million dollars in vain. Anyway, that is not to say that marketing is useless, it's an important aspect of some businesses. The capital costs involved are fairly high though and can quickly spiral out of control. A big part of the marketing/advertising industry is a scam operating at a loss, an elaborate conduit to transfer money from the client to the advertiser.
  - hef19898 7y ago
    Good ones are.
moksly 7y ago
> Uber operates in 600+ international major markets. Maybe it’s because I’m from a small country, but can a single country have more than one “major international market”?
- martinald 7y ago
  It means cities/metro areas.
  - walshemj 7y ago
    Does it really? I would not have said so. I work as a consultant for a major international (I wont say who ) company and they only quote 190 or so "international markets"
    - RussianCow 7y ago
      I don't think it's necessarily standard to use it that way, but it makes sense for Uber because their areas of operation (markets) are defined by cities (i.e. you can't just call an Uber in the middle of the country; it has to be within one of their operating cities).
    - pandapower2 7y ago
      They must be counting multiple markets per country. There aren't that many countries in the world and there are a significant number of countries where Uber doesn't operate all. As an example, afaik they no longer operate anywhere in south east Asia.
- deleted 7y ago
  [deleted]
- chrisbroadfoot 7y ago
  Read this sentence as "600+ major markets, internationally". A "major market" is basically a city/metro.

twic 7y ago

Have you got the right number of zeroes there? Three billion per year?

knicholes 7y ago
I don't see aresant saying "per year" but just in 2018.
aresant 7y ago
Yep - $3.2b is the headline cost of sales and marketing in 2018. In 2019 that number as of Q1 has shot up to a $4b+ run rate: https://investor.uber.com/news-events/news/press-release-details/2019/Uber-Q1-2019-Earnings/ https://investor.uber.com/news-events/news/press-release-det... - - Even more interesting in that number. The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts". This is the line item for costs where they pay a driver more than they collect from a customer. So they put the "customer discounts" number, which represented $1,400,000,000 in total expense, into the marketing budget. Leaving ~$1,800,000,000 spread for all other sales & marketing activities. I am very in the weeds in the 2-sided logistics marketplace customer acquisition data if you have other questions :).
- MetalGuru 7y ago
  What’s your take on the sustainability of these subsidized rides? Will drivers still drive if this incentive is taken away? What are some of your favorite interesting insights from that data?
  - aresant 7y ago
    (1) What’s your take on the sustainability of these subsidized rides? -=> The gigantic and unsustainable CAC numbers experienced by Uber, Lyft, and others is due to the present level of competition for these drivers & customers. This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach. This cost has now been handed off (in the USA anyways) to Lyft & Uber stock holders. Somebody is going to run out of capital or experience a precipitous drop in stock valuation that will force the market's hand here and reduce demand and re-normalize. It is financially unsustainable for this # to keep climbing as a percentage of revenue barring a massive change to the cost structures. The only massive change imaginable in the structure was when Travis got away for a few years claiming autonomous would cure all, this is obviously not going to happen in the timeline he was pitching. I think that the CEO taking a hard position and firing 400 people in his marketing department is a good indicator that when they next report earnings CAC is going to be a huge mess and maybe shed some light on how UBER plans to navigate that downshift. (2) Will drivers still drive if this incentive is taken away? -=> Yes, following my comment above I think that the current CAC and retention numbers will normalize (for one or other other of the major players) and that the delta savings will be pushed back into increased driver wages. (3) What are some of your favorite interesting insights from that data? -=> Outta steam sorry :)
    - inflatableDodo 7y ago
      >This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach. Do you think it is even possible to have a winner takes all in the global hire car market? The barrier to entry is exceedingly low.
  - 7y ago
uponcoffee 7y ago
They even cited a source

SilasX 7y ago

Echoing twic's disbelief here. A quick googling turned up Coca-Cola's global advertising budget as being $4 billion/year [1]. >Coca-Cola has made a yearly commitment to large ad spends. In 2017, the beverage manufacturer spent $3.96 billion, in 2016, $4 billion, and in 2015 $3.96 billion on global advertising. But I'm not sure if that's a comparable figure, as "advertising" is only a subset of "marketing". Still, if the latter is basically just the former plus salaries, it still suggests Uber is overpaying and/or has some inefficiencies in how they operate here. [1] https://www.investopedia.com/articles/markets/081315/look-cocacolas-advertising-expenses.asp https://www.investopedia.com/articles/markets/081315/look-co...

nemothekid 7y ago
I think driver incentives falls under marketing spend at Uber. Driver Incentives are they will pay driver $X to make $Y trips. Essentially riders are paying $5 and drivers are making $6. I believe this is where most of the money is burned at Lyft as well.
- CamelCaseName 7y ago
  From their S-1: >Driver incentives. Driver incentives refer to payments that we make to Drivers, which are separate from and in addition to the Driver’s portion of the fare paid by the consumer. For example, Driver incentives could include payments we make to Drivers should they choose to take advantage of an incentive offer and complete a consecutive number of trips or a cumulative number of trips on the platform over a defined period of time. Driver incentives are recorded as a reduction of revenue to the extent they are not excess Driver incentives (as defined below). >Driver referrals. Driver referrals refer to payments that we make to existing Drivers to refer new Drivers onto our platform. Driver referrals are recorded in sales and marketing expenses, as they represent the receipt of a distinct service of customer acquisition for which there is evidence of fair value. https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm https://www.sec.gov/Archives/edgar/data/1543151/000119312519... (pp. iii)
- aresant 7y ago
  UBER masks this real number across many of their general line items. EG they put ~$300,000,000 of the "Driver Incentive" cost into "Cost of Revenue" line item that represents: - "Any amount paid to a driver that exceeds the revenue earned by that driver (for instance, if a driver’s earnings from a trip exceed the fare for that trip). Excess driver incentives jumped by about $300 million in 2018 from the previous year, largely due to Uber Eats." And then they stick $1,800,000,000 into "Sales & Marketing" representing: - "Discounts, promotions, refunds, and credits for customers," - - - - A popular criticism of UBER is that their unit economics are not sound - eg they can't make money at scale on a per ride basis. So this giant $2.1b glut of Driver Incentives and Customer Incentives is one of the areas to deeply study and build a position around if you'd like to be an UBER stock holder :)

user5994461 7y ago

Just fire half of them to save half the money. Marketing has large budgets to spend (multiple of their salaries) on marketing campaigns. They're usually incentivized to spend as much as possible on whichever marketing campaign they can come up with, with little accountability on whether it brings any ROI. It's the equivalent of software engineers wanting to use the latest tools for resume building, no matter the situation. The difference is that marketing lives on spending money, hence cutting headcount there has a big multiplier on cost savings.

lapnitnelav 7y ago
I don't know when was the last time you got involved in anything marketing but if anything, marketing teams are fairly metrics driven nowadays.
- user5994461 7y ago
  I don't know when is the last time you got involved in marketing but if anything, the metrics driven culture is precisely a free pass allowing to justify any decision whatsoever, through a careful selection of data points and scale, whether intentional or accidental. God forbids having to point out to your manager that he mixed up the X/Y axis and sales have been decreasing month over month, not increasing. By the way, a lot of marketing is still not quite metrics driven. Unlike the internet, when spending money on national TV, sports teams, tube station ads, there is little feedback that can be captured. And even on the internet, how do the new junior marketer learns that google/facebook ads don't have a positive ROI for his use case, assuming he's measuring at all? That's by spending a few million dollars in vain. Anyway, that is not to say that marketing is useless, it's an important aspect of some businesses. The capital costs involved are fairly high though and can quickly spiral out of control. A big part of the marketing/advertising industry is a scam operating at a loss, an elaborate conduit to transfer money from the client to the advertiser.
- hef19898 7y ago
  Good ones are.

moksly 7y ago

> Uber operates in 600+ international major markets. Maybe it’s because I’m from a small country, but can a single country have more than one “major international market”?

martinald 7y ago
It means cities/metro areas.
- walshemj 7y ago
  Does it really? I would not have said so. I work as a consultant for a major international (I wont say who ) company and they only quote 190 or so "international markets"
  - RussianCow 7y ago
    I don't think it's necessarily standard to use it that way, but it makes sense for Uber because their areas of operation (markets) are defined by cities (i.e. you can't just call an Uber in the middle of the country; it has to be within one of their operating cities).
  - pandapower2 7y ago
    They must be counting multiple markets per country. There aren't that many countries in the world and there are a significant number of countries where Uber doesn't operate all. As an example, afaik they no longer operate anywhere in south east Asia.
deleted 7y ago
[deleted]
chrisbroadfoot 7y ago
Read this sentence as "600+ major markets, internationally". A "major market" is basically a city/metro.