6 ms·

I don’t get why Uber isn’t profitable. Their marginal cost is only higher than zero because they choose to lose money. Their fixed costs are servers and engine

• appleshore 7y ago
  Uber should just increase their rates dramatically, increase the driver’s share and offer discount subscriptions to loyal customers. Spontaneous riders pay more, others pay less.
  • outside1234 7y ago
    The driver's share is already something like 110% of what they charge.
• throwaway66920 7y ago
  They’re valued on growth, so if they decide to stop growing their valuation will plummet. If they raise prices then quantity of rides will go down. If quantity of rides goes down, it becomes harder to earn a living as a driver. If it is harder to earn a living as a driver, there are fewer drivers. If there are fewer drivers, then the cost of drivers goes up. Not to mention the fact that if uber becomes 10% more expensive a large chunk of those customers will just go to lyft.
  • kelnos 7y ago
    If Uber pays drivers more than Lyft to a point where drivers stop driving for Lyft, riders won't be able to get a ride on Lyft, so they'll pay Uber's higher prices. Not everyone will; some will opt for a regular taxi, driving themselves, or transit. But I suspect that there is actually some combination of higher ride prices and higher driver salaries that will keep Uber alive and growing, though probably not at the same rate.
    • zizee 7y ago
      I believe that you have the power dynamic reversed. I.e. The drivers will go where the customers are more than the customers will go where the drivers are. A driver only gets paid if a passenger rides. If Uber increases the costs of their rides over a competitor, the the customers will opt to the competition.
  • fdye 7y ago
    Honestly, the price increase on both platforms recently has pushed my household (Wife + Me) back to Muni/Driving. Previously, if one of us used ride sharing it was ~$5-8 each way. Now for the same ride we regularly hit $12-20. It was so bad the last week of my wife using them that she paid ~$18-20 each way, when I reminder her that that was $200 for the week just to get to work, she was shocked. At 4 weeks in the month thats a decent Mercedes payment, getting close to insurance+gas locally. Now we only use it for the occasional night out where we just factor in the expense as entertainment. These services only have a marginal value that is approximately 2-3x public transit. In SF that is Muni at $2.50-$3, so $5-9 one way. Once you cross the $10 and creep into $15-20, you have a problem and the business crashes and burns. In my twenties I remember working at a bar near chinatown. I would get off and my feet would be killing me. It was only maybe 6-8 blocks up Sutter to get to my old place, but every once in a while I would waste money on a Taxi. I remember it killing me that they started the meter at $3.50 and it would end like $8-10. Always felt like if they just flat rated it at $5 for my 6-8 blocks, I would take it everyday to and from (Uber sort of did just that and I rode it like crazy for a while), but at $10 it was a special treat and the rest of the time I schlepped up Sutter, feet be damned.
• ForHackernews 7y ago
  Driving people from point A to point B is a commodity. The only reason taxi drivers were able to command a premium was restricted supply through licensing/medallions and whatnot. Uber destroyed that, so now competition will drive the prices down to the actual cost of driver wage + petrol/vehicle operating costs. Uber will see their margin squeezed down to nothing because they add nothing of value to the transaction: Any random cab company can buy a dispatch app.
  • Iwan-Zotow 7y ago
    > Any random cab company can buy a dispatch app. That is actually the case in many markets - in Russia local city cab companies all have their apps, so you have three-four installed and you're good to go. And Russian Uber (aka Yandex.Taxi) is here as well
• the_watcher 7y ago
  The basic economics argument assumes that there are not price points that are both higher than what drivers accept and that consumers are willing to pay. The existence of Lyft plays a role here, but both are in the same boat - they either need a new product line with better margins to take off that has some synergies with the ride-sharing business, or the unit economics of ride-sharing need to get bad enough for both concurrently to decide to raise prices.
  • landryraccoon 7y ago
    The fact that taxi cabs existed for decades and were profitable means that this price point exists. That was the whole reason lyft and uber entered the market in the first place.
    • the_watcher 7y ago
      Taxis are an extremely bad example as they did not operate in an open market, essentially behaving as a government-sanctioned cartel.
      • 205guy 7y ago
        It all goes in a circle though: why did city governments sanction taxi cartels (by issuing a fixed number of medallions)? Because if anyone can be a taxi anytime (aka open market), then you get a race to the bottom, both in quality and availability. Then there isn't a steady supply and a lot of collateral problems (accidents, crime, etc). The solution a century ago was to regulate: limited number of taxis and minimum driver qualifications. In the days before apps and routing, it meant that there were taxis available most of the time, except for maybe at peak times. My point is that taxis are an extremely good example of why you need regulation. Uber and Lyft will succeed to the point they can replace that regulation (cheap enough fares, good enough cars and drivers). You could also argue that Uber and Lyft are controlling the taxi market because they don't let drivers set their own fare. From the point of view of the driver, taxi-driving is an Uber-Lyft-sanctioned cartel right now.
      • foldr 7y ago
• rand0mthought 7y ago
  If they raise prices the ridership will drop. It is not clear if they will be able to increase revenue by raising prices.
• jdro 7y ago
  This is a worthwhile writeup of how Uber's operating costs are generally higher than the industry it "disrupted" without actually solving the structural problems that industry had found an equilibrium around: https://americanaffairsjournal.org/2019/05/ubers-path-of-destruction/ https://americanaffairsjournal.org/2019/05/ubers-path-of-des...
  • jdro 7y ago
    Two relevant excerpts from that article on cost and structural problems: ===== On Cost: The cost structure of any urban car service company has four components: vehicle costs (typically 18 percent of total, including acquisition, financing, maintenance, and licensing), corporate costs (15 percent, including dispatching, advertising, overhead functions such as IT and legal, and returns to shareholders), fuel (9 percent), and driver compensation (58 percent, including benefits).5 Uber’s business model shifts the vehicle costs (ownership, maintenance, insurance) that traditional companies used to incur to its “independent contractor” drivers. Passenger fares need to cover total (Uber plus driver) costs. But shifting the burden of vehicle costs and financing onto drivers makes those costs higher, since hundreds of thousands of drivers with limited capital and business experience cannot possibly manage these costs as well as even a typi­cal traditional cab company. Traditional cab companies also have much lower corporate costs, as they avoid Uber’s huge expenditures in areas like political lobbying, global branding, IT development, big corporate headquarters, etc. Uber should also have higher driver costs than traditional opera­tors, because the huge increase in the demand for drivers should have improved wages, benefits, and working conditions. As will be discussed below, however, Uber initially offered incentives that in­creased its driver costs, but since 2015 has suppressed take-home pay to minimum wage levels. This exercise of artificial market power cannot be considered an Uber efficiency or productivity advantage. ===== On Structural Problems: Far from revolutionizing the future of transportation, Uber has not solved any of the in­dustry’s long-standing structural problems. Most taxi demand is low-income; higher fares would shrink traf­fic and reduce utilization. Taxi demand is sociologically bipolar: 55 percent of demand comes from people earning less than $40,000 per year while 35 percent comes from people earning more than $100,000.10 Demand from lower-income people is driven by access to jobs in areas (or at times of day) when transit service is poor or non­existent. Given the current income distribution of riders, any at­tempt to balance supply and de­mand will either drive lower-in­come passengers out of the market or result in wealthy customers being charged less than they might be willing to pay. Uber does not have the lower cost structure needed to improve service while keep­ing fares low, and apparently realizes that only a small portion of the market is willing to pay fares that would cover the true cost of its service. Higher prices would also reduce vehicle utilization and de­stroy any notion that Uber’s busi­ness has exceptional growth poten­tial. Uneven geo­graphic demand creates unavoidable empty backhaul costs. Taxi demand, as with demand for every other form of urban transport, has extreme temporal and geographic peaks. Most cities have a dense core area where taxi demand is highest, and taxis operating within that zone can maintain reasonably high daily utili­zation. But the true cost of trips to neighborhoods outside that zone can be as much as twice normal trip costs since they will have an empty backhaul. Low-income neighborhoods receive poor taxi ser­vice because drivers rationally avoid trips where they won’t find a return fare. Uber does nothing to create new demand that can fill those empty seats, and has no way to vary fares based on backhaul utilization. People expect that the fare to the airport should be roughly the same at 6 a.m. (when the cab will return empty) as at 4 p.m. (when return fares are queued up). Extremely high cost of peak capacity. Peak taxi demand occurs during the late evening, especially on Friday and Saturday nights. As with rush-hour transit and expressway peaks, the cost of the capaci­ty needed to serve peak demand is four to five times the cost of serving demand on Tuesday morning. Cab companies cannot afford to provide all the expensive capacity demanded, creating conflict as wealthier people headed to restaurants and clubs fight over the limited supply of cabs with late-shift workers at hospitals and ware­houses. Uber has done nothing to reduce the high cost of peak service or find paying passengers anxious to travel at off hours. Uber’s core business proposition (“push a button, get a car!”) by definition requires far more capacity and much lower utilization rates than traditional operators. Overcapacity risk. Taxi businesses in unregulated markets have no natural barriers to entry, and thus face the risk of ruinous over­capacity that reduces utilization and precludes a workable balance of supply and demand. As both Uber and past cases of unlimited mar­ket entry have demonstrated, new entrants don’t charge fares high enough to cover full operating costs, ensuring major losses for everyone. Uber did not suddenly discover ways to dramatically improve productivity and service quality that everyone else in the industry had been too stupid to recognize for the past hundred years.11 In fact, nothing in Uber’s business model solves any of the major problems that have long frustrated users.