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The startup economy is fundamentally broken and the virus will make it worse
- zhdc1 6y agoHow though. Their unit economics should be easy to manage. I understand spending money on customer acquisition, but why can't they just take 5-10% on top of whatever a driver wants to charge, and be done with it?
- gjvc 6y agoThey appear to be an expensive-to-run legal / lobbying company with ride-sharing service and technology businesses attached.
- zhdc1 6y agoThat can't be all there is to it. 23 billion is a crazy amount - way more than enough to basically lobby whatever you want through most western countries.
- sasasassy 6y agoUber and it's competitors are "dumping" their services, trying to kill their opponents before they run out of money. When only one survives, they'll raise prices to try to break even.
- mehrdadn 6y agoI never understood how this can be the business model. Isn't it illegal? https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
- mamon 6y agoAnd when they do raise prices another competitor with loads of VC money will appear, trying to "disrupt" them. The barrier to entry in ride sharing business is so low it's almost non-existent, which makes the whole strategy pointless, unless they can lobby in Congress for some regulatory framework that would make starting a new ride-sharing business harder.
- zelos 6y ago>unless they can lobby in Congress for some regulatory framework that would make starting a new ride-sharing business harder. Which would presumably mean they've spent billions to go round and end up exactly where we started? Which is presumably what will happen with a lot of the 'disruptive' companies once public opinion and regulation catches up with them.
- braythwayt 6y agoWhat would we call such a regulatory framework? How ‘bout an old-timey phrase, like “Taxi Legislation?”
- zhdc1 6y agoThat's like saying Facebook shouldn't be profitable because anyone can come up with a social media platform. There are user costs to switching platforms, even if the platform is a ride sharing app. I get that the friction is less than something like Facebook, but an amount much, much smaller than 23 billion would have been enough to 1.) have the best app on the market and 2.) advertise/discount where necessary to maintain some market share. If your customers have an unsustainable business model and you have favorable unit economics and a market leading position, you can quite literally sit on your cash flow (good unit economics and low overhead lets you survive market share losses) and wait until everyone else goes out of business.
- mamon 6y agoFacebook has network effects: you use it because all of your friends are using it, making a cost of switching high. In the ride sharing business however, there is zero consumer loyalty - installing a new app in your phone takes one minute. Riders can have multiple apps and order ride in the one that offers best prices, and all the drivers will probably be using multiple apps already. Also: you don't need to have "the best app in the market", just a reasonably good one. Advertising cost is more of the issue, but you can do that by starting in one local market, get some market share and use it to attract more VC capital.
- zhdc1 6y agoHere's the issue with that argument, though. Platforms win out because of user familiarity, not because they're necessarily the cheapest option. Uber had and still has a large lead on Lyft. They get free advertising all of the time through the media. How difficult is it to accept that you're not going to be number one in every market (but you'll likely remain number one in most markets), spend money wisely to shore up your position when necessary, and do everything you can to stay profitable?
- kasey_junk 6y agoThey’ve never been profitable. You can’t stay profitable when your entire unit economics is messed up.
- zhdc1 6y agoTheir unit economics are fine. They have a gross margin of 6-7% after taking out attributable operating costs (so, IT + customer support + insurance + w/e). Unless if I'm looking at the wrong numbers, they're literally killing themselves on sales, marketing, and driver incentives. It's "stupid" that's killing them, not the dynamics of the ride share market.
- kasey_junk 6y agoWithout driver incentives they lose the drivers. Upping prices to compensate the drivers correctly and they lose the customers. They are locked into a classic problem for 2 sided markets with low barriers to entry.
- sasasassy 6y agoLet me offer a bit of anecdotal evidence in response. Where I live, there are about 4 major competitors "Uber" services, and everyone that I know that regularly uses them, just uses whatever is cheapest at any given point. Usually it is to do with what campaign or promo code has been given most recently. My observation is that, yes for the general public there may be only "Uber" or traditional taxis, but those are the people that never use it in the first place. > Platforms win out because of user familiarity, not because they're necessarily the cheapest option. Uber is not a platform for the user. It is a service for basic transportation that costs money, and all car hailing apps offer similar enough experiences with different price tags depending on how fast the company is throwing money away.
- deleted 6y ago[deleted]
- ForHackernews 6y agoMaybe Uber are secretly communists dedicated to redistributing wealth from the rich and dumb to desperate gig-economy workers.
- ethanbond 6y agoPretty simple: Not enough people are willing to pay what drivers are willing to earn (plus 5-10%), and even if they were, the next sucker VC would jump at the opportunity to fund a “competitor” who promises to lose their money faster. There’s zero switching cost for either rider or driver. It’s hilarious that Silicon Valley ever thought Uber was a worthwhile business, and frightening that SV thought it was an exemplar.
- disgruntledphd2 6y agoYeah. I worked at a large SV tech company (though not in SV), and sooooo many people left for Uber. Even at the time, I never really understood how they were going to become super-profitable. In fact, when they reached out to me in 2017 with a really cool opportunity I declined as I couldn't understand how they were ever gonna make enough money to make the deal worthwhile.
- MattGaiser 6y agoI suspect they keep having to win back the business from competing rideshare services. I dropped Uber for a month in the Toronto Area as Lyft gave me a pile of coupons. Then I dropped Lyft when those coupons ran out and Uber was giving me discounts to come back. Whenever I visit a major US city like New York, I check if there is an alternative provider like Via. They also have coupons. I went from NYU to Laguardia for $15 + tip last time I was there. The Uber trip without coupons would have been 60. The lack of customer loyalty means that you have to win the customer every ride or they go somewhere else.
- newsclues 6y agoLack of loyalty means the end game is monopoly.
- wickerman 6y agoI think this also happens because traditionally, people become loyal to a brand because they gain something intangible from it. Reducing prices is not a way to ensure loyalty - as soon as they find a better deal customers will bail, as you exemplified. What does Uber do so well that you'd prefer it over a cheaper Lyft? Nothing. There may be virtually no difference in quality of service (sorry I have never used Uber or Lyft). I remember when I was in college doing an enterpreneurship class we were constantly added what was the value to our products - what does your product do so well that people would flock to you instead of the competition? Being cheaper was not an answer my professors allowed.
- tech-historian 6y agoZIRP has created a lot of this madness across the tech landscape.
- alexmingoia 6y agoYup. In a free market all lending would require having money, thus interest rates would be driven by a lending firm’s ability to successfully invest, which would allocate capital to ventures with better risk/reward profiles. Firms that lost most investments would go broke. But instead the central bank prints money to ensure solvency for lenders that would go bankrupt (fractional “reserve” banks).
- qroshan 6y agoTesla has probably lost over $20B, but has finally managed to build a profitable modern car that'll probably take over the world. If investors hadn't poured money despite heavy losses, we would have lost one of the iconic and revolutionary business/product of the 21st century. So, it's not all black and white
- gregoriol 6y agoIs it far fetched to say that Uber's business is actually taking money from the rich and giving it back to the people?
- paulcole 6y agoPretty close. Maybe something like taking money from the ultra-rich-and-clueless and giving it back to the rich-and-delusional?
- scarmig 6y agoKind of like Robin Hood, if Robin Hood stole from Saudi autocrats to give to status-anxious members of the UMC.
- bryanrasmussen 6y agoIf the Robin Hood scenario being envisaged is that in the Time Bandits with Mr. Hood walking down a line of passengers handing out ride rebates while his merry men stand behind to beat them up I'd say that analogy is pretty good actually.
- Intermernet 6y ago"does he really have to do that?" "yes sir, he says he really does" "jolly good" Misquoted, but accurate in spirit. I must have fruit.
- braythwayt 6y agoRobin Hood on the Vision Fund and the predatory, toxic founders it bankrolls: “What awful people.”
- dbspin 6y agoThat's almost the opposite of their business model. They're 'disintermediating' by taking a moderately paid, low skilled, highly regulated form of self employment, and turning it into low paid, unregulated gig work. One that's dependent on multi-billion dollar third parties whose 'platforms' compete to offer convenience to the rider, while utterly screwing the driver.
- gridlockd 6y agoFoolish foreign investors subsidizing rides and pizza deliveries? Why would you want to regulate that away? This is the market working very efficiently, the resource (money) is in the wrong hands and must be allocated to literally anyone else.
- jrochkind1 6y agoI appreciate the comments about what these kind of startups to do the 'reliability' of the pricing system, per Hayek. I suspect the pricing system has always been more 'broken' than many, certainly Hayek, would like to believe. Selling under the 'true cost' because of subsidy from investors is in some sense just another form of 'externalization', like not paying for environmental devastation byproducts which has always been traditional, since at least 1492. (Or 'artificially' low prices due to a labor force held hostage by enslavement, or violent retaliation to organizing, at different points in history). The 'true cost' ends up being a pretty slippery notion, as the OP later approaches a bit in suggesting the price system is not in fact a "naturally-occurring phenomenon". > In turn, the major reason for that situation is for years there has been far more investor capital than there have been high-quality investments for that capital. "We find ourselves in a liquidity surplus," Also interesting. Marxist economists have been talking about this since Marx. "A crisis of overaccumulation of capital occurs when the rate of profit is greater than the rate of new profitable investment outlets in the economy" — https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_concept https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_c...
- gridlockd 6y agoThe pricing system still works just fine, for the most part you cannot do predatory pricing for long because of arbitrage. If you sell stock below cost, I can buy it all up till you are out of money, then sell it at a profit. Even for those things where you cannot arbitrage (like Uber rides), the money-losing can't go on forever and prices will rise again, unless Uber figures out a way to cross-subsidize like Amazon.
- vertex-four 6y agoYou can only buy it up and sell it at a profit if what is being sold is a good, not a service or licensed code with attached terms and conditions. And with the advent of small enough computers, nearly nothing is a pure good.
- gridlockd 6y ago
- maehwasu 6y agoWait, the government gives investors essentially infinite cheap credit, resources get allocated in an incredibly perverse manner, and it's Friedrich fucking Hayek who has it wrong???? I certainly don't think Hayek is above criticism, but this author definitely is not making the point he thinks he is. This isn't some kind of "no true Scotsman" thing either. The current market is exactly what someone like Hayek would expect given the monetary manipulations of the past 10+ years.
- jcfrei 6y agoExactly. I'm not a libertarian or Hayek fanboy by any means but these types of companies are what you would expect in a world of shrinking investment opportunities and lots of excess capital (as evidenced by the falling interest rates). Add to that a few oil rich countries which desperately try to diversify their economies and therefore put lots of their petro dollars into various VC funds.
- thu2111 6y agoAre investment opportunities really shrinking or is this a result of central banks never having really unwound their whole QE programmes, in fact many of them buy up as many 'safe' assets as possible. I'm pretty sure Hayek would identify the issue as government intervention. It's not only central banks with their massive buy-ups of high quality corp/gov debt that's the matter here (forcing investors into ever riskier asset classes like VC funds). Given current world events I'm pretty sure a part of it is academia is broken too. One thing that puzzled me for a long time is why there aren't more biotech startups, or why there aren't any (it seems) unicorn biotech firms. The potential of biotech seems unlimited. One day I found out a possible reason - VCs are afraid of biotech firms because they virtually all start by taking some academic paper that sounds promising, and building a lab to try and replicate it. But the papers don't replicate, so the company tanks and the VC loses everything. The figure I heard is around 50% of the papers don't replicate, which seemed shockingly high at the time. Well, later I encountered an even worse figure: AmGen Oncology claimed only 11% of cancer papers replicated. The cost of trying to find the next big idea in biotech seems astronomical with those kinds of odds. In effect the biotech world is flooded with ideas that sound good but fall at the first hurdle. No wonder investors prefer the software world, it's way less dependent on universities. Not many startups get started by saying, "we're going to commercialise this amazing sounding paper put out by the U of X". Even AI startups which I suppose come the closest are mostly being driven by corporate research labs, and even then, a16z dunked cold water on AI as a startup category.
- benjaminjosephw 6y agoInvestors have a clear interest in turning their companies into monopolies and supporting anti-competitive behaviour. As long as they are allowed to create unfair advantages by distorting market conditions they will. Those that play by the rules have the odds stacked against them and will loose unless the rules of the game itself change. The fact that there isn't a level playing field is becoming more obvious and I think the backlash against "big tech" is an inevitable result. This will result in either a reform of antitrust laws or a code of ethics being subscribed to by all the big players. I think Tethics is the answer and I'm really looking forward to finding out who will be the real-life Gavin Belson Professor of Ethics in Technology at Stanford[0]. [0] Silicon Valley: Ten Years Later - https://www.youtube.com/watch?v=ab1H602yc_Y https://www.youtube.com/watch?v=ab1H602yc_Y
- m4nu3l 6y agoI'm struggling to fully understand the point. The author states that accumulation of capital led to this economy where investors are almost forced to lose money because they don't have enough good investment opportunities. That implies there is a transfer of wealth from those investor to the workers in those money-burning companies. The author also states that this probably won't work for Uber to gain monopoly status anyway. This really sounds like a redistribution mechanism naturally occurring in the market itself. Then the author pushes for this to be regulated out of existence. What am I missing?
- friendlybus 6y agoI cant find a source for the claimed figure that customers pay 41 percent of the ride's cost. The links bottom out in intrasite articles. This reads like investors want to have their cake and eat it too. Burn cash for market share, then regulate the competiton for market share closed when they have taken the lead. If they dont want to burn money, then don't. There's plenty of other hard problems that take big money to solve that payoff decades later. What happened to fiscal responsibility on the investor side?