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How 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 wh
by zhdc1 6y ago
How 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.
- Applejinx 6y ago
- 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.