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That may be the best argument that I've heard so far, but after thinking for a minute, it sounds not like "Uber can never be profitable", but rather "the legacy

That may be the best argument that I've heard so far, but after thinking for a minute, it sounds not like "Uber can never be profitable", but rather "the legacy taxi market is an upper bound on how big Uber can be in the long run". Couldn't that be profitable? That's still a pretty big market, even if middle-class people are no longer using it for 10-minute rides.

bloodyplonker22 5y ago
Yes, profitable, but Uber's valuation would tank if they were just scraping by on this kind of revenue with no hopes of automated driving or other things in the future to increase margins.
- neonate 5y ago
  OK, in that case the answer is "Uber can be profitable". Probably true that their valuation would be lower but that's not the argument I hear people making.
  - bloodyplonker22 5y ago
    What happened to WeWork is almost exactly the hypothetical scenario that you are describing for Uber.
    - jacobr1 5y ago
      Uber doesn't have the same risk profile. When demand drops for wework, they are still on the hook for longer term leases. When demand drops for uber, drivers eat the loss of fewer transactions. As long as they can keep their overhead in check (and this certainly isn't clear) then they should be be able to have an operationally viable business.
- morpheos137 5y ago
  There is no hope of price competitive automated driving. It is ludicrous.
Etheryte 5y ago
I think the key question here is profitable in what way. Can they be profitable in the sense of they made more money this year than they burned? For sure, turn down spending and turn up the prices. Can they be profitable in the sense of being in the green over the whole lifetime of the company, making a total profit over the large sums of money poured into the company? I'm not certain.
- neonate 5y ago
  I'm asking the first question. I agree with you that even if the answer to the first question is, "yes, Uber can be profitable", the answer to the second question (can it generate a positive return for its investors) is in doubt. It's possible for a company to be a losing investment and yet still end up as a profitable business operationally. I don't think "For sure, turn down spending and turn up the prices" is something that the people arguing "Uber can never be profitable" would agree with. They're arguing that this can't work, and therefore Uber is destined to go out of business once the investment billions dry up. I'm just asking why that is so, given that the taxi market is a thing, and that a lot of people like Uber better than taxis.
  - dragontamer 5y ago
    > I'm asking the first question. I agree with you that even if the answer to the first question is, "yes, Uber can be profitable", the answer to the second question (can it generate a positive return for its investors) is in doubt. It's possible for a company to be a losing investment and yet still end up as a profitable business operationally. But then if we're admitting that Uber's unlikely to be profitable over its lifetime, why would anyone buy their stock? That's really what people care about in these discussions. Its not "Will Uber be profitable this quarter?", its... "should I buy Uber stock?". The last guy lost money on Uber stock and is trying to offload these shares / certificates onto someone else now. Will buying those shares at this current price (aka: very expensive: $81 Billion market cap) be worthwhile? You can buy many other companies at much cheaper prices than that.
    - neonate 5y ago
mimixco 5y ago
Uber cannot take advantage of the economies taxi companies have in fleet purchase, in-house maintenance, commercial prices for parts, and fuel contracts. None of these scale well nationally, which is why there has never been anything more than small, regional taxi companies, even though they were possible 100 years ago. Uber's overhead in misbelieving they are a software company rather than a taxi service has only added to the expense, not saved anything. Because taxis rely on cheap fleets, centralized and cheaper maintenance, and volume fuel agreements, they simply don't scale.
- ghaff 5y ago
  I'm not convinced the gig economy taxi service can't scale--without depending on too many drivers who don't understand their costs. But it's not going to be cheaper than the alternatives, driver networks may not be much larger, and a lot of operations (including engineering) are probably going to be mostly outsourced to low cost areas.
  - mimixco 5y ago
    The individual driver has no buying power to negotiate a lower price on cars, fuel, or maintenance and the big players are disincentivized to hand him one. The gig nature of the job means he pays consumer prices for everything while Uber skims off the top. Uber is an attempt to mechanize the human aspect of driving by turning people into machines that produce for them. Unfortunately, in the fever dream that led to its creation, no one stopped to consider why "Big Taxi" wasn't a thing already.
    - Gibbon1 5y ago
      Reminds me of some shrewd comments about the Airbus A380. If there really was as much of a market as Airbus thought why wasn't Boeing selling more 747's. So yeah in the last 100 years why are there a couple of taxi companies in each large city. I think you are right the business doesn't scale beyond a certain point. Anecdote: Friend said he and the people he was with tried getting an Uber and balked at the $50 price. Then one them had the bright idea to check a regular taxi, $15.
nyghtly 5y ago
I think it's worth considering that Uber is the first nation-wide taxi service that we've ever seen, and they were only able to accomplish this via subsidy. Is it really possible to continue operation at that scale, while simultaneously losing their competitive edge versus local taxi companies? Why is it that no other taxi company has even come close to nation-wide? I don't think an app is sufficient to bridge that gap, and Uber doesn't have anything else to show in the innovation department.
- neonate 5y ago
  It's a good question that I don't know enough about the taxi business to answer. However, it's also a pretty general/speculative argument, so not the strongest case for "Uber can never be profitable", especially since there are general/speculative arguments on the other side too. For example: economies of scale have worked in other industries, why can't that happen here? And: software-is-eating-the-world has generally been holding true, so why would this be an exception?
- dtagames 5y ago
  The three biggest reasons are centralized maintenance, fuel, and fleet costs. Taxi companies negotiate the entire fleet purchase at one time and replace vehicles on a schedule (like rental car companies). Often, the fleet is all one brand and model. This makes it easy to hire one or two guys to work on all of them. You can also buy all your standard parts in bulk and you get commercial pricing for those. Fuel is also all bought from the same vendor on a contract. Those agreements would be impossible for any gig worker to get. He is going to pay full price for the car, the maintenance, and the fuel. Gas stations aren't owned by oil companies; they're owned by individuals. So you'll never get national pricing on gas. Each taxi company negotiates with a particular owner (hopefully of several stations) in their area. The final nail in the coffin (and the one that keeps it from going national, even if such agreements could be worked out for a group), is that car repair is local. You cannot operate a maintenance depot in Chicago that serves Houston. The further away the depot is from the points of service, the longer the car is out of service each time. The "hub" nature of the taxi operation with all cars, staff, repair people, and parts in one place (and all maintained on the same schedule so fewer surprises), simply doesn't scale unless you have enough customers to build another hub. BTW, this is the same reason there's no Del Taco in Texas (or your favorite fast food where you live). You have to have a certain number of restaurants to make the distribution hub and the truck trips worthwhile. There cannot be one isolated McDonald's somewhere that's profitable, just like there cannot be a "too small" taxi operation without a hub -- it won't be profitable. And building hubs in small cities without enough demand isn't profitable, either. Hence, taxis don't scale.
lumost 5y ago
It’s also a market where you’re competing on margin. The winning ticket for the taxi market in North America was to stabilize taxi supply by the medallion system and have profits accrue to the drivers who owned the medallion and car (as they could charge rental fees to other driver). There’s nothing to say that Uber/Lyft don’t stabilize near a similar dynamic.

bloodyplonker22 5y ago

Yes, profitable, but Uber's valuation would tank if they were just scraping by on this kind of revenue with no hopes of automated driving or other things in the future to increase margins.

neonate 5y ago
OK, in that case the answer is "Uber can be profitable". Probably true that their valuation would be lower but that's not the argument I hear people making.
- bloodyplonker22 5y ago
  What happened to WeWork is almost exactly the hypothetical scenario that you are describing for Uber.
  - jacobr1 5y ago
    Uber doesn't have the same risk profile. When demand drops for wework, they are still on the hook for longer term leases. When demand drops for uber, drivers eat the loss of fewer transactions. As long as they can keep their overhead in check (and this certainly isn't clear) then they should be be able to have an operationally viable business.
morpheos137 5y ago
There is no hope of price competitive automated driving. It is ludicrous.

Etheryte 5y ago

I think the key question here is profitable in what way. Can they be profitable in the sense of they made more money this year than they burned? For sure, turn down spending and turn up the prices. Can they be profitable in the sense of being in the green over the whole lifetime of the company, making a total profit over the large sums of money poured into the company? I'm not certain.

neonate 5y ago
I'm asking the first question. I agree with you that even if the answer to the first question is, "yes, Uber can be profitable", the answer to the second question (can it generate a positive return for its investors) is in doubt. It's possible for a company to be a losing investment and yet still end up as a profitable business operationally. I don't think "For sure, turn down spending and turn up the prices" is something that the people arguing "Uber can never be profitable" would agree with. They're arguing that this can't work, and therefore Uber is destined to go out of business once the investment billions dry up. I'm just asking why that is so, given that the taxi market is a thing, and that a lot of people like Uber better than taxis.
- dragontamer 5y ago
  > I'm asking the first question. I agree with you that even if the answer to the first question is, "yes, Uber can be profitable", the answer to the second question (can it generate a positive return for its investors) is in doubt. It's possible for a company to be a losing investment and yet still end up as a profitable business operationally. But then if we're admitting that Uber's unlikely to be profitable over its lifetime, why would anyone buy their stock? That's really what people care about in these discussions. Its not "Will Uber be profitable this quarter?", its... "should I buy Uber stock?". The last guy lost money on Uber stock and is trying to offload these shares / certificates onto someone else now. Will buying those shares at this current price (aka: very expensive: $81 Billion market cap) be worthwhile? You can buy many other companies at much cheaper prices than that.
  - neonate 5y ago

mimixco 5y ago

Uber cannot take advantage of the economies taxi companies have in fleet purchase, in-house maintenance, commercial prices for parts, and fuel contracts. None of these scale well nationally, which is why there has never been anything more than small, regional taxi companies, even though they were possible 100 years ago. Uber's overhead in misbelieving they are a software company rather than a taxi service has only added to the expense, not saved anything. Because taxis rely on cheap fleets, centralized and cheaper maintenance, and volume fuel agreements, they simply don't scale.

ghaff 5y ago
I'm not convinced the gig economy taxi service can't scale--without depending on too many drivers who don't understand their costs. But it's not going to be cheaper than the alternatives, driver networks may not be much larger, and a lot of operations (including engineering) are probably going to be mostly outsourced to low cost areas.
- mimixco 5y ago
  The individual driver has no buying power to negotiate a lower price on cars, fuel, or maintenance and the big players are disincentivized to hand him one. The gig nature of the job means he pays consumer prices for everything while Uber skims off the top. Uber is an attempt to mechanize the human aspect of driving by turning people into machines that produce for them. Unfortunately, in the fever dream that led to its creation, no one stopped to consider why "Big Taxi" wasn't a thing already.
  - Gibbon1 5y ago
    Reminds me of some shrewd comments about the Airbus A380. If there really was as much of a market as Airbus thought why wasn't Boeing selling more 747's. So yeah in the last 100 years why are there a couple of taxi companies in each large city. I think you are right the business doesn't scale beyond a certain point. Anecdote: Friend said he and the people he was with tried getting an Uber and balked at the $50 price. Then one them had the bright idea to check a regular taxi, $15.

nyghtly 5y ago

I think it's worth considering that Uber is the first nation-wide taxi service that we've ever seen, and they were only able to accomplish this via subsidy. Is it really possible to continue operation at that scale, while simultaneously losing their competitive edge versus local taxi companies? Why is it that no other taxi company has even come close to nation-wide? I don't think an app is sufficient to bridge that gap, and Uber doesn't have anything else to show in the innovation department.

neonate 5y ago
It's a good question that I don't know enough about the taxi business to answer. However, it's also a pretty general/speculative argument, so not the strongest case for "Uber can never be profitable", especially since there are general/speculative arguments on the other side too. For example: economies of scale have worked in other industries, why can't that happen here? And: software-is-eating-the-world has generally been holding true, so why would this be an exception?
dtagames 5y ago
The three biggest reasons are centralized maintenance, fuel, and fleet costs. Taxi companies negotiate the entire fleet purchase at one time and replace vehicles on a schedule (like rental car companies). Often, the fleet is all one brand and model. This makes it easy to hire one or two guys to work on all of them. You can also buy all your standard parts in bulk and you get commercial pricing for those. Fuel is also all bought from the same vendor on a contract. Those agreements would be impossible for any gig worker to get. He is going to pay full price for the car, the maintenance, and the fuel. Gas stations aren't owned by oil companies; they're owned by individuals. So you'll never get national pricing on gas. Each taxi company negotiates with a particular owner (hopefully of several stations) in their area. The final nail in the coffin (and the one that keeps it from going national, even if such agreements could be worked out for a group), is that car repair is local. You cannot operate a maintenance depot in Chicago that serves Houston. The further away the depot is from the points of service, the longer the car is out of service each time. The "hub" nature of the taxi operation with all cars, staff, repair people, and parts in one place (and all maintained on the same schedule so fewer surprises), simply doesn't scale unless you have enough customers to build another hub. BTW, this is the same reason there's no Del Taco in Texas (or your favorite fast food where you live). You have to have a certain number of restaurants to make the distribution hub and the truck trips worthwhile. There cannot be one isolated McDonald's somewhere that's profitable, just like there cannot be a "too small" taxi operation without a hub -- it won't be profitable. And building hubs in small cities without enough demand isn't profitable, either. Hence, taxis don't scale.

lumost 5y ago

It’s also a market where you’re competing on margin. The winning ticket for the taxi market in North America was to stabilize taxi supply by the medallion system and have profits accrue to the drivers who owned the medallion and car (as they could charge rental fees to other driver). There’s nothing to say that Uber/Lyft don’t stabilize near a similar dynamic.