18 ms·

An Alternative Look at Uber’s Potential Market Size

75 points by dangoldin 12y ago

pbreit 12y ago
The professor's analysis was so obviously bad that it's very surprising it made it into FiveThirtyEight. I have dozens of friends who used to take a taxi trip or 2 a week who now take a dozen or more Ubers in the same time. It's patently obvious that the Uber market opportunity is much larger than the current taxi/towncar industry. And Uber works even better in the suburbs than in cities. Edit: I commented before reading the whole article which totally nails it. Uber might be the first to $1 trillion in revenue.
- golergka 12y ago
  I have the exactly same experience with russian Yandex.Taxi service. Just because of the service quality, reliability and price I started catching cabs about 2-3 times more often then before; and after they lowered their prices a few months ago (minimum trip of $7 for 10 minute trip), drivers weren't happy at first, but then I heard from them that the amount of orders increased drastically.
- xorcist 12y ago
  Your analysis is obviously wrong. All MY friends don't use Uber and never will. Therefore their market opportunity is miniscule. That should count as absolute proof.
  - Mikeb85 12y ago
    This is funny, but I'll throw in my anecdotal evidence also. Never used Uber, none of my friends/family have, never met anyone who has claimed to use it.
    - pbreit 12y ago
      Both of these comments convince me even more about how big the Uber opportunity is. You do realize that many/most people that actually have used Uber describe the experience as nearly magical. So I have little doubt that you and your types will eventually come to a similar conclusion.
      - xorcist 12y ago
        Ok. I give up. Creepy astroturfing or brilliant parody?
- rayiner 12y ago
  I see you're in San Francisco. May I suggest that living in a city that has a unique combination of density and awful transit options probably colors your views. Of my friends who live in the suburbs or sprawly cities like Atlanta, none take Uber. Why would they? They have a car, commute 10+ miles ($14 just in mileage charges on UberX!), and on weekends their travel generally involves multiple hops in various areas (drive to the Target, then the Costco, etc). Also 10+ miles added together. And my friends in NYC or Chicago don't use Uber because they can just hail a cab. Five minutes is "high liquidity?" If it takes me five minutes to hail a cab here in downtown Philly, I'm having a bad day!
  - pbreit 12y ago
    Did you catch my sentence where I suggested that Uber is even better in the suburbs where taxi service is even worse? Did you read the post's suggestions that Uber (and ZipCar, RelayRides, etc) enable getting rid of secondary or even primary cars (in fact, it's already happening)?
    - rayiner 12y ago
      Yes, I read them and they are ridiculous. In the suburbs where my parents live, its a 10 mile round trip to go to the drug store. Over $20 on Uber X in DC. The only reason anybody uses cabs in the suburbs is to go to the airport. I can imagine Uber taking over that market, but its not going to grow it and take market share away from personal autos. Again, your post is highly myopic to the unusual situation of San Francisco. Its a place that's dense enough for people to mostly forgo cars but without sufficiently good transit to allow them to forgo a car entirely. In the vast majority of the country, you'd have to reduce Uber's costs by an order of magnitude to compete with personal autos. And you're not doing that without self-driving cars. You could get there with self-driving cars, but I don't see Uber uniquely positioned to capture that market. The companies developing the technology, like Google, will make all the money in that space.
      - pbreit 12y ago
        Wow, you're still missing the point. Uber is already working fantastically in hundreds of markets, including many considered suburbs. The author gives perfect examples of where Uber is already a great choice in the suburbs: evenings out, kids, elders, etc. I've experienced this myself in the suburbs where Uber works even better than in cities. With $6000 per year average cost of auto, a $20 average fare already covers 300 trips. Easily enough to forego a second car. And you don't have to engage in the biggest time-waster of all time: driving.
billybones 12y ago
Aswath Damodaran, for what it's worth, is the same professor who got similar press last year for valuing Tesla (then trading at $170) at $67 a share: http://aswathdamodaran.blogspot.com/2013/09/valuation-of-week-1-tesla-test.html http://aswathdamodaran.blogspot.com/2013/09/valuation-of-wee... OP's article nails it: precise financial analysis is meaningless if you base your projections on way-off assumptions.
- josephlord 12y ago
  Not read the Tesla piece but at least with the Uber piece the assumptions were clearly stated so they can be challenged. One challenge I would make to this article's assumptions is that the world is like San Francisco. In many places there are already cheap private hire options available[0]. I'm not sure how to calculate for the existing cost and availability of such options. If it makes sense for the drivers they may become Uber drivers but there may be less decrease in car ownership and changes in customer behaviour. [0] Minicabs, rickshaws etc.
  - PinguTS 12y ago
    To add to that, what about those cities where you have also a good public transport in place like NYC, Lodon, Paris, Berlin and many more? Where it is may be comfortable to use such a service, but also more expansive and more slower (because of traffic jam).
    - vidarh 12y ago
      London not only have good public transport and horribly slow/congested roads in the centre. We also have cheap minicabs, Hailo, and at least one "Uber-like" that contracts minicab companies rather than individual drivers. And many of the larger minicab fleets seems fairly similar to Uber in the way they operate as well. (We also have rickshaws; mostly as a tourist novelty, though) Doesn't mean they can't do well here too, but certainly a different proposition to one where they only competes against normal taxis.
- nostrademons 12y ago
abalone 12y ago
He seems to say that Uber's recent price drop is due to more efficient utilization, not lower driver wages or a VC-subsidized price war. That's plausible, but is there any good data on what Uber drivers make, or how much margin these price cuts leave Uber with?
domiono 12y ago
I think the most important article to estimate Uber's market size is this article, where their CEO mentions that the ground transportation market in San Francisco is around $22B and this is only for 800,000 people (http://qz.com/218717/what-people-who-think-uber-is-worth-17-... http://qz.com/218717/what-people-who-think-uber-is-worth-17-...). Now multiply this by 10,000 so that you are at 8B people and you have a global ground market of 220 trillion dollars. Now that number is probably too high, as the gross global product is $100T, but the transportation market can be well in the range of $10T. So once self-driving cars are up and running, nobody will drive their cars by themselves anymore, because self-driving cars are 5 times safer than humans driving them and for that reason, insurances will charge 5 times more if you want to drive your car yourself. Where do you order get these self-driving Google cars? You order them through Uber and then you have Uber attacking the $10T ground transportation market.(http://techcrunch.com/2013/08/25/uberauto/ http://techcrunch.com/2013/08/25/uberauto/)
- deleted 12y ago
  [deleted]
- xorcist 12y ago
  What is your basis for the $10T valuation, except for the fact that $220T is "probably too high"? And what is your basis to conclude that if something works in San Francisco, it works elsewhere? Is the competition there so fierce that anything that succeeds that everywhere else can be considered an easy market?
  - domiono 12y ago
    It's a rough estimate rather giving an idea of the market. What I want to say is that the market is not the $10B U.S. taxi market, but that Uber's market is probably in the trillions over the next 10 years.
    - mariusz79 12y ago
      Or $0. If you're talking about self-driving cars, you also need to consider that more than one family may share one car without any need for Uber, or that car manufacturers or dealers may go into taxi business themselves.
jzwinck 12y ago
Much is made in this article of the trust which users have in the Uber system. That is probably valid today, but is unlikely to scale. Anyone who used Craigslist or eBay over the past 10-15 years can tell you that as such systems grow from tens or hundreds of thousands of users to tens or hundreds of millions, the experience becomes very different. Today we can rely on Uber's mutual rating system. We used to do the same on eBay, but eventually a "business decision" was made and eBay switched to quasi-unilateral ratings (sellers cannot negatively rate buyers anymore). Today when an Uber driver picks us up, it is likely that they are reasonably in touch with modern society, probably at least a little bit educated, etc. Craigslist used to be like that too. Now it's a spam bazaar full of non-owners selling by owner, hookers pretending to be girlfriends, and so on. These sorts of changes are inevitable if Uber grows to the sort of revenues being discussed here. Trust hasn't scaled before, and Uber probably can't innovate that away.
- TheBiv 12y ago
  I think the core difference between Uber and the examples you provided is that in Uber, people have to meet each other in real life. Real life still has trust that scales, called the credit system.
  - eli 12y ago
    Unless you fall for a Western Union scam, you generally meet Craigslist people in "real life" too. Still plenty of scams.
    - voxic11 12y ago
      Craigslist doesnt really have a rating system though so its not really the same.
    - pbreit 12y ago
      Face to face scams on craigslist approach zero.
- potatolicious 12y ago
netcan 12y ago
Excellent article. I realize positions need to be based off something, but it always seems strange to me to see analysis like the one being challenged here for a young (albeit large) innovative tech company. Think of Google in 2003, Amazon in 99' or MSFT in 89'. None of your medium-long term assumptions can stand on very solid ground. What the market is, it's size, it's structure and the company's potential role in it. Assumption: "the primary market Uber is targeting is the global taxi and car-service market ($100 billion)" - is this correct in 5-10 years? Could Uber target other markets? Deliveries Assumption: Uber are taking over market share. Can other forms of transport, public or private be replaced by Uber? Where do new technologies (like self riving cars) affect things? My own speculations gravitate towards efficiencies from having all that data valuable at once. The 5 seater is a general purpose vehicle for 1-5 people and used for highway driving and for short trips along congested streets. Could Uber's smart system offer regular Sedans for 25 mile highway journeys and golf cart like cars for 1 person inner city journeys? Could hub and spoke systems exist where several cars take single passengers to a van/shuttle for longer (more expensive) journeys. Everything is low probability big payoff. Even the the straightforward mission:'take over the existing taxi-limo' is still a high risk-reward proposition. Basically, I think this rebuttal is better than the original analysis. I think neither ow them can give you a number.
- rayiner 12y ago
  > I realize positions need to be based off something, but it always seems strange to me to see analysis like the one being challenged here for a young (albeit large) innovative tech company. Think of Google in 2003, Amazon in 99' or MSFT in 89'. You mention Google, Amazon, and MSFT in the same breath, but one of those is not like the other. Google in 2003 and MSFT in 1989 were targeting markets that were small, but young and uncertain. However, Amazon's target market was mature and well established, but huge. Assigning a big valuation to Google in 2003 or MSFT in 1989 would mean having the confidence that lots of people in the future would be doing something that they didn't do at the time. However, assigning a big valuation to Amazon in 1999 meant having the confidence that Amazon's technology would allow them to dominate an existing, large market. After all, people aren't buying more books and toilet paper in 2014 than they did in 1999: they're just doing more of it through online sources instead of brick & mortar ones. The problem with Uber is that the most obvious target market, taxis & cabs, isn't big enough to justify its valuation even if they totally take over the market with better technology. They're targeting a mature market that's about $100 billion, versus Amazon, which is targeting a mature market that's in the trillions of dollars. To make the case for a high valuation for Uber, you have to redefine the market. Either by saying that the real target is logistics more broadly ("Uber for X") or by saying that the real market is auto transportation generally. In the latter situation, Uber isn't going to create a higher demand for getting from point A to point B. Instead, they have to take market share away from personal automobiles. In a country with almost as many cars as people, and urban and suburban areas that are designed around personal autos, that's a really uphill battle. E.g. running errands in a suburb isn't like in a city where you just go into town, buy everything you need, and take a cab back home. It's a multi-hop tour through strip mall after strip mall. Personal autos are well-suited for that: Uber totally is not.
notlisted 12y ago
I find it rather interesting to see that one of the investors thinks the valuation needs to be defended in writing. Once drivers find out that you don't make the 90k salaries touted by Uber [1] (note: conveniently excluded cost of gas, insurance, tolls, parking, maintenance and repairs, and required more than 40 hour workweeks) driver supply may not match consumer demand. Slashing the prices wasn't exactly beneficial for current drivers either [2] [1] https://medium.com/@felixsalmon/how-well-uberx-pays-part-2-cbc948eaeeaf https://medium.com/@felixsalmon/how-well-uberx-pays-part-2-c... [2] http://uberdriverdiaries.com/uber-slahes-prices-new-york-city-new-jersey/ http://uberdriverdiaries.com/uber-slahes-prices-new-york-cit...
- cm2012 12y ago
  Uber driving is basically an unskilled job (most Americans know how to drive). A job that an unskilled person can reliably get for $50k take home a year is gold (remember that the US median household income is 50k - and that's for the whole household). This doesn't mean Uber will succeed, but they will never lack for labor.
  - nilkn 12y ago
    > remember that the US median household income is 50k - and that's for the whole household That figure includes folks in rural areas where Uber is basically non-existent. I don't think you're going to get $50k annually with Uber right now unless, at the very least, you're in a major metropolitan area. That said, I still can't deny that $50k (if that number is realistic and already includes expenditures like gas) is a good amount for what amounts to borderline unskilled labor.
    - cm2012 12y ago
      The New York City median annual family income is actually lower than the nation as a whole - $49k ish.
  - xorcist 12y ago
    In most large cities knowing how to drive is not the hard part of driving a taxi. That would be the local knowledge, which places even exists in the city, and where the GPS routes are dead wrong. It has been said that London cab drivers even have an enlarged hippocampus due to the large spatial knowledge. I don't know how true this is, but I've heard the examination is a brutal one to pass.
xorcist 12y ago
The reasoning here is that Uber should not only overtake the global (London, Ankara, Beijing, Calcutta and everything in between) taxi market, but grow it. Extraordninary claims should require extraordninary evidence. The given reasons are that customers feel safer, that expansion has been "rapid" even outside San Francisco (!), and that customers "feel safer". Also no cash. Somehow I'm not convinced. The only vaguely reasonable point is the GPS visibility of cabs. Which is great, but not really a billion dollar product. (What I thought to be Uber's great feature, upfront fixed fees, is not even mentioned.) No, if you want to argue that Ubers valuation is somehow rooted in reality, you'd have to make a much more compelling argument. I expect it to be one where they take a big bite out of the larger logistics market, perhaps look to expand the delivered groceries market together with Amazon or something.
- pbreit 12y ago
  No. One "reason given" is that Uber is already at a "healthy multiple" of the total existing taxi market in San Francisco. Uber doesn't need to make a dime in logistics in order to achieve $1 trillion in gross sales.
  - xorcist 12y ago
    That's not what it actually says. The multiple is of the "historic market". Uber grew the market, no question about that. (To exclude Uber from the taxi market is a bit of newspeak however.) In San Francisco. The article argues that this is true in the global taxi market as well. The reasons given are the ones I've tried to summarize. I might have missed a few though. The article is very long and makes a lot of frivolous claims. Very few are substantiated enough to be questionable, but those that are, are. The only exception I could find is the one about the real time positioning.
santoshsankar 12y ago
Part of this is just Finance 101. Valuation is an art as much as it is a science. Arguing assumptions is exactly what valuation is about-- this does not seem to reveal anything great. Gurley is obviously a buyer of Uber while Damodaran is not. The lower TAM or penetration numbers could even be written off as conservatism, after all humans are generally more optimistic about future prospects. Gurley makes a good point on the elasticity of Uber but frankly if I am in a suburb (as most of my close friends and family), you do not use Uber as much given you own a car you paid $30K+ for. In areas like NYC where Uber is used more, there could be higher demand but then you meet a limit- the number of cars on the road... too many causes congestion and people opt for mass transit. I do agree with the napkin sketch but I think there are multiple forces working against Uber away from large metropolitan areas (which is stated as a growth opportunity) including 1) car ownership; 2) infrequent trips -- you generally do a bunch of errands in one shot due to distance; 3) physical space-- how many ubers can there honestly be in a 20-40 mile radius in a lower volume area? Why not go to a nearby city, instead? Uber is a great service and I use it a lot but I find it hard to see as a car alternative. It is an alternative to existing cabs and mass transit in most areas. It will be interesting to see how it grows and like previously stated, what kind of margins it's drivers are earning... at a certain point you can only drive so much in price drops till they leave for the alternative. "Appendix" I even spoke to a yellow cab driver in NYC the other day and he stated that he is rounding up support from the commissioner for help on two things: 1) Green cabs (limited to where they can physically pick up but often times break rules) and 2) Uber.
- aetherson 12y ago
  The other thing about non-large-metro areas is that they're expensive to expand into. You need to promote Uber locally, recruit drivers, use promotions to drive demand while building supply, and all of that for a not very large market. There are a lot of these not-very-large markets, and, in aggregate, they're definitely a big opportunity. But they're inherently more expensive to acquire and slow to move into. Great for a mature company -- but hard to drive rapid growth with such a strategy.
  - pbreit 12y ago
jeffyee 12y ago
Is Uber more disruptive because of its experience or the fact that it technically violates the rules/regulations in the taxi cab market? Cabs can't compete on price because, the prices are regulated and fixed, and of the cost of medallions and compliance etc are non-zero. Similar remarks for the hotel industry and AirBnB. Can this/should this be done in other markets? If someone built an equity crowdfunding platform that ignores SEC rules (and the JOBS act) but investors like it/use it, would it succeed? In the cases of Aereo and Silkroad, they didn't succeed in fighting the laws. The rules and regulations exist ostensibly to "protect" consumers, but we see that when consumers don't agree with them, huge companies get created.
- Pro_bity 12y ago
  I think that there is a difference between rules intended to protect consumers and those designed to protect incumbency. In many cases, such as taxi medallions and other types of business licensing, what once was designed to be a light weight way to protect the public because cumbersome and anti-competitive. These are the areas ripe for disruption. However, regulations that still predominantly serve the public interest, such as those set out by the EPA, FDA and SEC (though not perfect) are much less open.
- andrewtbham 12y ago
  My understanding is this... In New york, you hail a cab, and you call a car/limo service. Uber operates legally as a car service. The cab companies are upset because uber is faster, whereas car service typically require a long wait time. right?
- xorcist 12y ago
  Let's split up the questions and look at them one by one: Is Uber disruptive? Probably in some places. Why? Because some free market-liberal cooked up a way to cap the number of available taxis. Ubers skirts these restrictions by loudly proclaiming not to be taxis in various creative ways, thereby lowering their price structure. How could this be done in other markets? Definitions matter. Could you raise funding by callling it something else? Very unlikely (it's hard to deny why people send you money). Could you sell useless medicine by calling it something else? Very likely (see "homeopathy", "natural medicine").

75 points by dangoldin 12y ago

The professor's analysis was so obviously bad that it's very surprising it made it into FiveThirtyEight. I have dozens of friends who used to take a taxi trip or 2 a week who now take a dozen or more Ubers in the same time. It's patently obvious that the Uber market opportunity is much larger than the current taxi/towncar industry. And Uber works even better in the suburbs than in cities. Edit: I commented before reading the whole article which totally nails it. Uber might be the first to $1 trillion in revenue.

golergka 12y ago
I have the exactly same experience with russian Yandex.Taxi service. Just because of the service quality, reliability and price I started catching cabs about 2-3 times more often then before; and after they lowered their prices a few months ago (minimum trip of $7 for 10 minute trip), drivers weren't happy at first, but then I heard from them that the amount of orders increased drastically.
xorcist 12y ago
Your analysis is obviously wrong. All MY friends don't use Uber and never will. Therefore their market opportunity is miniscule. That should count as absolute proof.
- Mikeb85 12y ago
  This is funny, but I'll throw in my anecdotal evidence also. Never used Uber, none of my friends/family have, never met anyone who has claimed to use it.
  - pbreit 12y ago
    Both of these comments convince me even more about how big the Uber opportunity is. You do realize that many/most people that actually have used Uber describe the experience as nearly magical. So I have little doubt that you and your types will eventually come to a similar conclusion.
    - xorcist 12y ago
      Ok. I give up. Creepy astroturfing or brilliant parody?
rayiner 12y ago
I see you're in San Francisco. May I suggest that living in a city that has a unique combination of density and awful transit options probably colors your views. Of my friends who live in the suburbs or sprawly cities like Atlanta, none take Uber. Why would they? They have a car, commute 10+ miles ($14 just in mileage charges on UberX!), and on weekends their travel generally involves multiple hops in various areas (drive to the Target, then the Costco, etc). Also 10+ miles added together. And my friends in NYC or Chicago don't use Uber because they can just hail a cab. Five minutes is "high liquidity?" If it takes me five minutes to hail a cab here in downtown Philly, I'm having a bad day!
- pbreit 12y ago
  Did you catch my sentence where I suggested that Uber is even better in the suburbs where taxi service is even worse? Did you read the post's suggestions that Uber (and ZipCar, RelayRides, etc) enable getting rid of secondary or even primary cars (in fact, it's already happening)?
  - rayiner 12y ago
    Yes, I read them and they are ridiculous. In the suburbs where my parents live, its a 10 mile round trip to go to the drug store. Over $20 on Uber X in DC. The only reason anybody uses cabs in the suburbs is to go to the airport. I can imagine Uber taking over that market, but its not going to grow it and take market share away from personal autos. Again, your post is highly myopic to the unusual situation of San Francisco. Its a place that's dense enough for people to mostly forgo cars but without sufficiently good transit to allow them to forgo a car entirely. In the vast majority of the country, you'd have to reduce Uber's costs by an order of magnitude to compete with personal autos. And you're not doing that without self-driving cars. You could get there with self-driving cars, but I don't see Uber uniquely positioned to capture that market. The companies developing the technology, like Google, will make all the money in that space.
    - pbreit 12y ago
      Wow, you're still missing the point. Uber is already working fantastically in hundreds of markets, including many considered suburbs. The author gives perfect examples of where Uber is already a great choice in the suburbs: evenings out, kids, elders, etc. I've experienced this myself in the suburbs where Uber works even better than in cities. With $6000 per year average cost of auto, a $20 average fare already covers 300 trips. Easily enough to forego a second car. And you don't have to engage in the biggest time-waster of all time: driving.

billybones 12y ago

Aswath Damodaran, for what it's worth, is the same professor who got similar press last year for valuing Tesla (then trading at $170) at $67 a share: http://aswathdamodaran.blogspot.com/2013/09/valuation-of-week-1-tesla-test.html http://aswathdamodaran.blogspot.com/2013/09/valuation-of-wee... OP's article nails it: precise financial analysis is meaningless if you base your projections on way-off assumptions.

josephlord 12y ago
Not read the Tesla piece but at least with the Uber piece the assumptions were clearly stated so they can be challenged. One challenge I would make to this article's assumptions is that the world is like San Francisco. In many places there are already cheap private hire options available[0]. I'm not sure how to calculate for the existing cost and availability of such options. If it makes sense for the drivers they may become Uber drivers but there may be less decrease in car ownership and changes in customer behaviour. [0] Minicabs, rickshaws etc.
- PinguTS 12y ago
  To add to that, what about those cities where you have also a good public transport in place like NYC, Lodon, Paris, Berlin and many more? Where it is may be comfortable to use such a service, but also more expansive and more slower (because of traffic jam).
  - vidarh 12y ago
    London not only have good public transport and horribly slow/congested roads in the centre. We also have cheap minicabs, Hailo, and at least one "Uber-like" that contracts minicab companies rather than individual drivers. And many of the larger minicab fleets seems fairly similar to Uber in the way they operate as well. (We also have rickshaws; mostly as a tourist novelty, though) Doesn't mean they can't do well here too, but certainly a different proposition to one where they only competes against normal taxis.
nostrademons 12y ago

abalone 12y ago

He seems to say that Uber's recent price drop is due to more efficient utilization, not lower driver wages or a VC-subsidized price war. That's plausible, but is there any good data on what Uber drivers make, or how much margin these price cuts leave Uber with?

domiono 12y ago

I think the most important article to estimate Uber's market size is this article, where their CEO mentions that the ground transportation market in San Francisco is around $22B and this is only for 800,000 people (http://qz.com/218717/what-people-who-think-uber-is-worth-17-... http://qz.com/218717/what-people-who-think-uber-is-worth-17-...). Now multiply this by 10,000 so that you are at 8B people and you have a global ground market of 220 trillion dollars. Now that number is probably too high, as the gross global product is $100T, but the transportation market can be well in the range of $10T. So once self-driving cars are up and running, nobody will drive their cars by themselves anymore, because self-driving cars are 5 times safer than humans driving them and for that reason, insurances will charge 5 times more if you want to drive your car yourself. Where do you order get these self-driving Google cars? You order them through Uber and then you have Uber attacking the $10T ground transportation market.(http://techcrunch.com/2013/08/25/uberauto/ http://techcrunch.com/2013/08/25/uberauto/)

deleted 12y ago
[deleted]
xorcist 12y ago
What is your basis for the $10T valuation, except for the fact that $220T is "probably too high"? And what is your basis to conclude that if something works in San Francisco, it works elsewhere? Is the competition there so fierce that anything that succeeds that everywhere else can be considered an easy market?
- domiono 12y ago
  It's a rough estimate rather giving an idea of the market. What I want to say is that the market is not the $10B U.S. taxi market, but that Uber's market is probably in the trillions over the next 10 years.
  - mariusz79 12y ago
    Or $0. If you're talking about self-driving cars, you also need to consider that more than one family may share one car without any need for Uber, or that car manufacturers or dealers may go into taxi business themselves.

jzwinck 12y ago

Much is made in this article of the trust which users have in the Uber system. That is probably valid today, but is unlikely to scale. Anyone who used Craigslist or eBay over the past 10-15 years can tell you that as such systems grow from tens or hundreds of thousands of users to tens or hundreds of millions, the experience becomes very different. Today we can rely on Uber's mutual rating system. We used to do the same on eBay, but eventually a "business decision" was made and eBay switched to quasi-unilateral ratings (sellers cannot negatively rate buyers anymore). Today when an Uber driver picks us up, it is likely that they are reasonably in touch with modern society, probably at least a little bit educated, etc. Craigslist used to be like that too. Now it's a spam bazaar full of non-owners selling by owner, hookers pretending to be girlfriends, and so on. These sorts of changes are inevitable if Uber grows to the sort of revenues being discussed here. Trust hasn't scaled before, and Uber probably can't innovate that away.

TheBiv 12y ago
I think the core difference between Uber and the examples you provided is that in Uber, people have to meet each other in real life. Real life still has trust that scales, called the credit system.
- eli 12y ago
  Unless you fall for a Western Union scam, you generally meet Craigslist people in "real life" too. Still plenty of scams.
  - voxic11 12y ago
    Craigslist doesnt really have a rating system though so its not really the same.
  - pbreit 12y ago
    Face to face scams on craigslist approach zero.
potatolicious 12y ago

netcan 12y ago

Excellent article. I realize positions need to be based off something, but it always seems strange to me to see analysis like the one being challenged here for a young (albeit large) innovative tech company. Think of Google in 2003, Amazon in 99' or MSFT in 89'. None of your medium-long term assumptions can stand on very solid ground. What the market is, it's size, it's structure and the company's potential role in it. Assumption: "the primary market Uber is targeting is the global taxi and car-service market ($100 billion)" - is this correct in 5-10 years? Could Uber target other markets? Deliveries Assumption: Uber are taking over market share. Can other forms of transport, public or private be replaced by Uber? Where do new technologies (like self riving cars) affect things? My own speculations gravitate towards efficiencies from having all that data valuable at once. The 5 seater is a general purpose vehicle for 1-5 people and used for highway driving and for short trips along congested streets. Could Uber's smart system offer regular Sedans for 25 mile highway journeys and golf cart like cars for 1 person inner city journeys? Could hub and spoke systems exist where several cars take single passengers to a van/shuttle for longer (more expensive) journeys. Everything is low probability big payoff. Even the the straightforward mission:'take over the existing taxi-limo' is still a high risk-reward proposition. Basically, I think this rebuttal is better than the original analysis. I think neither ow them can give you a number.

rayiner 12y ago
> I realize positions need to be based off something, but it always seems strange to me to see analysis like the one being challenged here for a young (albeit large) innovative tech company. Think of Google in 2003, Amazon in 99' or MSFT in 89'. You mention Google, Amazon, and MSFT in the same breath, but one of those is not like the other. Google in 2003 and MSFT in 1989 were targeting markets that were small, but young and uncertain. However, Amazon's target market was mature and well established, but huge. Assigning a big valuation to Google in 2003 or MSFT in 1989 would mean having the confidence that lots of people in the future would be doing something that they didn't do at the time. However, assigning a big valuation to Amazon in 1999 meant having the confidence that Amazon's technology would allow them to dominate an existing, large market. After all, people aren't buying more books and toilet paper in 2014 than they did in 1999: they're just doing more of it through online sources instead of brick & mortar ones. The problem with Uber is that the most obvious target market, taxis & cabs, isn't big enough to justify its valuation even if they totally take over the market with better technology. They're targeting a mature market that's about $100 billion, versus Amazon, which is targeting a mature market that's in the trillions of dollars. To make the case for a high valuation for Uber, you have to redefine the market. Either by saying that the real target is logistics more broadly ("Uber for X") or by saying that the real market is auto transportation generally. In the latter situation, Uber isn't going to create a higher demand for getting from point A to point B. Instead, they have to take market share away from personal automobiles. In a country with almost as many cars as people, and urban and suburban areas that are designed around personal autos, that's a really uphill battle. E.g. running errands in a suburb isn't like in a city where you just go into town, buy everything you need, and take a cab back home. It's a multi-hop tour through strip mall after strip mall. Personal autos are well-suited for that: Uber totally is not.

notlisted 12y ago

I find it rather interesting to see that one of the investors thinks the valuation needs to be defended in writing. Once drivers find out that you don't make the 90k salaries touted by Uber [1] (note: conveniently excluded cost of gas, insurance, tolls, parking, maintenance and repairs, and required more than 40 hour workweeks) driver supply may not match consumer demand. Slashing the prices wasn't exactly beneficial for current drivers either [2] [1] https://medium.com/@felixsalmon/how-well-uberx-pays-part-2-cbc948eaeeaf https://medium.com/@felixsalmon/how-well-uberx-pays-part-2-c... [2] http://uberdriverdiaries.com/uber-slahes-prices-new-york-city-new-jersey/ http://uberdriverdiaries.com/uber-slahes-prices-new-york-cit...

cm2012 12y ago
Uber driving is basically an unskilled job (most Americans know how to drive). A job that an unskilled person can reliably get for $50k take home a year is gold (remember that the US median household income is 50k - and that's for the whole household). This doesn't mean Uber will succeed, but they will never lack for labor.
- nilkn 12y ago
  > remember that the US median household income is 50k - and that's for the whole household That figure includes folks in rural areas where Uber is basically non-existent. I don't think you're going to get $50k annually with Uber right now unless, at the very least, you're in a major metropolitan area. That said, I still can't deny that $50k (if that number is realistic and already includes expenditures like gas) is a good amount for what amounts to borderline unskilled labor.
  - cm2012 12y ago
    The New York City median annual family income is actually lower than the nation as a whole - $49k ish.
- xorcist 12y ago
  In most large cities knowing how to drive is not the hard part of driving a taxi. That would be the local knowledge, which places even exists in the city, and where the GPS routes are dead wrong. It has been said that London cab drivers even have an enlarged hippocampus due to the large spatial knowledge. I don't know how true this is, but I've heard the examination is a brutal one to pass.

xorcist 12y ago

The reasoning here is that Uber should not only overtake the global (London, Ankara, Beijing, Calcutta and everything in between) taxi market, but grow it. Extraordninary claims should require extraordninary evidence. The given reasons are that customers feel safer, that expansion has been "rapid" even outside San Francisco (!), and that customers "feel safer". Also no cash. Somehow I'm not convinced. The only vaguely reasonable point is the GPS visibility of cabs. Which is great, but not really a billion dollar product. (What I thought to be Uber's great feature, upfront fixed fees, is not even mentioned.) No, if you want to argue that Ubers valuation is somehow rooted in reality, you'd have to make a much more compelling argument. I expect it to be one where they take a big bite out of the larger logistics market, perhaps look to expand the delivered groceries market together with Amazon or something.

pbreit 12y ago
No. One "reason given" is that Uber is already at a "healthy multiple" of the total existing taxi market in San Francisco. Uber doesn't need to make a dime in logistics in order to achieve $1 trillion in gross sales.
- xorcist 12y ago
  That's not what it actually says. The multiple is of the "historic market". Uber grew the market, no question about that. (To exclude Uber from the taxi market is a bit of newspeak however.) In San Francisco. The article argues that this is true in the global taxi market as well. The reasons given are the ones I've tried to summarize. I might have missed a few though. The article is very long and makes a lot of frivolous claims. Very few are substantiated enough to be questionable, but those that are, are. The only exception I could find is the one about the real time positioning.

santoshsankar 12y ago

Part of this is just Finance 101. Valuation is an art as much as it is a science. Arguing assumptions is exactly what valuation is about-- this does not seem to reveal anything great. Gurley is obviously a buyer of Uber while Damodaran is not. The lower TAM or penetration numbers could even be written off as conservatism, after all humans are generally more optimistic about future prospects. Gurley makes a good point on the elasticity of Uber but frankly if I am in a suburb (as most of my close friends and family), you do not use Uber as much given you own a car you paid $30K+ for. In areas like NYC where Uber is used more, there could be higher demand but then you meet a limit- the number of cars on the road... too many causes congestion and people opt for mass transit. I do agree with the napkin sketch but I think there are multiple forces working against Uber away from large metropolitan areas (which is stated as a growth opportunity) including 1) car ownership; 2) infrequent trips -- you generally do a bunch of errands in one shot due to distance; 3) physical space-- how many ubers can there honestly be in a 20-40 mile radius in a lower volume area? Why not go to a nearby city, instead? Uber is a great service and I use it a lot but I find it hard to see as a car alternative. It is an alternative to existing cabs and mass transit in most areas. It will be interesting to see how it grows and like previously stated, what kind of margins it's drivers are earning... at a certain point you can only drive so much in price drops till they leave for the alternative. "Appendix" I even spoke to a yellow cab driver in NYC the other day and he stated that he is rounding up support from the commissioner for help on two things: 1) Green cabs (limited to where they can physically pick up but often times break rules) and 2) Uber.

aetherson 12y ago
The other thing about non-large-metro areas is that they're expensive to expand into. You need to promote Uber locally, recruit drivers, use promotions to drive demand while building supply, and all of that for a not very large market. There are a lot of these not-very-large markets, and, in aggregate, they're definitely a big opportunity. But they're inherently more expensive to acquire and slow to move into. Great for a mature company -- but hard to drive rapid growth with such a strategy.
- pbreit 12y ago

jeffyee 12y ago

Is Uber more disruptive because of its experience or the fact that it technically violates the rules/regulations in the taxi cab market? Cabs can't compete on price because, the prices are regulated and fixed, and of the cost of medallions and compliance etc are non-zero. Similar remarks for the hotel industry and AirBnB. Can this/should this be done in other markets? If someone built an equity crowdfunding platform that ignores SEC rules (and the JOBS act) but investors like it/use it, would it succeed? In the cases of Aereo and Silkroad, they didn't succeed in fighting the laws. The rules and regulations exist ostensibly to "protect" consumers, but we see that when consumers don't agree with them, huge companies get created.

Pro_bity 12y ago
I think that there is a difference between rules intended to protect consumers and those designed to protect incumbency. In many cases, such as taxi medallions and other types of business licensing, what once was designed to be a light weight way to protect the public because cumbersome and anti-competitive. These are the areas ripe for disruption. However, regulations that still predominantly serve the public interest, such as those set out by the EPA, FDA and SEC (though not perfect) are much less open.
andrewtbham 12y ago
My understanding is this... In New york, you hail a cab, and you call a car/limo service. Uber operates legally as a car service. The cab companies are upset because uber is faster, whereas car service typically require a long wait time. right?
xorcist 12y ago
Let's split up the questions and look at them one by one: Is Uber disruptive? Probably in some places. Why? Because some free market-liberal cooked up a way to cap the number of available taxis. Ubers skirts these restrictions by loudly proclaiming not to be taxis in various creative ways, thereby lowering their price structure. How could this be done in other markets? Definitions matter. Could you raise funding by callling it something else? Very unlikely (it's hard to deny why people send you money). Could you sell useless medicine by calling it something else? Very likely (see "homeopathy", "natural medicine").