Hacker News Reader

Comment by ameyamk | Hacker News Reader

I wonder if companies like door dash/ instacart are operating at negative margins?

Uber tinkering with price too much has not gone down well with uber drivers in bay area either.

The even bigger question is what their margins will look like if they're forced to reclassify all or most of their contract workers as employees. Both DoorDash[1] and Instacart[2] are facing class action lawsuits over this.

[1] http://www.latimes.com/business/technology/la-fi-tn-grubhub-...

[2] http://www.xconomy.com/san-francisco/2015/08/06/instacart-ex...

Uber is [edit: almost] certainly not operating at negative gross margin.

My hunch is the same, but why do you say "certainly"?

The only thing of significant value that they give away is $20 credits to new riders and some new driver bonuses.

The number of full-fare (no subsidy to either rider or driver) Uber trips surely absorbs these incentives, leaving a positive gross margin. (There's also a miniscule computing, bandwidth, and payment processing cost to a marginal ride, marginal being defined as the nominal X+1th ride after all the costs for X rides are already paid for.)

Perhaps absolute certainty is a slight overstatement, but here's one where I'd bet eating my hat on it. I edited to insert an "almost".

In new markets, I have seen Uber guaranteeing "if you work this much of these hours, you will make at least $X or we will make up the difference."

Here in China Uber has various subsidy programmes for drivers and customers. These eat into margins and make them negative for some (but probably not all) trips.

Example: a few weeks ago, I paid ~3USD for a 13km ride that took 90 minutes (due to Beijing traffic). The driver was definitely paid more than that for the ride.

They prefer to open an office and hire support staff within each location they operate. In some markets (LA, SF) the revenue from rides quickly outpaces the cost of supporting those offices, in others (Spokane, Halifax) it remains to be seen.

Uber makes a nice profit in mature markets, but that does not mean their current margins are sustainable. Its hard to imagine a future where they don't pay drivers more.

It's actually hard to imagine a future where they pay drivers at all. Uber is tailor made for autonomous vehicles.

Then they will pay vehicle owners to lease their cars short term instead.

Evil... And I'm almost certain it's what they'll do. Owner pays for purchase, upkeep, parking, and insurance, covering all the capital outlay, depreciation, and risk, while Uber skims off the profit. It's sort of "insurance in reverse."

And almost exactly like the taxi model they replace.

What is "evil" about instigating a more efficient use of capital?

Where do you get efficiency out of their plan? People tend to underestimate the true ownership cost of their cars, and Uber uses that to make them believe they're making a lot more per hour than they actually are.

Capital sitting idly in driveways is inherently inefficient. How is that hard to understand?

> People tend to underestimate the true ownership cost of their cars, and Uber uses that to make them believe they're making a lot more per hour than they actually are.

That isn't an argument about its efficiency though.

Maybe the marginal value of a car self-driving itself somewhere is $1 and the marginal cost of that driving is $0.99—it's still more efficient for that car to drive than not. Whether the owner thinks their profit is $1 or 1 cent doesn't really matter.

More likely they would just own the cars themselves.

As a few HN folks have observed recently, that turns Uber from a wage-heavy (but always on the lookout for corners to cut) business to a capital-heavy one. That wouldn't be a impossible transition, but it would be a transition.

In fact, its the perfect transition from startup to mature company with a substantial moat. With a proven business model then can raise $Bs in non-dilutive debt-capital to finance vehicle purchases.

Hmmm maybe I finally understand their valuation...

And in the long run... I know there's this meme here that 100% autonomous vehicles are just around the corner. But (regrettably), I'm more inclined to side with the arguments that it's many decades away. [1]

[1] http://www.csail.mit.edu/node/2241

Reply on news.ycombinator.com