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Comment by methehack | Hacker News Reader

I've always been a little confused about uber's capital needs. When I first heard about uber, the part I thought was super-clever was that you wouldn't _need_ lots of capital because all the drivers would have their own cars. Leveraging the latent capital of one side of the two-sided market was the genius of it. (Airbnb too)

Same for the staffing -- hook up both sides of the market. No need to pay anyone out of your pocket -- in fact, probably there'd be some float for you there. Sure, maybe you have to subsidize one side at first, but not forever.

So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)? Is there a moonlander (driverless car) in the works? Are the G&A costs off the charts? How could that be, give that the software does the connecting? Is the software _that_ hard to write? I mean, it's good, but it ain't rocket science. (I'm not sure rocket science is even rocket science anymore.)

If I'm right that all the cash is still going to make the fares cheap to encourage up-take, it seems to me like Lyft (or another/any fast follower) is in a fantastic position. Let uber burn the capital to sell the idea to consumers, and then step in when it stumbles and walk away with the glory and gold. Place your bets.

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> So where's all this cash going? Is the driver side being subsidized to a ridiculous degree still (this is, actually, my guess)?

I was in India recently. The driver said that when Uber started out, they'd give each driver Rs. 60K/mo (about $1000/mo) just to sign in for 10 hours/day, even if they did not give a single ride. Now, Uber pays by the number of rides and not a portion of the actual fares. So, for example, he said that Uber pays them Rs. 3500 for 17 rides. Most of my rides were about Rs 100 each; so Uber was taking a loss on each ride. But their system of paying by the ride is a genius idea: it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare. Now its in their interest to get the ride over with as quickly as possible, so they take the most direct route.

Edit: Sorry, "Rs" is the Indian currency, Rupee. There's about 65 Rupees to the USD.

Surely the length of the ride must also be a factor? Otherwise, the drivers would lose incentive to take on long rides.

There isn't any incentive sadly. Uber drivers absolutely hate taking long trips for this reason. Considering the extreme traffic issues, it typically takes 13-14 hours of driving to complete 15 rides. If a single user wants to go to the airport (50km away from city centre in Bangalore), it becomes difficult to hit that quota no matter how hard they try. They can't cancel a trip to the airport either, because if they cancel more than one trip in a day they lose the 15-ride incentive. So if they get an airport ride and they're short on time to hit the incentive, they request the user to cancel.

The strategy I've seen in response to this incentive scheme is to work 4 14-hour days, ensuring that they hit the incentive no matter what. The money made off the actual ride is peanuts ($1/ride, maybe) so they absolutely need to finish 15 rides to get $75. Working 4 days a week, 16 days a month nets the driver $1200/month. Which is an incredible income by Indian standards considering most graduates from good colleges make a lot less.

> it removes the incentive for the driver to dick around and do a TSP around the city to drive up the fare

With GPS, drivers can't do this.

Ask the customer, "you want the shortest route, right?" and wait for yes. Now you have explicit permission to drive anything that's arguably the shortest route. So you pick one that passes the largest number of traffic lights and watch the meter tick as you wait in front of each traffic light.

Padding by 300% is a challenge, but a bit isn't.

They can and they do. The onus is on the passenger to report issues such as indirect routes.

Time for a "taxi driver" firmware for Garmin devices? They're pretty open iirc.

If Uber, at first anyway, pay drivers regardless of rides made, then aren't such tactics philosophically similar to the medallion racket in America? To subsidize some part of the equation strikes me as underhanded, as opposed to purely being innovatively disruptive.

philosophically similar to the medallion racket

This comparison strikes me as bizarre. The medallion racket is lobbying politicians to use the force of the law to prevent competitors from doing business. What discordorama describes is paying people money to install and sign into your app. This is... either a poorly designed incentive system that was then fixed, or a clever campaign that gets a lot of future drivers through the earliest hoops and puts them in a position where it's easy to incentivize them to start driving. (Clever to the extent that that works.)

I can't see why you think there's a similarity, other than that you think they're both underhanded, and that they're both done by companies providing taxi-like services.

My sense of Uber has been a company using technology innovatively to provide a much better user experience, while using currently existing but idle resources (the cars and drivers that serve customers on Uber but otherwise don't for various reasons, reasons Uber has rendered irrelevant, hence the resistance they've seen). But if they need to subsidize their drivers or customers, what does that say about their value proposition? To me, it makes them just another company using mundane, old school tactics to outdo their competition. Medallions and subsidies are old school tactics. One keeps new players out. The other throws old players out. Neither has anything to do with the value you bring to the table.

Winner, winner, chicken dinner. You are correct.

No it's called priming a two sided market. Do you think supply and demand grow in harmonious lockstep?

They do if you don't mind waiting 30 years, but the Valley wants billions tomorrow.

I doubt it would take 30 years. More like 3-5. But when your competitor has the cash infusion, you better have it too.

In addition to this you have the problem of dissatisfied customers using the app for the first time and then never coming back.

They have to ensure supply while they bring on new customers (has associated acquisition cost) if they acquire a customer and that customer isn't able to purchase anything from them due to lack of supply (or in the case of uber the price is too high because of surge kicking in) then that customer will churn forever, and potentially share their negative experience with their friends.

So basically, nail supply, grow customers, don't run out of cash before the whole thing is working.

Eh, what about insurance companies? They "subsidize" those who have emergencies, using money from people who aren't having emergencies. The innovation there comes from evening out the cost of emergencies over time -- always pay a (relatively) flat fee.

If Uber's incentives for drivers result in a better experience for riders (shorter rides), isn't that a good thing?

What happens when there is a surge? There is also Pay by Cash option for Uber now to in India. Who gets the money at these times.

Uber also offers bonuses if they complete a set amount of rides per day. There was a problem recently due to this when a driver fall asleep and the passenger had to drive the car. [0]

I have also experienced Uber drivers asking for a new ride to somewhere nearby using the Cash option after I completed a ride just so that they can increase the number of completed trips.

[0] http://thelogicalindian.com/story-feed/awareness/watchread-u...

Surge is a multiplier. It pays out a multiplied fare to the driver and to Uber. Incentives like the one described are usually applied after the fare is calculated.

Paying with cash has the same distribution of money (more or less), it's just handled differently.

Grab is doing the same here in Malaysia.

What does "Rs." mean?

Rupees, Indian currency. BTW, that is a lot of money.

Rupees, the Indian Rupee. Currency.

I believe that your assumption of insane driver subsidies is indeed the reason they are sucking down so much money. That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

The only strategy I can see with the absurd amounts they are raising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them - much like Standard Oil did. In today's world though, I'm not sure that such a strategy can work.

It will be interesting to see what happens. Perhaps there is a chance of success. But if Uber were a public company, personally I'd be shorting every share that I could.

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

There doesn't seem to be evidence of that.

Uber is apparently profitable in its mature markets (mainly the US).[0]

The money is mostly used to prop up new markets, where you have to give lots of incentives to get both sides of the market in place fast (keeping supply and demand matched is the constant challenge of nascent two-sided marketplaces).

That being said, the fact that they're having to turn to Saudi money (nobody's preferred source) isn't encouraging.

[0] http://fortune.com/2016/02/18/uber-profitable-us/

"Profitable" under non-GAAP measures maybe. Their efforts to hit actual profitability in US markets has led to a lot of driver backlash.

I wouldn't trust a thing that company says about their cashflows until they are in SEC filings.

I got some blood testing machines I'd love to sell you.

While driving home this evening listening to NPR's Marketplace, Kai Ryssdal specifically mentioned that Forbes removed Elizabeth Holems from their list of richest self-made women. Her stake in Theranos is now valued at $0 [1].

Capitalism giveth, and capitalism taketh away.

[1] https://news.fastcompany.com/elizabeth-holmess-net-worth-is-...

It's hard to believe that she didn't take some money off the table during the frothy fundraising years of yesteryear.

According to this article her net worth is $400m. That's still a lot of money.

http://money.cnn.com/2016/06/01/technology/elizabeth-holmes-...

> Forbes said it has reexamined and revised Theranos' $9 billion valuation in light of recent investigations and allegations against the company.

> Citing conversations with venture capitalists and analysts, Forbes estimates that the company is actually worth a great deal less: $800 million. That takes into account its intellectual property and financing, according to Forbes' Matthew Herper.

> Holmes' 50% stake in the company would effectively be worth nothing at that valuation, Forbes concludes, because her investors would be paid back first (they hold preferred stock, not common stock like Holmes).

I laughed out loud when I read this

Uber and Lyft are paying their largest referral bonuses in the "mature" markets (major US cities, e.g. $750 in Chicago recently). They are churning and burning part-time giggers who leave after the bonus is earned or the incentive expires.

Recent Uber and Lyft drivers in SF have both told me that there are big incentives going out to drivers right now. I suppose it's conceivable that somehow the market is none-the-less profitable, but I don't really see how. They were saying like +$10 per ride if they hit the highest tier of payouts.

The question them becomes, did Uber need to use similar subsidy tactics to become profitable in its mature markets? If yes, then this is just rinse and repeat, no problem. If no, then I'd argue there'll be trouble ahead.

> The only strategy I can see with the absurd amounts of fundraising is that they are trying to get enough money to sustain the subsidies until they kill all existing competition, at which point they can raise their prices and people will have no choice but to pay them

The taxi company I drove for has contracts with many government agencies to transport poor & unfortunate people around. People have to get to their doctor (Arizona Medicaid) appointments, to the hospital, home from the hospital, foster kids transported to meetings with their parents, etc.

These fares pay better than Uber's non-surge fares.

/methinks "ride share" companies are run by founders suffering from delusions of grandeur. When they run out of venture capital, the realities of transporting people from place to place will reassert themselves.

I've heard that Uber is going after those contracts as well.

But Standard Oil literally bought the refineries, railroad, long term contracts on crude.

That would be like Uber buying every road and every manufacturer.

I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport. The markets with the best scale (esp outside of US) have good public transit. People aren't going to go from paying a £10 uber to a £30 black taxi in London, they'll go back to getting the tube or the bus home after a night out.

> I also don't think Uber's biggest competition is cars or taxis, I imagine it is public transport.

Also worth noting: Los Angeles is not like London or Paris or NYC where you can very often walk to a nearby mass transit station. In many parts of Los Angeles, Uber can serve as a useful complement to the public transport system. For example, one can quickly take Uber to a rail station which then travels the rest of your route underground -- thus avoiding traffic jams.

If Uber did not exist in LA, one would be more likely to just get in one's car for the entire journey: buses take too long to get you to the underground station, and taxis are too expensive.

It's also important to keep in mind that, in Los Angeles, Uber cars arrive really promptly by comparison to public transport buses. If your time in, say, the office, is really valuable, then the Uber service offers more value than a bus, because buses require a lot more time to transport you than an Uber car does.

I know this sounds like an ad for Uber, but I have no connection to the company, except as an occasional customer.

I don't know about London, but in my area an UberX ride is 4-5x the price of a bus ticket (~10km). This only gets worse as the distance grows. Public transit is not Uber's competition and it'll never replace mass transit.

You can split an Uber 4 ways but you can't split a bus fare. So if you go out with a few friends it becomes much more reasonable for short trips. If Uber gets more expensive, some people will go back to public transit.

>You can split an Uber 4 ways but you can't split a bus fare.

Like a taxi?

Uber will never come close to moving the sheer numbers that public transit does. You can't do it, not enough road to fit all those cars. Especially in downtown cores.

So Uber competes with public transit as much as taxis compete with public transit.

Yes, like a taxi. The primary benefits Uber has over traditional Taxis are 1. price; 2. they have an app, and it works well; 3. drivers arrive in vaguely predictable times that are less than 45 minutes; and 4. it doesn't discriminate as badly as cabbies.

> Uber will never come close to moving the sheer numbers that public transit does. You can't do it, not enough road to fit all those cars. Especially in downtown cores.

I never suggested anything of the sort. Especially not at commute hours.

> So Uber competes with public transit as much as taxis compete with public transit.

I think we agree. I just noted that if Uber prices rose, some Uber users would prefer to use public transit rather than pay higher Uber prices or Taxi prices.

The only thing uber has over most taxis in Germany is that they’re cheaper. And that they don’t have proper insurance.

2-4 apply to every taxi firm these days too

I wasn't sure if it was just me, but in that case what makes Uber so valuable? Are they banking on putting all the taxi companies out of business and then monopolising the market?

Not in the US. Taxi companies in US cities are terrible.

A great marketing win for Uber here. It became known worldwide as an "innovative technology company" even though outside US, it's only innovation is funneling SV money to lawyers so that they can maintain their illegal business practices while they conquer the local markets. E.g. in Europe we've already had all the other "innovative" stuff. But people don't notice it, instead naively buying the "Uber = innovation" marketing.

The funny thing here is that a couple cab companies have done seemingly irreparable damage to the worldwide taxi industry, merely by virtue of being based in San Francisco and allowing drivers to regularly flake or refuse service to slightly less profitable areas.

Interesting. In my mid-sized town, the local, independent taxi firm has all of them. The app, text messaging when you book, when the driver is on his way, when he's at your front door along with the make, colour and license plate of the car, etc etc.

That only holds true at peak hours. For off-peak uses, ride-sharing can compete with buses; in an electric car world, cost-effectively as well.

Taxis are a kind of public transit. So call me skeptical if Uber manages to sink taxis and this is part of their long term strategy, because unless they have enough money to become the sovereign in their dominant markets, they're going to end up being regulated by the local government should they supplant taxis.

I know what point you're trying to make, but taxis are explicitly not public transit. Busses, trains, planes, ferries, etc., are all public transit, regardless of whether they are publicly or privately owned. For-hire taxis, coaches, limousines, private jets, etc., are all private transport.

Interesting. I think this is a very valid point.

Eventually governments will get wise to the fact that this is not magic. Just a new way to dial up a ride.

Governments didn't allow individuals to install a radio into their private car & drive around making rides. Why should they allow the same just because you have a smartphone?

Nope, but most people who take public transit regularly already have a monthly fixed-price subscription. So that trip is pretty much free already, unless people start commuting by taxi...

I don't think the multiple is the relevant metric. People aren't going "should I buy 5 bus tickets or should I buy 1 uber x ride?" The number of rides is pretty much fixed. The choice they are making is "should I upgrade my ride experience, if it means I have to downgrade an experience in another area?" So you should rather compare the price to other "upgrades" people are buying.

Sample size of one, but I haven't used public transit in probably close to 10 years, and I use Uber all the time. I definitely would not turn to public transit if Uber shut down. I'm sure it depends on the city and the quality of its transit offerings.

I think buying up the whole value chain is an effect of monopolies, not the cause. DeBeers, for example, got their start in diamond mining. I suppose they could have stopped there, but when you're the only supplier, it becomes very easy to buy up those of your customers that are making money so you can capture more of the total cash.

So I don't think Uber needs to buy roads. All they need to do is have a broad enough base and deep enough pockets that they can drive everybody else out of business. Or, possibly better, keep a few sickly competitors forever on the margins. That way they can pretend they're really competing.

I think it's unrealistic to think that Lyft will be a sickly competitor. It has less cash to push toward subsidizing rides but I could foresee it sticking around, especially since many drivers use both ride share apps.

I thought that each network will stop giving you rides if you don't take them & you are in the area without a fare.

Uber's biggest competitor will be an open-source p2p-system, like openbazaar, that achieves the basic functionality of uber.

What advantage will such a system have?

Probably none. By having an open system, prices will invariably get pushed down (better for end users) which will deincentivize drivers (worse for end users)

There may be some equilibrium somewhere, but I don't believe it will be in the users best interest having to wait for cars.

Just my thoughts. I'm probably wrong.

By having an open system, since there is no longer a corporate middleman entity which takes a cut off a profit, and since anyone can compete, therefore prices will get pushed down. But just like any other perfectly-competitive system (https://en.wikipedia.org/wiki/Perfect_competition), the price in equilibrium will approach the marginal cost when marginal cost equals marginal revenue, not get pushed down indefinitely. I guess that would approximately equal to the market price of uneducated labor willing to drive plus the cost of the car+gas usage, insurance, etc. So price won't drop lower than what is needed to get people to actually drive the cars.

Now of course, maybe also need to be concerned about autonomous cars using this p2p app, in which case just need to pay a slave robot with the minimal energy it requires to drive.

In an open system, how do you ensure basic safety needs are met - eg, do drivers have licenses?

I sure as hell am not getting into a car with an unlicensed driver

a reputation system.

Once robo cars are here, it'll be game over. Google wins.

> The only strategy I can see

A more cynical version: they're trying to pump up their valuation, IPO, and dump their stock before anyone notices.

That would make sense if founder/employee liquidity was in the works, but from the information we have it's going straight to the company.

This investment didn't change their valuation.

Maybe it's the old "have some shares, then pay yourself $1M/year" racket then ?

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

It depends what you mean by "actual costs," but I would suspect that Uber's will still be lower than cabs' under any reasonable definition.

What you forget is that cabs also have incentives not available to Uber, such as lower fleet costs and tax advantages in certain cities. If you compare transportation costs without Uber subsidies, cabs are very competitive in some markets.

> I would suspect that Uber's will still be lower than cabs'

What people pay for an Uber still varies a lot by city.

At home in Ohio, Uber is more expensive than taxis in several cases, for example, to/from the airport, and short trips from the city center to the bars (2-3 miles). Taxis are also generally cheaper here for longer trips (maybe 30+ miles).

Similarly taxis can still be cheaper (and are still ubiquitous) in NYC.

> That is a problem, because the moment that people have to pay the actual costs of an Uber ride, they may go back to taxis or driving their own cars.

While price increases do happen, they generally have nothing to do with driver incentives. Incentives for drivers are (usually) meant to build supply, not cut the cost of rides.

Über has enchanted the tech people. It's this golden goose that every conversation turns to. Listen to the Ben Thompson podcast -- if he was reacting to an article about ham sandwiches, he would tie it to Uber.

There's no reality here. No magic self driving electric taxis, no robot delivering your takeout.

18-24 months this thing will be like Groupon (remember they were magically saving writers by hiring thousands of them to copywrite Yoga Studio coupons) -- the insiders cash out, and the dumb money takes a bath.

That said, I thank the Saudis for subsidizing my next black car ride. God knows I've shipped $100k for gas to them over the last two decades.

For those curious... 100k / 20 / 365 = $13/day, at $3/gallon (est) = 4.56 gallons * 20mpg (low gas milage) = 91 miles/day, or closer to 30mpg would be around 135miles/day, which I guess is possible. I was just thinking it seemed like a lot. Now, a fair amount of that is varying levels of taxes... but it's still significant amount.

I'm currently doing about 40 miles/day commute for work, and know people who are driving a lot farther than I am... while I was married, I'd drive about 140 miles to/from home on the weekends, staying in the city during the week, put many miles on my car and truck back then.

You are not counting consumption of plastics, electricity generated by oil, combustible used by construction vehicles building the roads and buildings he uses, etc. But even by that sort of accounting, $100K sounds like it was intended to be hyperbolic ;)

Or have 2 cars (or god forbid, more if your kids drive) and include a few thousand mile trips here and there and it isn't very hard to get there.

Saudis benefit from our 2 mid eastern wars. Total cost of wars? According to Brown U. just the Iraq war is 4.4 trillion. http://watson.brown.edu/costsofwar/ That's a cost of $15,000 per person in the US.

I can't imagine the incessant legal and legislative battles they are fighting are coming cheap. That means hiring legal and policy people, paying a ton of money to outside counsel, lobbying expenses, the hidden costs of building influence.

And it's at a huge, because most of this isn't happening at the federal level (yet)—it's all state and city—which means they don't have the luxury of concentrating on the familiar, well-tread (and very insular) game of DC politics. Instead Uber has to have boots on the ground in a ton of places, and they have to have people knowledgable on the nuances of regional politics and culture. Things like the dynamics of a state's house vs senate, country executives, the port authority, taxi unions, legal systems, initiative systems, local elections, Chambers of Commerce. The list really does go on and on. It's a huge and complex footprint to manage.

Yeah I think that's probably true but as a private company we don't know how significant these costs are. I think it's questionable to have a business plan predicated on suing your way out of being considered a taxi when in pretty much every way that matters, except one, it's a taxi (or limo, or a hybrid) service. And that one exception is that it has a decent Ux in large part due the Uber app and its backend infra (which is huge).

Like spending $8 MILLION in Austin just so they could upset the citizens and lose what should have been an easy battle....

They hired away almost half of CMUs robotics department. That's gotta be expensive. They are building (in the city no less) an autonomous driving test track/facility. That's also gotta be expensive. Human drivers are just a brief stepping-stone.

I can't go into details, but it wasn't that much. The public number for "buying" CMU's NREC is $5.5 million.

http://www.nytimes.com/2015/09/13/magazine/uber-would-like-t...

That $5.5 million was a gift to Carnegie Mellon, I believe mostly for public relations. It does not include salaries, bonuses, or operating costs for Uber's Advanced Technology Center. The real cost was/is much higher than that.

Just to be clear:

If you spend $1B on actual physical vehicles or whatever (let's say... 500 $2M vehicles), then if you have 200 employees with an average pay of say $500k per year, then you could pay them all for a decade with another $1B, meaning that you'd have spent less than 1/6th of the funding they've taken to date, or still have $1.5B left of the Saudi Royal Family's hard earned money.

More briefly: no, obviously they are not spending their money on an autonomous driving program.

Exactly. They are burning cash to gain market share and will lose that share as soon as they stop. Not many barriers to these apps. Uber is going to implode.

Here's the thing -- ride sharing is the least interesting thing about Uber. Uber's expertise is on-demand logistics which is a totally new field at this scale. Ride sharing just happened to be an easy first step. Once they're able to move things around in real-time at a global scale the opportunities are massive.

This is the oft-repeated argument in favor of Uber ("they're a logistics company!"), and to be honest, it's quite hand-wavey.

Why is the expertise they have built up in car-hailing directly applicable to other logistics problems, and what advantage will they have going in that creates a barrier to entry for newcomers?

I think there is one answer to this for Uber, and its the same strategy Amazon stumbled into: have your "main" business be breakeven, but provide the scale needed for a pure profit business. In Amazon's case, the main business is retail and the profit center is AWS.

In Uber's case, this would look like individual ride-taking customers providing the demand to keep a critical mass of drivers on the road. This business is breakeven at best, likely slightly money-losing (sorry folks, but an increases in ride costs will quickly stamp out demand to pre-Uber days).

Then, with this "infrastructure" of drivers on the road, they can leverage it into nearly pure profit areas like last-mile delivery.

There's a huge catch, though. Amazon just has to buy new machines every 3-5 years. Uber's driver turnover is much much higher, and is absolutely killing them. All the claims of profitability are deceptive, because they assume current demand with current set of drivers; those statements do not factor in driver recruitment costs next month, or tomorrow.

Unfortunately this appears on the surface to be a structural problem. Current pay with driver-owned vehicles is probably not a long-term or full-time possibility for most candidate drivers.

Edit: to save a step, the predictable response to my objection is always, "but... self-driving cars!"

Yep. The reason that's the next predictable response is because Uber is holding off for self-driving cars, so it can become the logistics network for delivery.

That doesn't mean that they will, of course. I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.

> I have a feeling that these platform-locked services like Uber and Lyft will not be able to compete with the scalability of an open auction network.

This is the non-profit I want to invest in.

If you are serious about it my contact is in my profile, the project description is in www.alfiv.org and some of the products already created at www.alfiv.com. Completely bootstrapped up to now. We've got a small prototype api.

They also won’t be able to compete with the likes of DHL, delivering within of a single day across the whole globe for affordable rates, and already – even before Amazon announced their drones – test flying with their own drones first test deliveries in some select cities.

Yep. Uber Eats is a joke, horrible experiences with that, it just seems like a joke they're running almost.

Amazon's profit center is AWS?

http://www.wsj.com/articles/amazon-reports-surge-in-profit-1...

> The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, AWS generated about 67% of the company’s operating income in the quarter.

if you know the predictable response then why not answer it?

>ride sharing is the least interesting thing about Uber

That's the only interesting thing about Uber. Sure they have delusions of grandeur and they certainly have no qualms about putting out glossy marketing material extolling how they will change humanity, but today they are a taxi company.

That's the whole point of investing -- you're betting money on the fact that they can make their "delusions" a reality.

"on-demand logistics which is a totally new field at this scale"

I've heard this argument before, but how can this be taken seriously? Take DHL, or UPS - they do orders of magnitude more (in transactions) than Uber does, and I know it's not exactly the same, but I'd even argue that any parcel service is a lot more complicated than Uber. Hell, even the tiny postal service of my country ships the same amount of packages each day as Uber has rides.

The tech side of Uber is (dare I say it!) trivial (well the 'ride sharing' part, not the AV research side). It's the regulatory and plain business model angles that must be costing them.

People say this a lot, so I am not picking on you, but I don't get this argument at all. Amazon does it, so does Lasership and Seamless and Fedex and WalMart and a million other variations. I don't see any real reason Uber is more adept at adjacent non-core market verticals than any other top tier entrant.

Don't forget Domino's. They and others in their business had this whole thing with drivers using their own cars for short notice transportation jobs decades ago.

It's like uber for pizza.

more like uber is domino's for people

Maybe domino's could carry passengers one way. Order a pizza. Get a pizza & a passenger too!

That's a great point. To add to it, as Uber grows, it'll take on weight and inertia and become as rigid, bloated and inflexible as other successful Fortune 500 companies. They'll have departments, and department heads who want good quarterly numbers and will not want to rock the boat too much. They'll have shareholders who'll want a good return and not expensive moonshots. And I mean that all in a good way. There's nothing wrong with that. WalMart didn't miss out by not building a search engine 10 years ago. It's not what they know.

That's what they tell everyone when people start questioning the fundamentals. It's what they told me two years ago when I interviewed there. Linking drivers with riders is not a complex problem. It doesn't even require machine learning. It doesn't require ongoing research. The whole dispatch infrastructure is mostly node and redis running predetermined matching algorithms.

Good point. However, it is a huge operational risk to rely on on-demand hires for logistics. In addition, ride-sharing works because humans are moved with a given market price given by the taxi network. In logistics you compete not only against UPS and FedEx but with Amazon as well. And *mostly free shipping is hard to get cheaper.

Also, you know, Amazon are not idiots. They aren't like, "Hey, you know what would be fun? Being bent over a barrel on last-mile shipping so that our profits can go to justify Uber's insane stock price."

Amazon is investigating Uber-like delivery options [1]. If they decide that there's anything there (and I'm not totally convinced that there is), they'll build the service themselves and not pay Uber for the privilege. And if the service works well for themselves, you can bet they'll open it up to other people to use for a price, as they have for all of their internal infrastructure projects.

[1] Source for this claim: I worked at Flywheel, an Uber competitor. Amazon had a program to have our drivers deliver packages, and got fairly close to acquiring us, before deciding they would rather not. This was a few years ago at this point, information is not current, and I have no idea about the present state of Flywheel, as I do not work there any more.

The scale at which Uber operate is laughably small compared to real logistic companies like Maersk...

This is a great point. UberEATS and UberCats and put our stuff anywhere with an API? I'm starting to see the platform in action.

> Not many barriers to these apps.

Two words: network effect. More drivers means more users. More users attracts more drivers. This is precisely why we have eBay and Craigslist despite them both offering, by modern standards, objectively terrible user experiences. Suffice it to say I am extremely bullish on Uber, Airbnb, etc. sticking around for a whole.

Except taxis also experience network effect. There is no central 'hail a taxi' telephone number(at least in my part of the world, might be different in NY), every company has its own numbers, own dispatch, and own rates. They all compete with each other, and while some bigger companies might ride on the too lazy dont care just come and pick me up tail of the market, majority still chooses their ride based on the rate and previous experience (nice driver, clean car, speed).

In Europe small scale transportation is as competitive as cellphone market. Hmm now I am beginning to see the problem, in US you might not understand what a competitive cellphone carrier market looks like in the first place? :) Here you can transfer numbers freely between carriers, there are usually 3-5 providers to pick from and they all compete fiercely on price, level and quality of service. Changing companies is not a mayor ordeal, merely an ~hour of work to optimize your phone bill.

I didn't say I was from the US. The average EU state is the size of Illinois and has maybe three or four population centers. It's no wonder that there are many regional carriers competing within each country. God help you once you start crossing borders though--evidently there isn't fierce competition on price, or the EU wouldn't have stepped in and capped roaming rates!

The US has 4 major cellular carriers--AT&T, Sprint, T-Mobile, and Verizon. Most of the EU has just three carriers.

> So where's all this cash going?

In Singapore, Uber owns and operates a car rental subsidiary that has singlehandedly driven up the total cost of owning a car. [1] I suspect that this has been the case in some other cities that Uber operates in as well.

[1] http://www.straitstimes.com/singapore/transport/uber-bids-co...

That's an interesting development. Of course, that's how the Certificate of Entitlement system in Singapore is supposed to work: the island's infrastructure can support only so many cars on the road, and they have decided that this shared resources be rationed out by willingness to pay---so that the most economically efficient users get to drive the cars.

Of course, if they are more economically efficient per-car because they drive these cars more, the separate congestion charging might have to go up. Still a net win for the economy of Singapore---since they will be using the national share of capital sunken into the cost of cars more efficiently.

(I am talking about the cost the economy of Singapore has to pay as a whole to import a car. That's net of taxes and CoE which are just transfers within Singapore.)

I hope the government can stay non-populist, and not give in to shortsighted special interests.

In a steady state, the basic business is extremely capital efficient. Pedal-to-the-metal-all-out-global-land-grab stage benefits from lots of capital.

I think fare subsidy plays a large role, but I think it's both driver and customer acquisition across every market in the world. It's gotta be very expensive for them to recruit people to become drivers.

I've had the same though about their initial business plan leveraging latent capital and also can't understand the need for all of this funding but I tend to think that it is in fact being used to keep fares artificially low for the time being. Back in January I believe of this year they dropped fares ~ 15%. There's not many business that can sustain that type of cut overnight. So my guess the cash is needed to sustain them until most of the existing monopolies(local taxi) are out of business.

The other reason I see is China. I've heard estimates that and seen probably at least one story here on HN about Uber spending 1 Billions a year to try to compete in China and it's largely not working.

So the question is how sustainable is this valuation? It's too big for anyone to step in and acquire at this point at least in terms of its current model - cars with drivers, since the long term future is likely driverless cars.

my thought for the last couple years has been they are an information arbitrage/market maker probably similar to AMZN. I also have to imagine they are working on a self driving car.

On top of engineering spend they are basically at war with every single place they move into and refuse to go public. They can't continue to be just ride sharing when self-driving cars come out, so they need to capture that market (or some market) another way

> On top of engineering spend they are basically at war with every single place they move into [...]

You mean with every single jurisdiction they move into? (Customers and drivers seem reasonably happy. At least they are not at war.)

Correct, city, state and to some extent federal law. As well as various international companies and the international regional equivalents

Without knowing any inside info, my impression is there are large fixed costs entering a market. Once the double sided market is built there is a large cash flow, but it takes effort in each new city.

Additionally if they are doing R and D beyond this (autonomous cars, universal delivery service, whatever) then they need lots of cash.

I would imagine it's to put out the first driverless fleet. How else could this valuation be justified.

They need lower prices to subsidize costs and exterminate the competition, then the prices will go up.

Lobbying is my primary guess.

They are disrupting one of the most heavily regulated markets where government is protecting special interest groups. I would not even have bet any money that Uber could have taken off the ground. But they have done well.

Maybe Uber needs much more cash to fend off the alliance of Lyft (US) + Didi (China) + Ola (India) + Grab (SEA). Grab in Singapore just announced that you can now use the Grab app to book Lyft drive when in US.

apparently clever initiative from Uber+Lyft

Folks... How many years was Amazon not profitable? And what is that stock worth?

On the other hand, Amazon continued to improve operating margins and expand offerings which led them to profitability. Every indication is that Uber is selling rides cheaper than they cost - and the things they can do to reduce cost also disincentivize their drivers.

Secondarily, Amazon was public for years - which means they were required to become profitable. Uber doesn't yet have that pressure in place- and a new round of cash delays that requirement even further.

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