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Comment by liquidise | Hacker News Reader

What shocks me about both Lyft and Uber's enormous burn rates are that they suggest the companies are heavily subsidizing their drivers. This subsidy is in part to spur penetration in new markets (as all marketplace apps must do), but also suggests that they have reason to believe customers will simply not pay a rate that makes the business profitable.

Assuming the latter is the case, i'm not sure if they have reason to believe this will change over time. Instead, it feels like the human drivers are really just plays to keep the company growing until hypothetical fleets of automated driving cars. In theory, such a fleet would deliver massive profits, but those fleets will be enormously expensive to assemble. Even when they are assembled each company should expect tumultuous legal battles in many areas.

When i try to make all the monkey math work, it doesn't seem to add up. Maybe i'm not enough of a gambling man, but i really don't understand how the venture market still supports business models like these.

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They are absolutely excited about the time when self-driving cars will be actually here.

But the real play here is to use taxi service as a pretext/generator for building up an on-demand courier service [1] with superior returns -- and performance that vastly dwarfs any incumbents.

[1] https://rush.uber.com/how-it-works

EDIT: after the introduction of courier services, picking up passengers serves as a baseline load [2] (to borrow from electricity distribution terminology) to keep drivers incentivized to be on the roads, but the real prize will be the courier tasks.

[2] https://en.wikipedia.org/wiki/Base_load_power_plant

I'm probably in the minority here but I'm not convinced we are particularly close to real self-driving cars. It's definitely possible but I strongly suspect there are more challenges ahead than most people believe.

Especially for the city, rain and night-time driving situations where Uber will find itself a lot of the time

And even if we do get self-driving cars, people forget that there will be an FDA clinic trial like process before they are allowed on the roads, which will take years.

Multiply that by the number of states/countries where you want to operate and by the level of bureaucracy in each country.

I'd say that from the day the tech actually works properly (which might be many years away, still), it will take at least 10 years for its availability across the globe, if not more.

Yeah, just like how rigorously Tesla's auto pilot has been vetted?

How long do you think they're going to be allowed to call it "Autopilot" when it's clearly not, and that confusion causes customers to trust it in ways that they shouldn't, and end up dying?

I'm not saying Tesla should be stopped or that Elon should go to jail. But I think it's a clear case of false advertising, where lives are on the line.

Actual airplane "autopilots" can be something as simple as automatic wing leveling or altitude hold. Using that name for Tesla's technology is only inaccurate in that they don't make airplanes. Where did everybody get the idea that "autopilot" implies full autonomy?

I expect an inflatable driver to appear and take the wheel, requiring only an occasional top up of air to keep things on the level.

I actually wonder if Airplane! is where people got the idea that "autopilot" means "the plane entirely flies itself." The bit where it's an inflatable doll is obviously satire, but maybe people thought the capabilities were real and the satire was just the doll part?

For most people the word autopilot historically has meant full autonomy.

OK, but why? Such a thing has never existed on any production crewed aircraft.

Sure, let's torture language for Tesla's benefit! Why not? I mean, we shouldn't let a silly thing like people's lives get in the way.

Since you know about historical autopilots I suspect this will be redundant, but here it is anyhow: https://en.wikipedia.org/wiki/Autopilot#Modern_autopilots

"Modern" autopilots have been around for a while, something like 40-50 years. Sure if you go back 80 years you can find autopilots that aren't as advanced. If you want to move the goalposts like that, relative to what a reasonable person might expect, knock yourself out.

What part of that article do you think is a point against what I'm saying, exactly? Autoland and taxiing? That requires a Category III airport which many airports, even those served by airliners, aren't. It also requires pilot supervision and pilot intervention in the event of emergency. Hardly autonomous!

And there are plenty of systems below that. For example:

http://sarasotaavionics.com/category/autopilots/certified-au...

Note: single axis and 2-axis. Just like what I said it can be.

But yes, the people insisting that "autopilot" does not imply autonomy, simply because no autonomous autopilot exists on any commercial aircraft, are torturing the language. Sure.

Find ~10 normal people and ask them what an autopilot does on an airplane. They're all going to say something along the lines of "it flies the airplane" and their intuition lines up with reality for about 90%+ of flights that are done with autopilots.

Ask those same ~10 people what an autopilot does for a car. They'll say something like "it drives the car". Given what the Tesla Autopilot (tm) is capable of doing, their understanding of what the name means and what the software can actually do only has maybe a 20% overlap.

So yes I would call that torturing language. It's an autopilot that can drive the car under a very limited set of circumstances AND it requires that Jesus (you, the driver) is always 100% alert and ready to snatch the wheel the second the car starts to do an unsafe thing.

It's a totally different control problem in cars than it is in airplanes, and it's impressive that they're doing well enough to where people will trust the system enough to get into this kind of trouble. But right now it seems like Tesla's in the uncanny valley of self-driving. Good enough to make people say "huh, it works" but not so good that it works 100% of the time, always, forever, no matter the conditions, other crazy drivers and all the freak occurrences that are literally 1 in a million, but given that there are 1.1 billion car trips per day in the US will happen 1100 times a day. Even at 1 in a billion it'll still happen once per day.

I'm dubious about the idea that normal people will think of airplane autopilots as autonomous. There's even a common English idiom, "on autopilot," meaning to act brainlessly.

But let's say it's true. Why would people think that, when that's not how they actually work? That's an honest question I asked above when I said, "Where did everybody get the idea that 'autopilot' implies full autonomy?"

Do we at least agree that actual factual airplane autopilots are fairly analogous to Tesla's? If so, how is it "torturing the language" to use the term that way? Overestimating the intelligence of the public when creating a term is a long way from "torture."

> Do we at least agree that actual factual airplane autopilots are fairly analogous to Tesla's?

Nope! That's the whole point of contention, actually. Autopilots are very advanced and can do almost the whole flight. Because the control problems for airplanes and cars are very, very different.

If something goes wrong with the autopilot in an airplane you've got minutes (at least) to figure it out and not die. ~30,000 feet of altitude and huge glide ratios and nearly empty skies do wonders.

In a car your average car-to-car separation in rush-hour traffic is a few seconds along the line of motion, and perhaps less sideways. If you're not on the freeway you might be a jerk of the wheel and half a second from a head-on collision.

Now you might say that the technical capabilities of both systems are the same, but nobody really cares about that. They care that it can meet some criteria that they already have in their head and they aren't going to go to school for 5 years to understand that it's not the autopilot's fault that their kid enabled in bad circumstances and died, they're going to sue Tesla to hell and back. And judges and juries will quite likely be sympathetic.

Some airplane autopilots are very advanced. Others are extremely simple. Tesla's system is analogous to something near the simpler end.

I keep talking about the simple end of what "autopilot" covers and you keep countering me by pointing out the advanced ones. I'm not denying the advanced ones exist, I'm just pointing out that the simple ones exist too, so using the word "autopilot" for simple systems is entirely appropriate.

I'm not terribly interested in the legal aspects of it, I'm just curious where everyone got this idea that "autopilot" implies autonomy (if in fact everyone does have that idea, which I'm not sure about), and I strongly disagree with your assertion that using "autopilot" to describe Tesla's system is "torturing language," given that using "autopilot" to describe a simple wing-leveling system is perfectly acceptable.

I can call a bicycle an gyroscopically-stabilized carbon-neutral human transportation device but that doesn't somehow make it fancier. It just sounds fancier.

I have argued that when people hear the word "autopilot" they think that it's very advanced. You argue that technically, something that just keeps the wings level is also an autopilot. I agree! I just disagree that the average person would know enough about the finer points of what a particular word actually means versus what just about everyone thinks it means.

Finally I would argue that if just about everyone thinks that a word means a particular thing, that's what it means. It might technically be incorrect, but words are just noises that people say to convey an idea from one brain to another. If you know what someone meant well enough to correct them, they probably used the word correctly.

Here's a major news website reporting on what an autopilot is and is not in the wake of the germanwings crash about a year ago. It maintains that autopilots on commercial jets (what people tend to think of when you say "airplane" or "flight"). This was the 3rd or 4th google hit for the phrase "what is an autopilot" http://www.cnbc.com/2015/03/26/autopilot-what-the-system-can...

That CNBC article seems to be supporting my position, not yours. It's quite clear that autopilot is an aid, not an autonomous pilot substitute, and that the pilot still handles certain parts of the flight and must be ready to take over if something happens. Unless your point is that everyone thinks autopilot means more, and this article is correcting that notion?

I fully agree that if just about everyone thinks a word means something, then it means something. I'm not trying to argue based on some technicality. What I am arguing is:

1. I'm not at all sure that this understanding of "autopilot" is as ubiquitous as you say it is.

2. Even if that understanding is nearly ubiquitous, I can hardly fault someone for using "autopilot" to mean something simpler if they are doing so because they are familiar with actual autopilot systems and are naming by analogy to the systems, not to popular understanding of the term.

3. If people really do all think that "autopilot" means a fully autonomous system, the fact that no such thing is found on real airplanes means that they're a bunch of idiots, and I'd really like to know where that idea came from.

The number of people who die every year in car accidents is so massive that any big regulatory hold-up for automated cars, which would almost without a doubt reduce deaths by at least an order of magnitude, is politically untenable.

It may be _logically_ untenable. But certainly not politically...

I don't know about US but there majority of fatal accidents are the results of deilberate misconduct, i.e. someone doing knowingly stupid things. Unless self-driving cars become mandatory they will help very little in this regards, because road hooligans won't be their target market.

I feel that the hype for self-driving cars is the same as it was for VR in the 90s

We had to wait another 15-20 years for those feverished VR dreams to become a reality

I reckon it'll be the same for self-driving. We are 20-25 years away, not 5-10

In addition, only a few days (one or two weeks) ago we had a much commented story linked here on HN that VR is way too hyped. Supprted by quotes from actual executives and/or investors in that business if I recall correctly, so not just the usual negativism that can always be found for any topic if you choose your source well.

I don't think VR will ever be mainstream unless hardware costs come down drastically and they can figure out a way to make VR headsets look less dorky

In 5-10 years i see self-driving on freeways and maybe other main roads that have standard junctions, markings and signs. Maybe with lanes only for self-driving.

A self driving vehicle would do the long-haul and a human would do the tricky city/country lane leg of the journey.

Automating the whole journey is a long way off as you say.

One option could be for them to use the self driving cars on some routes, or maybe even on just part of the route.

If things were implemented really well, I could imagine travelling part of the journey in self driving car and then jumping to regular one for the "last mile" (or the other way round). This way one could use the self driving cars in the easy, but time consuming sections (for example congested high ways leading to airport).

And, even once we get to self-driving cars, it changes the ride-sharing service's economics greatly... those self-driving cars aren't going to buy themselves.

Uber can hedge its insane market cap to buy a fleet, and then make effectively free money from that point forward selling rides.

As I posted in the Tesla crash thread, the current "self driving" cars are only assisting in conditions the driver actually needs the least help, good visibility and weather conditions. Its not a safety feature yet, it is little more than an advanced cruise control.

Until they can prove a self driving car can navigate a road at night in horrible weather conditions with and without other cars then its not self driving.

If anything the current crop should be emphasizing that they can warn of bad driving habits.

Why would a courier service work so great for them? Are people prepared to pay more for that than for taxi trips? Btw, isn't their courier service already active?

"It's like Uber, but for Amazon"

> But the real play here is to use taxi service as a pretext/generator for building up an on-demand courier service [1] with superior returns

So people will drive their sedans around the city delivering flowers and cakes and laundry? And instead of picking up flowers at the flower store, or laundry from the laundromat down the street, I'll pay $5 more for everything to have it delivered? Uber and Lyft's master plan for superior returns is to become Postmates?

Somehow I'm skeptical.

> picking up passengers serves as a baseline load ... to keep drivers incentivized to be on the roads, but the real prize will be the courier tasks.

Why waste valuable space with bodies if courier tasks are the real prize? Drivers are incentivized by money. If drivers could make more money driving dresses than humans, most would fill their car with dresses and kick the humans to the curb.

I pay extra to get my groceries delivered because it saves me time. I also tested same-day delivery services from Amazon and Apple in the last several months. Amazon is a little different, but my local Apple Store and supermarket are pretty close. However, I used to suffer a grueling commute and it made me hate driving. I'm now happy to pay someone to reduce the time that I have to spend behind the wheel.

I know that Instacart/Postmates/etc. exist, are convenient, and are used by some people. I'm just skeptical that this is Uber's plan for "superior returns." I'm skeptical that driving bouquets and salads and clothes around town will be significantly more profitable than driving passengers.

>I pay extra to get my groceries delivered because it saves me time.

That vast majority of Americans do everything they can to save a few bucks, even when it's an inefficient use of resources (time and money).

I'm not sure "nickel and diming" a few wealthy people for home delivery is a $60BB business. There's not a huge barrier to entry and margins are low. But what do I know.

> I'm not sure "nickel and diming" a few wealthy people for home delivery is a $60BB business

A few? With between 11 and 13 million millionaires in the US, it's a $60 billion business. And that's ignoring the vast number of people in the US earning $150,000+ in a household while not being millionaires; people that can easily afford such services.

And then there's this:

"The Richest Generation in U.S. History Just Keeps Getting Richer"

http://www.bloomberg.com/news/articles/2016-07-12/the-riches...

The boomers are getting older and richer, and will benefit massively from courier services.

>With between 11 and 13 million millionaires in the US, it's a $60 billion business.

What are you basing that on, without knowing any financial information? If the mere existence of millionaires makes a massive company viable, then what company isn't?

Do you believe that the very wealthy, today, are doing these things themselves, and that an Uber courier is solving a huge problem for them? Paying people to deliver stuff isn't new. Neither is driving people around. What Uber has done is made in convenient and, thus far, inexpensive. Do you think Uber will reap massive margins here? The barrier to entry is very low.

By this logic, you can say "We'll do X for rich people. Since there are so many millionaires, it's a $60B business" for just about any hare-brained scheme.

If Lyft is burning $50M/month driving me across town for $15, or me and two strangers for $5 each, how does substituting a person for a dress or a shaving kit or a bag of groceries suddenly make it hugely profitable?

And if this is the case, why isn't Postmates / Instacart/ etc. getting billions in VC money to expand and corner this underserved market? Why did all the courier startups immediately go belly up in the dot-com bubble last time around?

In most economies, it's only the top 5-10% that really can afford to value time over cash. The rest are happy to trade off their time and effort to conserve cash.

That's a market for sure - but really not such a big market.

I think you might be underestimating the size of the "on-demand industry"[1]. I'm hardly in the top 5-10% and I tried out Drizly in place of my beer run on Friday night and paid a $5 premium for my 6 pack to be delivered. I valued my time in the moment more than $5 and told myself it was a once in a while thing. I'm sure on-demand groceries, dry cleaning, etc all just hope for that market of people who tell themselves they don't use these services too frequently.

[1] http://www.businessinsider.com/the-on-demand-economy-2014-7

That entire article only speaks to investment of the on-demand industry, and its "potential". Citing "uberfication" of services and a "rise of 1099 contractors" means nothing for who will actually pay for the services.

> They are absolutely excited about the time when self-driving cars will be actually here.

But wouldn't everyone use self-driving cars and that level the playing field again? If you can't make a profit now, would that really change later?

Seriously- FedEx, UPS, Walmart have incredibly efficient logistics and operate with very thin margins. If Uber Lyft are relying on going up against them instead of the inefficient taxis- they are seriously smoking something illegal.

I don't understand why anybody thinks that Uber and Lyft will be the ones to capitalize on a fleet of automated cars. Once auto manufacturers have solved the arguably harder problem of creating automated vehicles, why wouldn't they then just run the fleet of cars themselves? Especially if there is as much profit in it as people assume. Even if they didn't run the fleets themselves, it seems like they already have a great infrastructure through their dealership networks to allow the dealerships to run their own fleet of vehicles. That even helps solve one of the obvious challenges of how to build out the infrastructure to manage the fleet in each city.

So if Uber is building their long term business plan on the idea that once automated cars exist they will buy them in bulk, build the infrastructure to maintain them in each city they operate in, and reap the profits then I am pessimistic on their model.

This! I think that's why Lyft has also partnered with GM, if I'm correct. I bet they saw this from the same angle and wanted to get as close as possible to the actual manufacturer of vehicles.

It's not a bad exit strategy. Align yourself with a manufacturer, let them integrate your tech with the cars coming straight off the production line, get acquired when ready.

Wouldn't be surprised if that's exactly the way it happens. Lyft OnStar.

Uber claims to be profitable in the US already, and it's their massive competition with Didi in China where they're burning cash ($1B/year). http://fortune.com/2016/02/18/uber-profitable-us/

"not including “interest, taxes, and equity-based compensation for employees", so in terms of whether the company will survive / current employees will ever see payday, I don't think that means anything.

Where did you get that quote? It's not in the article.

http://uk.businessinsider.com/uber-says-its-profitable-in-th...

I think the play is more or less to strangle the higher priced and over-regulated patchwork taxi industries and build a more uniform national/international regulatory framework that's more amenable to these kinds of businesses. At that point prices will probably rise, and (they hope, and I think they're right) customers will see value in the better product that keeps them in.

You've picked my interest, how would lowering regulation increase customer prices?

I am not saying prices would rise in direct consequence to a reduction in regulation. The premise is that they are pricing below market right now, and probably also for a more open market. This is an expense to them designed to create the open market they want.

Once they have it, they'll have little reason to underprice anymore. You need drivers to run this kind of business (for now), and they will create an upward pressure on cost (to a point) as they move between legitimate services based on who actually pays them a living.

In the abstract, breaking up monopolies is the canonical example.

Breaking up monopolies raises prices? You've lost me :-)

Less regulation = not breaking up a monopoly = higher prices.

I think the GP is talking about breaking up 'natural' monopolies, rather than government monopolies.

Note: Just to skip a potential semantic argument that always crops up around this: whether or not you believe it's appropriate to call it a monopoly if it's not enforced by government fiat is beside the point.

s/picked/piqued/

Or they are looking forward to the introduction of self-driving cars? Rather than waiting for self-driving cars to actually arrive, by which time the horse will have bolted, they are trying to lock the customer base in now at a high cost, banking on the money lasting until self-driving cars arrive. Once self-driving cars arrive, costs fall, competitors are locked out, and they make a big profit.

I just don't think that'll come soon enough for the amount of money and resources they're pumping into it. But obviously this is part of the long play, at least and especially for Uber.

> customers will see value in the better product that keeps them in.

How is Uber a "better product" than a taxi? As far as I can tell, it's competing on price, and that's it. If cabs were the same price as Uber, I would take a taxi every time.

If you live in one of the few places where you can expect to be able to hail a taxi, you're probably right. If you have to call for a taxi, Uber is infinity times more reliable.

Are you kidding? Have you ever tried to get a cab outside of Manhattan? It's painful even in the downtown core of major cities. And if you live in the suburbs, you have to call like two hours ahead and there's always a good chance they don't show up. In my experience with Uber, drivers are more courteous, billing is more honest, their cars smell better, and bad drivers are held accountable.

Yes, I've called taxis several times in a tiny (280k) city in Germany - they're there faster than the police would come if you'd call 911, they're reliable, clean, and you can pay via app before the ride.

I really don't get what's so good about uber, they're just like taxis, but worse quality, and bending the law.

Thats the thing, taxi quality varies a lot depending where you go. In Barcelona they are reasonably priced and reliable. Istanbul non seemed to have a clue where they were going and didn't bother when you showed them on the phone map. London are pricey and snobby about what they will let you carry in their cab.

Amusing you mentioned Istanbul. I had forgotten about this, but my cab driver to the airport tried to scam me THREE different ways in one trip. Catching him was almost a game at that point.

Taxis where I live aren't as good as yours are. That's why Uber is nice — it brings taxi service in my unassuming suburb to the quality you take for granted.

Why would you take a taxi over Uber? In my experience, Uber drivers are more courteous (probably because they know they get rated at the end of the ride) and arrive faster than taxis (in San Francisco). That being said, when I was living in Shenzhen, taking a taxi was more convenient because there are just so many of them and waiting time is really short.

I think it's more convenient, and I've had better experiences with rideshare drivers than any taxi.

You can just call one from your apartment when headed across town instead of waiting for one to drive by on the street. In my experience calling taxis isn't always reliable. Uber etc. show you the driver's location and distance, and they won't stop to bring someone else to the airport.

I think a big part is the quality of the taxis in your area. In San Francisco, they'd do the "card machine is broken" bit (eventually turning it on when you have no cash), or just not pick you up if you were headed out into the Sunset, or drive a longer way hoping you don't notice.

In Dublin, Ireland, calling an Uber will invariably call a taxi. They're usually friendly folks that don't mind that you're only going a few blocks to bring home your groceries because you missed the bus.

But the bar to call Uber a 'better product' is pretty low. There's nothing it does spectacularly better than Lyft or Flywheel or any other app.

A big part of their value is how low the customer experience can go with a traditional taxi. I just want to rent someone's time for point to point transit without any bullshit.

Apaprently you have never taken a taxi in Chicago?

Rusty car. Driver doesnt speak english. Smoking out the window and talking on cell phone in another language. Floors it and slams on the brakes. Seatbelts broken. Credit card machine broken.

Hum why would I take a lyft.

Don't forget, doesn't service large swaths of the city either by population or location.

Most Uber drivers I've had have used their phone... and gasp often in another language.

I'd pay a significant premium over taxis to take Uber. Taxis around here are old and dirty and the drivers are usually crazy. Uber cars are nice and driven by friendly people who aren't usually trying to get me killed.

There are a handful of cities in north America where this might be true. If you live in one of those, congratulations. For the rest of us the difference is night and day.

As a really simple example, as applies to my city, I have had to wait 2 hours for a taxi more than once. I've never waited more than 25 minutes for an uber. Average times are ballpark 10 minutes vs. 30 minutes.

I would take uber if it were more expensive than taxis any day.

Why not an arms race to burn through the other side's cash, thus gaining monopoly status for a time?

This is the simplest, most conventional business explanation and what their MBAs would be thinking.

They won't have many particular incumbent advantages if / when self driving cars arrive; all their carefully tuned business model, investment and product is about how to handle human drivers.

So true. The closest we have now to self-driving taxis is car sharing, not taxis. Everybody I know is either on no car sharing network at all (the overwhelming majority) or on all available of them at the same time, picking case by case whichever network has the closest car available. In absence of monthly charges coupled with long contact periods, network lock-in only happens with horizontal, bidirectional peer to peer networks (e.g. facebook or traditional eBay), not in a vendor/buyer model. People who happily ordered from Amazon rarely stop considering other stores, hence artificial lock-in attempts like prime.

What could give Uber/Lyft an advantage in the robotaxi age would be huge amounts of cash for the enormous investments required to blanket whole cities with cars to locally reach the critical mass of "a robotaxi is always closer than my own car would be", but I don't see how luring users with subsidized prices now would in any way help with that then.

Why is it whenever we're discussing UBER/Lyft, everybody forgets the shared rides model(2+ passengers per car)? a model that has pretty strong network effects once achieved, and that may be a decent alternative to the private car, even without self-driving.

Reminds me a bit of Groupon etc - its easy to get revenue when you're selling dimes for dollars.

Fixed costs are presumably low, so it can't be scale that would lead to profitability.

Utilisation rates? I've not heard a lot on if rates could come down to compensate for more passenger-miles. But of course a fair bit of the cost must be tied to passenger-miles.

Intentional avoidance of profit by acquiring or R&D? I suppose this could be the play for self-driving cars in the future. As you say, automated cars seem to be the easiest way to drop the passenger-mile cost. But I don't know if automated cars will be a winner-takes-all market, at least globally and in a way that would lead to monopoly-like profitability.

Exactly - saying it is profitable in the US, minus interest and stock, is another way of saying it is not profitable just cash flow neutral in some markets. Like Groupon it is a business for sure, and probably a big one. But it may be overvalued. And there is this assumption that when self driving cars come they will not be disrupted. But why not?

Selling dollars for dimes, no?

In the UK Uber has to compete under the same regulatory framework as all other pre-booked cars for hire. Their prices are perhaps marginally lower than the existing car services (of which there are many), and their convenience (when they're actually available) is considerably higher.

So, at least here, it's pretty obvious to me that they do have a viable business model. There's thousands of hire-car drivers and mini-cab companies already making profit in the space. All Uber is doing is making the process of getting a hire car to pick you up significantly more convenient.

They do at least claim to be profitable in the US[0]. So if that is to be believed, a good portion of customers are willing to pay a sustainable rate. Whether the same applies in the other markets where they are heavily subsidizing drivers remains to be seen.

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

Lots of valid rational replies here but yes lyft, uber and the crowd can be wrong financially.

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