Understanding Uber’s Bleak Operating Economics | Hacker News Reader

Understanding Uber’s Bleak Operating Economics

nakedcapitalism.com

147 pointsCbasedlifeform86 comments

Really good article.

Some thoughts on Uber Eats...

I used to be an analyst at a VC firm that invested in a food delivery startup (which went broke). Food delivery is not a very attractive business in terms of its profitability, but it is an extremely attractive business if you want to show fast top line revenue growth.

Why so? Food delivery is great because the full order value can be taken as the top line revenue. If someone orders a £80 meal for four, that's another £80 to add to your top line even though your net revenues were ~£8, if that.

The institutional investors Uber will need to attract at IPO will be expecting Uber to have a typical tech company profile - extremely fast growing revenue and healthy losses. Strangely, from the IPO documents I've seen, accounting is very opaque for public companies vs private companies - meaning Uber Eats revenue is unlikely to be separated.

I think there is a possibility Uber is being forced to gear up to an IPO, top line revenue growth from the taxi business is not enough to justify the valuation, so the board has decided to move Uber into food to drive big numbers - but not profitability.

Savvy investors do split this revenue into two buckets:

1. Gross merchandise volume (GMV), or what passes through the marketplace: https://en.wikipedia.org/wiki/Gross_merchandise_volume

2. Fee revenue, which is what the marketplace actually retains

This knowledge is common among investors, like item #6 on http://a16z.com/2015/08/21/16-metrics/. It may not be common among, say, individual private wealth management clients of Morgan Stanley who funded their SPV (http://www.nytimes.com/2016/02/05/business/dealbook/deal-sho...), but they chose to invest without any revenue reporting at all, so it's probably not what made the difference.

Right, but I think the reporting would be the same in this case as both Uber Eats and Uber (taxi) are marketplaces. I don't think Uber will be breaking down it's revenue into these two marketplaces when it IPOs, but yes - it will be the GTV showing big growth.

I imagine the wealth management clients understand #6 but are hoping to flip their stock at a higher price in the IPO or similar.

From a very low level validation of Uber and Uber Eats finances being interwoven: my Uber Eats orders always show up in the Uber ride app and say that I took a Volkswagen GTI somewhere

Are you serious? That's a really odd way of implementing that accounting trick

What you're describing may be illegal.

A company cannot juice top line revenue with the full meal values like this as they report revenue to sell to investors and get ready to IPO. The revenue reported would need to be clearly a transaction revenue they get from facilitating the service between restaurants and hungry people.

troydavis' comment is correct. The full order values or GMV and Uber's separate cut of it (net revenue or transaction revenue) are both important numbers and both should be reported. But the total order value should not reported as a revenue.

A few years ago Groupon got in trouble for fishy accounting and had to restate earnings. http://dealbook.nytimes.com/2011/09/23/groupon-changes-its-r...

Also, for anyone looking for a more professional writeup about Uber's valuation, while he famously got it wrong at first I still think Professor Damodaran is the best one writing about it. http://aswathdamodaran.blogspot.in/2016/08/the-ride-sharing-...

https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp...

Great insight into Uber Eats. Do you have suggestions for reports or other public analyses of this category or adjacent categories like on-demand delivery (e.g., Google Shopping Express, Instacart, Amazon Fresh)?

Awesome analysis, thanks for that. :)

Another big point that he didn't make, which helps his argument a bit, is that Uber is no longer novel. It's spread and network effect have stopped, and gone are clean cars and a positive experience, replaced with mostly beat up city cars and drivers with no practical professional driving experience.

It's akin to delivering pizzas now, the only people doing it are not realizing the negative value proposition it offers and are desperate for fast money.

I was a big fan of it at first, but now I've gone back to using cabs because A. I know in this city at least (Chicago) cab drivers have to pass a basic exam showing they know how to drive people around in the city, and roughly that they know where they are going. B. It's the same price. C. It's not hard to find a cab any time but very off peak where I live and work and socialize.

Too many drivers that were stuck staring at the GPS in the car, not knowing where to go, what route to take. Too many filthy cars, smelling like cigarette smoke. Too many insinuations that I needed to tip. Too many times I've been cut off or hit by or gotten stuck behind an illegally parked Uber when I was driving. The list goes on.

I think a more important factor is that Google Maps shows competitor taxi services. I guess they have to pay a fair bit to get that advertising, but probably not that much and it means there is not much value to being a well-known brand.

Still, this article claims customers pay 41% of the true cost which doesn't seem right - there's no way 'normal' taxis are more than double the price of Uber, at least in the UK.

Depends where you are I guess. Where I live, it seems about right, assuming there is no surge tax.

At 1.0x it usually costs at least a third less. The hard thing is getting the regular rate

Taxi companies operate cheap, easy-to-maintain vehicles, like Priuses. It's not uncommon for a cab to have ~250,000 miles on it, and be held together by duct tape and prayers. Observe how many people on Hacker News complain about old, crappy, run-down cabs.

Uber customers expect their drivers to operate nice, fancy, comfortable vehicles (And are very good at punishing a driver operating a cardboard box with 4 wheels, via the driver review system).

While you may enjoy the ride in the Lexus or Lincoln a lot more then the one in the 250,000-mile Prius, depreciation and overall per-mile maintenance costs for the former will be much higher then for the latter.

The same story can be said for full-time driver wages. Uber will always be more expensive then its competitors (And have to subsidize it with VC money) - or will offer an equally crappy service. It's only major competitive advantage is how easy it is to onboard part-time drivers.

Seattle I'd say it's probably 1.5 times as much for a taxi. Based on last time I actually took one.

It's hard to say, Uber pricing has become so opaque. :/

Except cab dispatchers have been universally rude to me on the phone whenever I tried to schedule rides. For that reason alone, I am glad karma kicked in and Uber emerged because they used to be near-monopolies, and they knew it.

Except when this service that was supposed to "disrupt" gets proven to be largely a failure, where does that leave the cab companies then? With their monopolies even more solidified - because billions in VC funding couldn't stop them.

Maybe the industry doesn't need disrupting as much as the use of it does. Cabs are largely a luxury item. Improved (or even more utilized) public transit is the answer in most places, and in the places it isn't the answer, the answer isn't Uber either - it's owning a car.

I guess I'm just not the primary target market for these services. I use Uber from time to time when I travel and it's often a bit easier/cheaper than taking a cab. But, if Uber didn't exist I'd just take a cab. And I've never taken Uber where, in the absence of Uber, I'd take a bus/train/etc.

But I maybe take Uber a handful of times a year when I travel. I have no use for it on a day to day basis.

Indeed, when I lived in Seattle, I _only_ used public transit, but the Puget Sound's transportation is fantastic. The buses come every 10 minutes, and you can go just about anywhere. They even have a modernized light rail that s all over BART.

The public transit here in the Bay Area is absolutely terrible. Privatized transit means that the people who have deep enough pockets to actually effect change here are completely complacent riding their luxury Van Hools to Hooli.

> but the Puget Sound's transportation is fantastic

Not really. It's not awful, but I'd not call it fantastic.

What would you consider fantastic? I've taken the subways in New York, Hong Kong, and South Korea before, and I still prefer Seattle's light rail.

This is a very interesting article - thanks for some actual reporting.

Note: Uber could be in violation of NAFTA and many other trade deals - as they maybe 'dumping' a product (in this case a service) on other markets, massively unprofitably, in order to put competitors out of business, after which they will ostensibly reap monopoly profits.

I'm still not quite sold on Uber, I think there is some interesting value here ... but there are some dubious issues.

If Uber falls it will be painful for other entrepreneurs - they are definitely keeping some 'animal spirits' going among investors. A lot of institutional money is in Uber, if they pull out of other things ... well valuations will get harder for companies looking for bigger C and D rounds for sure :)

That's a good point. I wonder how things will shake out for Uber if NAFTA is renegotiated.

In any case, one game-changing regulation or political event could wipe out tens of billions in perceived value. If, for example, a small cluster of European countries banned Uber for whatever reason, it could make the entire house of cards collapse if they don't cross the self-driving car chasm fast enough.

Canada is way to weak to get anything with NAFTA.

We don't even win cases against America that are cut-and-dry.

The problem with trade agreements, is that ultimately, issues are grey, and therefore political.

Making an 'anti dumping' case against Uber is a little bit of a stretch, meaning - Americans will tell us (Canadians) to f* off.

If we try to enforce even more material issues, then we get the threat of other things (border fees, travel visas, no pipeline approval).

There's 1% chance NAFTA will be re-negotiated.

A) I don't think Trump actually dislikes it, he's just being populist.

B) He would not negotiate in a fair manner. Way back, when it was done, it was done in the spirit of trade. It was an intellectual thing. With Trump, it will be 'America first' - not about the value of open trade.

Even if Canada is forced to the negotiating table, we will have a very weak hand, and our strategy would probably be simply to delay, delay, delay until someone other than Trump is in charge.

There are basically zero other Presidential Candidates who would be against it.

Also - maybe Trump doesn't like it ... but he's not going to do a trade deal on his own. 99% of Republicans and probably 80% of Democrats are 'for' NAFTA. They have powerful constituents.

The moment negotiations started, a lot of CEO's will be screaming bloody murder, and Trump would listen.

But as far as Uber-NAFTA - I doubt there will ever be anything raised.

Like Sweden? https://news.ycombinator.com/item?id=13079323

NATFA? How would that apply? Uber (the US company) isn't selling any product at below cost, Uber Canada is. Why wouldn't they simply apply their internal anti-dumping laws?

Uber Canada is a wholly-owned subsidiary of Uber USA, it's it's irrelevant.

If companies could just simply incorporate a local entity to avoid trade laws ... well, then there wouldn't be much point in those trade agreements :)

Thanks for replying. My point would be that they would not really evade laws, since as a Canadian company (even if a subsidiary) they are subject to Canadian anti-dumping laws. I don't get why NAFTA is needed at all, and why would it apply to a service provided locally. It's not like Uber "imports" rides.

Uber is currently the most highly valued private company in the world.

No, they're not. 37Signals is [1]. Kidding aside, the term valuation in the context of a private company is always quite a bit whacky. Who determined that valuation? VCs with their liquidation preferences? Please.

If rapid growth could not drive major margin improvements between 2012 and 2016, there is no reason to believe that Uber will suddenly find billions in scale economies going forward.

Sorry what? As if Uber isn't already getting all the benefits of scale economics. Their losses are due to their hyper-aggressive growth plans and the stiff competition. The end game isn't saving money due to economies of scale. That's already happened. The end game is driving everyone else out of business and dominating the market in every region of the planet. That's when the profits would come in.

[1] https://signalvnoise.com/posts/1941-press-release-37signals-...

I'm late, but Uber has the same problem as cleaning services - they can't drive the drivers out of business unless they succeed at self-driving fleets, and they have no monopoly advantage as long as someone else can convince people to install their app. So it's easy to replace them until you lose money yourself.

There's a reason other taxi companies haven't formed global corporations.

"Uber passengers were paying only 41% of the actual cost of their trips"

That's worse than I had imagined, assuming the analysis is correct.

That's the key issue. How long before Uber runs out of cash? They've raised around $15 billion.[1] How much of that is left?

The experience of Austin, TX, where Uber and Lyft pulled out rather than fingerprint their drivers is indicative. Within weeks, there were seven companies replacing Uber. It just isn't that hard to replace Uber.[2] When Uber goes under, it will be a speed bump, not a disaster.

Amazon lost money for a long time, but they were building infrastructure - huge warehouses and giant data centers. That's ordinary industrial growth, like building a steel mill. Now that's paying off. What physical assets does Uber have? They don't even own the cars.

[1] http://www.vanityfair.com/news/2016/06/why-is-uber-raising-s... [2] http://www.512tech.com/technology/tested-seven-austin-post-u...

Uber's value will have been generating mindshare for consumers about ridesharing services. Not good for them, but we who are fond of consumer excess thank those investors for burning their dollars up with Uber instead of in a barrel.

$15 billion is a lot to pay for "mindshare".

Uber is starting to look like the Webvan of transportation.

Moreover that, quite a few people actively exploit that and "drive themselves" for profit.

I'm not sure what you mean by that. Could you explain?

I assume he's referring to the guaranteed boost rates which range from 1.1 to 2x the fare.

So a passenger could pay $30 for a $60 ride. It's not practical since you'd be losing the increased rates and still having to drive, netting like $10/hour.

There are GPS hacks that can supposedly spoof your rides though.

A guy has 2 phones with different Uber accounts: driver, and passenger. He hails himself, and immediately picks up a hail from himself from his driver account.

At some times, the rate for a ride is less than the driver payout as Uber subsidises rides from time to time.

Another schemes are when people exploit "first ride free" and referral bonuses.

All of this refers to rather casual cheating, done by non-technically literate people to offset the cost of their own driving or supplementing their normal income from Ubering.

People who do Uber frauding professionally are in the different league. These are the guys whom engx is referring.

This is a great article. The biggest point here is unlike facebook, google and Amazon there is no chance to magically find billions of new users and scale up for Uber. So the chance of turning a profit can only happen with driverless cars, which is atleast a few years away. I did not realize they are desperate to get self driving cars. Wonder how long they can sustain if their self driving car project hits a snag.

There is absolutely no way Uber will have fully self-driving cars in a few years (a car that picks you up without a driver). If anything is going to save Uber, it's going to be Otto. Self-driving trucks are a much easier technical problem and the market is the better part of a trillion dollars just in the US.

Right, "driverless cars" are still at least 10 years away, probably 20.

> Self-driving trucks are a much easier technical problem

People keep saying this. Wouldn't you still have to solve the hard problems? A truck that spends 99% of it's time on interstates still have to deal with that 1%.

And I'm not even sure about the 99% number. I've been told that trains tend to be used for most longer distance shipping so a lot of trucking is relatively short distances. There are also a lot of reasons I can imagine for keeping a human in trucks even if the trucks could mostly drive themselves between depots.

You buy a bunch of truck stops, and use human drivers for the local portion. The truck stops become analogous to ship ports. The vast majority of the miles are then automated.

What if you bunched up multiple rides? Like a leader truck which has a human operator and multiple driver-less follower trucks that simply follow the leader.

Going to need drivers for each of those trucks after you exit the interstate.

The problem with self-driving cars is that, while they help Uber's cost situation, they eliminate Uber's barrier to entry.

Right now, I can't create Newber because it would be hard to convince drivers and users to switch. You need good driver availability at all hours of the day and night and drivers won't want to be on your service earning nothing if you don't yet have users. Many companies like Sidecar went bust hoping to hit a critical mass and overcome that barrier to entry. With self-driving cars, it's easy for me to pay, say, $400/mo/vehicle and blanket a city even before there are users. It isn't cheap, but it also isn't so expensive. 100 vehicles would only be $40,000/mo. That's certainly not such high start-up costs for anything with a bit of funding. Plus, the economics work out nicely. $400/mo comes out to $13/day. Let's say you only charge $3.25 per ride. You'd only need to do 4 rides per day to justify that $400/mo - and 4 rides per 24-hour period is extremely low. Even when you start thinking about costs beyond the fixed price of the car (fuel, maintenance), it's still pretty good. You're going to get at least 4 rides per gallon in a reasonably fuel-efficient car. Make them Prius vehicles and get 10 5-mile rides on a $2-3 gallon. Tires cost money, but if the average ride is 5 miles you'll get around 10k rides for a set of tires adding $0.20 per ride?

Point being, the only reason Uber doesn't have a lot of competition today is that it's very hard to overcome the network effect. Once self-driving cars come into the picture, it will be easy to create many Uber competitors that can overcome the network effect by blanketing a city quickly and easily and scale quite reasonably by ordering new self-driving vehicles as demand increases. That will put a lot of downward pressure on pricing. I think Uber has found that if they're more expensive than competitors like Lyft and Fasten, riders will switch. Self-driving cars will make that pressure only more intense.

At some point, Uber is likely to face competition from car manufacturers themselves. If you're GM, you can see the writing on the wall that car buying might be going away. But you could always offer people a car subscription. GM would certainly have a cost advantage on the vehicles compared to Uber. Likewise, they might face competition from logistics companies like FedEx or Amazon. Why not create vans that can be fitted with seats for the morning commute and create ad-hoc bus routes as users request them (think of Uber Pool on steroids or a bus route that conveniently goes from your house to your work on your schedule). During the passenger lull during the working day, put packages in them and have a quad-copter or robot move them from van to stoop.

The thing is that self-driving vehicles just looks like a lot of competition for Uber. Yes, it will mean lower costs, but I don't see how they'll fend off a legion of new competitors where they have no barrier to entry with any good margins. The only thing Uber could do is keep margins so low that they won't make a profit. But that's no good for them. If they ever try to raise the margins, others will swoop in. Plus, if Amazon has shown us anything, it's that a lot of competition will stick around even if your margins are tiny.

I think there's a big market that will come from self-driving vehicles. Car ownership might not last. Deliveries might be automated. Traditional public transit might be replaced by ad-hoc routes with 15-passenger vans. But it's hard to see Uber lacking competition here. Self-driving vehicles will simply make it too easy to compete and leave Uber without its traditional barrier to entry.

Since the self-driving vehicle topic has been discussed here at length, I'm making the blanket assumption that is just the way it is going to work in the future: open your phone, call a car, ride it to your destination.

I think it is a big assumption anyone will be able to buy a bunch of self-driving vehicles and blanket a city. Tesla has already prohibited auto-pilot (or whatever it ends up being called) from being used for third party ride sharing services. I would suspect other manufacturers will too barring exclusive contracts with the transport/ride-sharing/etc company.

This means right now it is an arms race between Tesla and Uber to manufacture, at scale, the first fully self-driving "taxi." Tesla is probably well ahead on that game and Uber will either need to partner or buy an existing car company.

The secondary problem is the platform is the mobile phone. Apple or Google could easily build an auction platform in to the OS for calling vehicles. In that case, it could become a commodity business with royalties paid to whoever has the dominate mobile device in the future (could be Facebook or Snapchat instead.)

Thirdly there may be vehicle differentiation. Right now if you use UberX, there is a pretty wide range of vehicles that could show up. If brand preference and car features matter a lot, I don't see why a luxury car maker like BMW couldn't at least a niche player.

Finally, everyone has different ideas. What this looks like in 12 months is going to be different that 36 month, vs 10 years from now. I think some people are right about their assumptions of what will happen, but maybe it will only be that way for a few years before completely changing again. How it plays out probably has more to do with what decisions and deals the big players make -- Uber, Tesla, Google, Apple, the other car companies -- more than any particular inevitability.

> Tesla is probably well ahead on that game and Uber will either need to partner or buy an existing car company.

Tesla may have been working on it longer commercially, but Uber did poach a lot of expertise from Carnegie Mellon to get a head start:

http://www.businessinsider.com/uber-poached-a-load-of-staff-...

If Tesla is ahead, it's not by much. Uber is already demonstrating (alpha-testing?) self-driving cars in Pittsburgh.

https://techcrunch.com/2016/09/14/1386711/

I'm not sure why Uber needs to be directly working with a car company, other than for better integration of the self-driving technology with the vehicle systems. However, they are currently working with Volvo:

https://www.media.volvocars.com/global/en-gb/media/pressrele...

One other thing is that in many cases there's no particular reason the journey has to be completed end-to-end in a self-driving car. For longer journeys it might make sense to take public transport for the majority of the route, and just use taxis for last-mile at either end. This might even be preferable for taxi companies, since they probably make more money on many short trips, and they don't waste time driving empty cars to/from remote areas.

This could work really well if Google integrated payment alongside their directions, so when you search for directions, you get a total price, and a button to pay for that journey immediately.

I believe this is why uber is pushing so hard to be global. They are the only large ride share company to expand widely beyond the US, and I think that's explicitly so they become the global name of pick up services. Being in that position will give them leverage with the obviously fickle users, even if only a little, and they will be able to position themselves as a platform for all those potential competitors you mention.

There is too many assumptions to make a case either way. There is zero info about actual unit economics available publicly. We don't know which cities are without subsidies (on both driver and rider) and which ones are, only Uber has it available internally.

Heck, due to the growth in a city, the economics themselves change as the company scales in a city. Only Uber can actually project out to a certain reasonability (which are almost always different from reality even after that). Projections are just broad strokes to see if something will definitely not work rather than a proof that it definitely will.

All these arguments could have been made for Google, Amazon, Facebook etc at a certain point in the company's life, and then BAM - in a couple of years there was some "magic point" where the whole company became a cash minting machine. Also, Amazon is not a "pure software" company - there is a huge operations backend which was scaled along with the company.

People tend to look at a given snapshot in time and confidently proclaim that it won't work - ever. But the world is a complex place - nobody has a fking idea what's gonna happen next. Instead of finding reasons to proclaim "This is not gonna work - ever.", it would be better if we can ask - "Okay, it looks like it doesn't work in the current phase - but what are these people doing which makes it possible to work."

In short, its moot to discuss why Uber will fail - atleast right now - there isn't enough data that we can confidently project to make that conclusion. Its better if this sort of analysis is done in hindsight because right now there are too many variables which are changing too fast for anyone to make any prediction about anything.

Very well said. I remember all the bright kids from my college having to decide between Google/Amzn/msft or Facebook pre-ipo. News articles at that time had similar proclamations based on leaked revenue estimates. Most of them that joined FB are now multi-millionaires. Which is not to say that Uber will be successful, but there's just too many unknowns to make a conclusion either way.

My gut feeling is that the next few Enrons will be from the valley

Enron screwed a lot of "normal" people. A lot of employees bought their stock. Uber will just lose the VCs money.

The VCs are not losing their own money. They lose the money of your pension funds and your city's investments. The VCs will be fine.

I don't know how it works in America, but there are strict rules in the UK about where money like that gets invested. It ain't with VCs. Think gilts and blue chip.

I'd be surprised if even America was mad enough to let pension funds go for VC.

I know for sure that cities invest in private capital and VC. Otherwise they could never reach their income projections and would have to raise funding. That would mean either higher taxes or lower pensions which both are a no-go so let's just take higher risk.

That's crazy. Politics can really break incentives.

VCs have LPs and LPs are typically "normal" people's wealth pooled and invested, teachers pension funds, universities etc.

Startups indeed do not typically require employees to shell out hard cash for their equity, but one could argue that they're just extracting payment in employee time instead.

At almost every start-up that I've been involved with, the approach has been to grant employees ISOs which have a strike price (albeit very low) that the employee must pay if they want to exercise the options. They then have to run the AMT gauntlet and take on the potential tax risk. So while employees don't have to pay for the option itself, I'm not sure it's entirely accurate to say that employees don't have to shell out hard cash for the actual equity.

> one could argue that they're just extracting payment in employee time instead.

Uh, they get a salary.

But usually a lower salary than otherwise.

Sure, but what about companies that have gone under as a result of artificially subsidized transportation for a number of years? These companies and those jobs will not necessarily be easy to rebuild.

They can get some of that venture goodness. Agreed that enron was far more pervasive.

And employees with stock options/RSUs/paper dollars.

One great advantage of Uber is that it works the same in any place of the world. Anywhere you travel, you know it will give you a fair priced ride. There are taxi services which only business proposition is to extract extra money of foolish tourists.

But how often do people travel abroad? And Uber covers only major, well–known cities in select countries, a far cry from any place on the world.

This feels like a straw man. They hammer on the costs and then hand wave around the driverless car potential. Of course Uber is driving for driverless cars and they're applying a simple formula. If the Customer acquisition Cost (CaC) is less than the p net present value (NPV) of that customer over that customers lifetime the you should spend to acquire customers. Driverless cars will increase NPV even if the economics don't make sense today.

That's a lot of imponderables based on unknown technologies, regulations, and economics, though. Right now Uber doesn't have to worry about fleet cap- and opex, so the assumption is that buying and maintaining an autonomous vehicle fleet will provide more relative income than their current business practices. It also assumes that Uber's current loss-leader practices will not put the company under before commercially-available autonomous vehicles are in the market, that debt service will not constitute a major issue for company profitability, and that Uber's IP portfolio and marketshare will represent a significant barrier to entry for competitors with fleet management experience (such as rental car companies and existing taxi/limo companies). That's a lot of unproven assertions to make a bet on. If driverless cars get here fast enough, the cost profiles work, and Uber has enough IP to use against challengers, then it can work. But, personally, I'd rather have a business model that actually works today than one that might potentially work in the future.

Ueber is using billions operating a model that does not work. This uneconomic model is heavily leveraging SV investment and vehicle owner investment. Of course one can postulate that Ueber could operate a driverless model an be successful with it. But where is any evidence for that?

Running driver-less would require a totally different company structure from head to toe - from vehicle financing to vehicle serving in the field. None of that is in place and one could justifiable argue quite a few other companies are better positioned if that should come to pass.

The article does skip any analysis of the model with driverless tech.

I couldn't find much out there that breaks down what the cost difference would be. One article[1] suggests driverless would drop the cost from $3/mile to $1.20/mile.

I'm not clear on whether that's enough to counterbalance "Uber passengers were paying only 41% of the actual cost of their trips"

I suspect it would require not just driverless, but also a fairly steep hike in what they charge. Especially to overcome X (5,10,20?) years of subsidies waiting on driverless to be viable...that's a pretty big hole.

[1]http://www.fuelsinstitute.org/News/AdditionalResources/2016/...

Its got to be flawlessly driverless and hike in rates otherwise people might just stay with normal "driver" based taxis.

Benedict Evans got the cost of driverless cars to something like 0.40 cents/mile if I'm not mistaken.

Also another option for Uber should have been shared trips, which should have(?) network effects , but they don't seem to do very well at that , compared to the competition .

>Benedict Evans got the cost of driverless cars to something like 0.40 cents/mile if I'm not mistaken.

The article I mentioned was referring to roughly a "retail/end customer cost per mile", where Benedict Evans is probably referring to internal / wholesale costs.

Either way, it's probably the same conclusion, cutting costs by roughly 50%.

The problem with shared trips, I think, is that customers just don't want them in any great quantities. They don't want to be in very close quarters with randos. They don't want to wait while someone else gets picked up or dropped off.

>> They don't want to be in very close quarters with randos.

Maybe for shared rides , UBER should only assign vehicles that, allow people to sit with enough personal space,wider, for example a minivan, but make sure the middle seat is empty. That, combined with a culture of phone staring may make the experience neutral ?

>> They don't want to wait while someone else gets picked up or dropped off.

Most of the complaints on twitter are on the first problem you mentioned. So maybe solving it would make the service "good enough" , for the more cost-consious custuomers, and that's a big market.

What attempts are there to bring the tech that makes Uber popular to the Taxi industry? My limited experience with taxi's in Las Vegas and San Francisco have left a lot to be desired when compared to Uber. The fact that the app gives me metrics about my trip, including driver location and cost, go a long way in my use of Uber.

The author makes some interesting points, that I haven't seen made elsewhere, although I think they could have been made much more briefly and cogently. Also the Author makes the curious choice to use the metric of "EBITAR" rather than the standard metric of "EBITDA" with no mention of the "rents and restructuring" that his metric exudes. This makes me think he is not all that familiar with financial analysis.

Lots of his article is "Uber's aggregated financials suck and they aren't getting better." This is pretty useless without more data on current per city or per unit economics. Also, maybe give Uber credit for splashing some cash to grow 10x in 1 year? That won't happen again.

The per ride subsidies are the most worrisome. I took an $11 Uber ride the other day, if that was a $22 Uber ride I would have definitely thought about it twice! But you can't really throw headquarters cost into that subsidy calculation- which he seems to do.

For me, the analysis of Uber really comes down to that old chestnut of low user acquisition / user behavior. If every time a consumer wants to do a web search they go to your site (google) and if every time they want to sell their junk they go to your site (ebay) you'll generally have a good business. If there is one thing that Uber has taught us is that the product of "car rides hailed by an app" does have huge and sustained demand. Will the consumer be trained to always go to Uber? Or will the regional nature of the business and low barriers to entry (easy consumer and driver app switching) allow small regional apps to sprout up take flow / demand from Uber.

>the Author makes the curious choice to use the metric of "EBITAR" rather than the standard metric of "EBITDA"

That was Uber's curious choice, not the author's. They were the only publicly available numbers from Uber.

Edit: One of the screenshots of what Uber shared: http://images.gawker.com/1372623315394702184/c_scale,fl_prog... It's missing the info needed to calculate EBITDA.

From an antitrust perspective, predatory pricing is only a violation under EU/US law if firms are pricing below marginal cost. That's not to say Uber might not be pursuing a predatory strategy, but that it falls within both jurisdictions' safe harbour of legitimate practice.

(I hope this comment is useful. Perhaps I am just confused by the article).

Interesting article. The article emphasizes that the $2B loss that Uber runs is effectively a subsidy for riders. But that isn’t necessarily necessarily 100% true. If Uber loses $2B/yr because it pours $2B in a hole and sets in on fire, that isn’t a subsidy to riders. If that’s the case, then Uber can stop losing money simply by stopping doing that.

What percentage of the $2B is spent on growth (minus subsidy to ride cost; e.g., advertising) which can be shut off eventually? What percentage is spent on software, which is a fixed cost and actually infinitely scalable? What percentage of engineering headcount can be laid off/replaced with cheaper people as the service approaches feature completion?

Uber spends about $2.1B in sales and operating expenses. I don’t know what the breakdown is inside these. But if it can turn off some of those expenses as growth slows, and if others are fixed as it grows, then is there no hope?

The article doesn’t give Uber enough credit for offering a definitely superior product, IMHO. Uber doesn’t necessarily need to be price competitive with previously existing companies, which were garbage. The accountability of Uber drivers, the ability to call a car to a specific location within minutes, these are things that, when I lived in Chicago, simply did not exist at all.

That said, there’s a limit to how much Uber can charge extra. If it needs to charge double the prices of previously existing competitors, then the extra service isn’t worth it, and Uber wouldn’t be worth anything.

I don’t understand how Uber could possibly need to charge that much more than existing companies. Yes, it misses out on the “fleet effect;” but if the largest cost goes to driver compensation, the economy of running a fleet is maybe a small percentage of overall costs. Yes, Uber needs to build and maintain software; but that ought to be a fixed cost (and mostly in initial years!).

I guess it comes down to this: I don’t understand the contention that Uber has no meaningful scale economies (the software, right?) or how it could be possible that Uber’s model needs to cost significantly more than pre-existing competitors. Since I can’t see inside of what Uber spends its revenue on, I don’t know how much it would need to raise its current prices. But if Uber costs, say, 10% more than pre-existing taxi companies, I would still expect to be worth >>$0. I can’t speak to $70B.

(Also, I offer no opinion on long-term defensibility of Uber's business to new entrants).

I have maintained the viewpoint for a while that if Uber's valuation is based on the inevitability of driverless cars and the reclaiming of that 80%+ revenue they are in trouble. Driverless cars even when the tech is ready will take many years to clear the political hurdles necessary for wide enough usage to help Uber. The same people that put Trump in office are not going to happily accept tech that will be painted in the political light as a tool to remove tens of thousands of jobs from the economy. The politics is going to be almost as big of a hurdle as the tech itself.

(Not to mention that removal of the driver opens up Uber's competition many competent tech companies with deep enough pockets and direct access to the masses.)

Uber will work when we start to get autonomous cars. So they will fire everybody and retain all the profits.

Of course Uber has $2B in annual losses, that's by design. Do you think they would take $13B in VC capital and then not spend the money?

The profit margin is stable at around (100%) because it is kept there artificially, balancing how much of the expansion is paid for with revenue and how much is paid for with VC money.

The rest of the article was super interesting - but the conclusion of what Ubers current losses means I think seems off.

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