Uber is doomed
jalopnik.com
jalopnik.com
2 - Uber is not very scalable (this is why they have to burn so much money to grow)
3 - Self-driving cars will actually destroy Uber's business.
Uber = Driver -> Uber -> Passenger. Self-driving cars will remove the Driver from the equation. Uber becomes a consumer facing app. Very vulnerable to Apple and Google should they ever want to get into that business. I think Google maps and Siri will become the interface to care sharing eventually as Apple/Google will have far more access to mobile experience that Uber will ever get.
I had made the above points before and predicted Uber will probably go the ways of AOL. It seems like more and more people are beginning see that too.
I think a huge part of it will be when it becomes really really obvious that Uber will never be able to IPO, the employees there will have to leave. The gravitational pull of the sunk cost fallacy (with respect to any exercised options the employees have) will be overwhelmed by the need to 'find other options' faster than their colleagues and it becomes a race to not be the last one off the sinking ship.
1_2__3 - while I agree with your overall thesis, I think it's reasonable to bring up self driving cars since they are in the original article, after all.
> my car drives 95% of my commute.
Getting to 100% looks like it's going to be pretty hard, despite the endless stream of articles insinuating otherwise. A car that drives into oncoming traffic 1% of the time isn't good enough.
It would be really interesting to see the early pitch decks for Uber - especially the series A and B slides. I would be inclined to bet that autonomous vehicles do not make an appearance until much later.
The third point tying them together is Uber's faith that (2) is false. That is yet another indicator that Uber won't make it - their optimism is not well founded.
No. Why?
>if Uber is planing to rely on self driving cars they're already dead.
There's no discussion to be had there.
There's tons of discussion to be had about whether Uber can tweak their current business model (i.e. drivers) to be profitable.
Let's take Singapore as an example Core business you need to compete against the home-grown champion Grab, costing money. Basic strategy question: Diversify or Focus since loss leader does not work. Solution: Diversify.
The problem is the moment you start UberEats you are competing with Foodpanda, Deliveroo, etc. Competition costs money. Groceries delivery? You are competing with RedMart et al Document delivery? GogoVan, Zap.
The problem with that strategy is that it takes the focus off the core business -> You lose China to Didi, you lose India to Ola.
Voila, just like this Uber is not dominating the main global growth markets. If they now slow their growth by focusing their investors bail out since the "storyline" is not working anymore.
Seems to me like a lose/lose situation for Uber
Its anecdotal but most of the people I've asked about it said the pay on Lyft is better and they get far fewer bad passengers. Is Lyft losing as much cash as Uber? That would be a pretty bad trend if they're losing drivers and making less off of the drivers they have.
1) Lyft is in the USA only. Uber is in 400+ cities. Lyft is not remotely close to Uber in terms of hurting them.
2) No. It is scalable. They burn to drown their competition. They've got more money, so once the oxygen runs out for their competitors, Uber will just put margins back to where they are, stop comping so many rides, etc...
3) Not sure how you get to this approach. Self-driving = Lower/zero driver costs. Consumer facing app mobile experience is not going to be the deciding factor of Uber's success.
I'm not sure if your statement is trolling, or if you were actually being serious... If it's a troll, very well done... If it's not, then I strongly disagree with you.
A cynic might say: Lyft is losing money in the USA only. Uber is losing money in 400+ cities.
Also, its not so difficult for uber to start it's own fleet of self driving cabs , they already have a brand name, so consumers who cannot afford to buy the car , might still go the uber way !
A brand which has been horribly damaged. I started using Uber back in 2011 before UberX was rolled out. It was a great service with professional drivers. It was more expensive then cabs, but worth it for the incredible service. I was encouraging friends to use the app and got our company on business service about a year ago.
A month ago, I deleted the app.
Their brand is crap and they hve become the public face of the worst excesses of Tech Bro Douche culture. Their current brand ain't going to save them.
They used to call these "taxi companies", before the dark times... This is a photo of one of the company's yards:
https://www.facebook.com/TaxiCabJesus/photos/a.5237100478204...
They had to consolidate to the other yard (after I retired). I've read that the old taxi company now leases unbranded cars for use with any service. "no mileage restrictions and maintenance is included." Arizona's laws don't allow regular rental cars to be used for 'ridesharing'.
(I recently figured out how to finish my site about the 'taxi wars', http://www.taxiwars.org/ - I was learning about the human condition the whole time. New posts are in progress...)
An example of a network effect is a chat app: if 1 person uses a chat app worldwide, that person can get literally 0 utility out of it.
If 2 people use it, they have a tiny amount of utility: there is a single other person who can use it.
If three billion people use it, they all have massive utility: they can talk with anyone.
So, without changing the product, the more people who use it,the more utility each person has.
By that standard, Uber has no network effect at all (0, not "weak"): I simply don't get more utility whatsoever from the number of other people using Uber in my city.
If there are 5 available Uber cars which can take me to my destination, it really, really doesn't matter whether another 1,500 Uber cars in that city are already in use or whether that is the total 5 Uber cars which are available.
This shows that there is 0 (not "weak") network effect.
You can't use precisely defined economic concepts willy-nilly. By that standard Amazon has network effects because the more products I can buy there the happier I am to shop there (Amazon side) and also the same goes for the other side, because the more customers it has the happier it is.
Only problem is that's not the definition of the word we're arguing about.
I'm all for calling out companies for exhibiting abhorrent behavior toward contractors and employees. That has value and can elicit change.
Doom & gloom pieces on the other hand are a dime a dozen. This one specifically I find lacking. Uber isn't losing mountains of cash because it's unsustainable. It's losing mountains of cash because it can afford to and wants to in order to continue it's absolutely astonishing growth rate. They may be bad people. You may not want to work for them. I grant those premises. I got an offer and turned it down. That said, I simply can not understand the desire to see them fall. The delta between what existed before and what they've built is vast. I'd happily pay 2x my current rate and the claim that I would _have_ to pay 5x to cover their costs is laughable.
This piece does talk about that:
> The company reportedly said it wanted to achieve profitability in the second quarter of 2016, and it claimed at the time it had reached that goal [0] in the U.S. and Canada.
In the very next sentence, however, we learn that:
> But by December, according to Bloomberg [1], Uber was losing money again in the U.S., to the tune of $100 million per year.
(links from original article)
So maybe they were profitable -- in 2Q16 -- but apparently that didn't last very long.
> I'd happily pay 2x my current rate ...
In order for Uber to become profitable and/or continue to exist long term, you -- and all other Uber customers -- may have to.
According to the article:
> ... amid findings that rider fares only cover roughly 40 percent of a ride, with the remainder subsidized by venture capitalists ...
[0]: https://www.bloomberg.com/news/articles/2016-04-14/lyft-is-g...
[1]: https://skift.com/2016/12/21/uber-isnt-profitable-in-the-u-s...
Cheers.
No, they don't. Mid-way through the article, Uber's profitability by geo is addressed. It's not broken down by city because apparently the data isn't available. But purportedly Uber had set goals to reach profitability in the US and Canada but backslid on US profitability at least. It's profitability by geo and operating line of business is also discussed with respect to their debt from investment banks.
That's the thing, though; I think demand is super elastic. I used Uber almost every day when they ran their 50% off specials. It was glorious; whole weeks where I didn't drive at all. Now? sure, sometimes when I'm tired, I'll take an uber home (and back to work the next day) but most of the time, I drive myself, unless I'm drinking or going somewhere with challenging parking. At 2x current rates, I'd probably very rarely use the service to commute, though I'd still use it when there's even a chance of me getting a drink. even at 5x, I'd choose uber or lyft over a cab from five years ago, but I wouldn't use it much more than a cab from five years ago.
but... this is all predicated on the current "no planning required" density of cars. right now, where I live, uber or lyft will be here within five minutes of my request, most of the time. If people took uber or lyft less often because it was more expensive, we'd have fewer cars in service, and my wait times would increase.
That was the reason I didn't use cabs very often before the advent of uber; I didn't want to plan my rides in advance. The ride sharing services have a certain SLA they have to meet; if in service uber or lyft drivers fall below a certain density, demand will fall off a cliff.
so that's the question; if they have to double their rates, will that drop demand (and thus supply of drivers) below that critical mass that allows them to be "transportation without planning"?
But you can "publish your planned itinerary" and the smart ride sharing service can factor that in and maybe alert potential drivers (riders who might want to share?) close to you that were they to alter their schedule a bit like this, they'll have an increased chance of getting a ride-share. And similarly you might be willing to modify your very vague plans. (It might be enough if you can signal that you are likely going out with friends that night, and if enough people signal their intent, there will be enough ubers that night.)
* The service is superior to a cab 100% of the time. It's never worse. Ever. The margin of "better" is not small.
* I use to use Uber regularly in three cities[1].
* In one, Orlando, prices from the airport are the same as a cab _but_ the only cars available from the airport are Lux, meaning they are on par with most black car services at a fraction of a black car price.
* In another city, Sydney, Uber x is literally 50% of the price of a cab during "peak" hour (most nights).
* In the third city, NY, Uber X is just slightly less than a cab but the delta in service level is immense.
Yes, I would pay 2x.
1. I'm currently not using Uber. I think this article is doom & gloom with no value, however, I do think that Uber's leadership is transparently fully of ass hats who have no intention of cleaning up the company's culture. I'm sitting out because of the culture and leadership, not because I think they will eventually fail. I hope they fix their shit and succeed for all of the reasons I've outlined.
Some key differences between Uber and Amazon:
1. Amazon's loss in 2000 was $1.4B[0] on $2.7B of revenue[1]. Uber this financial year will lose ~$2.6B on $5.5B of revenue - so they're doing a little better
2. Uber's revenue is growing at more than 100% p.a while Amazon was growing at 15% p.a at that time
3. Amazon had to cut back spending to survive while Uber has $10B in the bank and ready sources of cheap additional capital if it requires it
4. Uber is growing much, much faster internationally than Amazon ever did. Amazon even today is only 15 countries while Uber is already at 81 - so they are growing more in a shorter space of time.
5. Uber's margins will eventually be a lot larger than Amazon's - there is potential there for a greater net profit margin and greater multiple. It's reported that the core business will only lose $100M this year in North America and should turn to profitable next fy.
6. In almost every metric Uber is beating Amazon at a similar stage - revenue, revenue growth, etc.
7. Uber has the benefit of remaining private for longer, no burst dotcom bubble, economic downturn or fundraising problems and founder control
The comparison is definitely appropriate, tho - similar loss-leading strategies to build market share with products that don't necessarily enforce natural monopolies. You need to outspend and drive down your competition in the near-term to win the long-term.
There are very few markets where Uber has lost or is losing and their model seems easier to adapt internationally than Amazon's.
[0] http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Net_In...
[1] http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...
This isn't going to end well.
They float 10% of their shares on the public market, requiring their iBankers to place $10B worth of shares with their clients. Personally I feel like even with bad numbers, give the iBankers a juicy enough placement incentive and they will find a way to place that $10B and collect their fee/spread.
Now, Uber may fail afterwards, but if they really need a public liquidity event, I think they can get it. Directors and C level folks will be able to shed some shares at IPO preceding the lockup and make out like bandits. ;)
Perhaps there was no model to begin with then, no? That 40% doesn't magically disappear. The cost is borne by the "contractors" themselves. In software development that usually means charging a lot more than a salaried employee costs because you aren't guaranteed work all the time and you need to cover your own benefits.
Building a business on forcing people into slavery would be profitable in some circumstances. Building a business on finding free gold coins buried in the ground would definitely be profitable. Doesn't mean you have a sustainable business.
W2 costs breakdown: 56.8% Caregiver, 1% Margins, 18% Onboarding, 7% Recruiting, 3% Merchant Fees, 15% (Benefits, Taxes, Benefits).
If we take their data at face value, it looks like about 28% of the cost is Cruft picked up from the W2 model and is not benefiting either the company or the caregiver.
Yes, I imagine those poor, hapless caregivers saying things like "My lifelong dream has been to work 80 hours a week with no overtime and no health insurance, and this damn nanny-state government is getting in the way of my achieving it!"
There's a reason why the 1099 racket is getting shut down, and it's because abused and exploited workers don't have that as their lifelong dream.
The additional costs of payroll taxes, overtime, paid sick leave, minimum
wage regulations, benefits and health insurance, unemployment tax, workers
comp insurance, and potential for lawsuits in a highly litigious industry
put us in heavy handcuffs.
Basically, he had a good time when he could pretend employees were contractors, pay his employees 1099, and compete against people paying W2, but the party ended.
Back in reality, once a technology company acquires the kind of market position that Uber has, they almost never end up doomed. Quite the opposite, they overwhelmingly tend to go on to dominate their market for a long time. If disliking a corporation could make it fail, Monsanto wouldn't exist, and Microsoft would have been broken into pieces by the government (the hysteria around Microsoft for example, while different from Uber, was every bit as extreme and angry in the tech world circa 1996-2000; tech people flat out hated Microsoft and its behavior with a special passion).
For Uber to justify their valuation, they're going to need to invent the self-driving car, and frankly, they don't have time. There will not be a clear winner in the self-driving car market, which does not exist at this point in time, anywhere near the timeframe they're going to have to return their investment or go kick rocks.
What can they do that no one else can?
Remains to be seen whether they'll survive it though.
"rider fares only cover roughly 40 percent of a ride, with the remainder subsidized by venture capitalists" - The equations don't work when the loss-leader is also your only product.
The article also talks about how Uber is also burning through the goodwill of the drivers at the moment. Sleeping in your car is not a way for a long-term employee to behave. And also the goodwill of the developers.
The article seems to make point after point after point about how Uber is overextended and can't sustain itself long-term. Yes, as long as you're subsidised, you can dominate the market, but how long are VCs going to pump in 60% of every fare? What happens when Uber burns through the available workers?
Most have, though.
If by technology company, it means doing their business through smart phone APP, then Uber is one. In this definition, this statement does not hold strongly.
If it means that the company build their business around proprietary technology that few can match, Uber is not yet. It's obviously that any decent technical group can deliver a comparable service as Uber with reasonable amount of VC money. The proof is that there are many such companies across globe.
Uber actually realized this, and is strategically focusing on self-driven car, which is no doubt a correct and necessary move.
Their argument seems to be "There's no lock in this market, and there doesn't seem to be any network effects."
I agree with you here, but this is hardly the only argument presented in the article.
Something has to change when investor subsidies dry up. It might be a shift to self driving vehicles, a significant fare increase, or a monopolisation of the market. His assertion (which I broadly agree with) is that none of those seem likely to be successful.
Problem is that a lot more external parties are in on the scam than most people realize - media, politicians, other companies owned by the same VCs, and so on. All of these can help them keep up appearances of being a successful company and a promising future behemoth, even while the most basic common sense says the opposite.
I have yet to see any really solid arguments against either of those points.
In an autonomous-car world, there's going to be huge initial capital costs to buy the fleet.
Yes and no. It'll be easy to get debt to pay for something with an obviously high return on capital.
But it's local, only useful to few towns in Lithuania. Still worth taking a look at to see how simple and functional app should be done.
But arguably, Uber has paid the highest price by being first mover, allowing competition to follow behind and access this "social infrastructure" much more cheaply. As an example: Every Uber driver knows about Lyft (and other competitors) and is willing to drive for them if they pay better or offer more volume.
That said - there's no way for Uber to end up with a monopoly in this space. But if they did, they'd likely end up getting regulated like traditional taxi services.
"You can't take Uber's cut of passengers payments (~18%) and then divide by Uber's costs to say 'passengers were paying only 41% of the actual cost of their trips', as the bulk of the cost of the trip goes directly to the driver. If you take this into account the rider is actually covering about 80% of the total cost of the trip"
As far as I see it, if venture continues to fund its expansion Ubers access to private capital from banks is almost infinite. Ride sharing might be a non-zero sum game, but I fully expect Uber to buy lyft eventually and then it becomes far easier to cherry pick any smaller upstarts when they reach a certain scale.
In fact, Ubers forray into new markets would be far more economically viable by doing so. Allowing smaller companies to establish in new cities or regions before purchasing them makes a lot of sense as the business matures.
Additionally, like the deal with Didi shows, there is a massive incentive to monopolise through partnership. I would imagine this is the route Uber would go should any of the large tech companies decide to establish itself as a viable competitor.
Sure the cars use CNG and the drivers probably don't make much but the fares are tiny compared the western locations.
What would be the knock on effects of that for the company?
I guess my point is, isn't the convenience of always having a ride 5 mins away enough? And now thy are so ubiquitous no one could have that same level of service as them.
the ride is always 5 minutes away because they get so many fares. They get so many fares because their prices are so low.
Now, they could go to lyft rates; experimentally, lyft gets here pretty quick, too. but the point being that "5 minutes away" is a function of their critical mass, which is a function of their low price.
Taxis can improve their service, other companies can compete with Uber, etc. All these solutions are acceptable.
Current taxi service in most cities is not acceptable. A small number of cities have good taxi service. Most cities don't.
A far more useful response would attempt to identify at least one flaw in the author's logic.
Uber wants to be the world's transportation infrastructure-- the default way for people to get from A to B. Their thesis is that the way to do this is to write software to hook up drivers with riders. Essentially, a taxi replacement. But this marketplace is an artifact of the fact that cars need human drivers. Without that need, the marketplace disappears.
In the next year or two, Tesla will come out with gorgeous, highly efficient, self-driving cars, with fabulous software, all talking to each other on a network that Tesla totally controls. That will put them in a much more powerful position than the company that owns the software to route random cars around. When that happens, Uber will be screwed. Maybe they could build their own self-driving electric cars, but so far they're not doing too well. They're learning, like everyone else, that it's not a problem you can just throw money at.
The Model 3 will cost $35,000, and allow drivers to make automated, passive income by having their car drive people around while they're at work or something. Why buy an ordinary car and drive it yourself when you can buy a slightly more expensive car and essentially collect rent?
Uber riders care about two things, the experience and the price. Tesla wins on both fronts. Teslas are gorgeous, and feel like spaceships. (Take one for a test ride). And the thing about price is that with self-driving cars, with each ride you're basically paying for electricity plus a fee to the owner of the car for its depreciation. The cost becomes less about server maintenance, and more about who is better at building cars and writing car software. And by the way, you can't just have self-driving cars. If you want to win the unit-costs game, your cars have to be electric.
The fact that Uber thinks of itself as a taxi replacement is a sign of their oldness. The end game for transportation can't be a taxi replacement, because it'll be unheard of for people to drive each other around.
Tesla will have production limits, of course. But they demonstrate that building the future of transportation consists of (1) building cars and (2) getting them in front of people who want them, and that part 1 is by far the harder and more valuable.
I've been dumping my savings into Tesla stock, and look forward to being rich in ten years.
And...why does Tesla need to sell the car in order to rent it to anyone that needs a ride? The car could be an autonomous rent-gathering vehicle that roams the world 24/7 (well, going to a charging station for a few hours each day, or in between rides). Cars don't need owners, if they can drive themselves, and if the car maker owns the infrastructure (or makes agreements) to recharge them.
Presumably Tesla cars already have the ability to detect most major failures and could thus go to the shop for repairs without human intervention.
Whichever car manufacturer figures out electric self-driving cars can own the taxi market, if they want it. They won't even need buyers anymore, assuming they have enough capital to put a fleet on the road.
That's an idea I haven't heard or thought before - but it sounds great. Did Tesla say anything to that regard? I would love for it to come true, but I'd love more sources and discussion on that first...
> I've been dumping my savings into Tesla stock, and look forward to being rich in ten years.
Regardless of the company, if it's a major part of all your savings you're talking about, it can't be a good financial decision.