How Uber could end up as Silicon Valley's most spectacular crash

I believe they are profitable in many city venues, their cash outlays have to do with targeting new markets, and moon-shot style projects.

If they want to be profitable, they can pull back on aggressive expansion, and dump the more expensive, less fruitful projects.

Lyft and Juno will run out of cash by the end of this year and be forced to sell to companies that won't run them at a loss, that Lyft $500 million round they are trying to shop around won't happen (that leak is a bad sign, early Lyft investors are dumping their shares on the secondary market as well) and Uber currently has billions in the bank while Lyft is down to under 1 billion, Uber will raise prices and no new competitors will be able to find any funding at this point

> Uber is cheap only because investor capital subsidizes every ride.

Is that actually legal, in light of [1]?

[1] https://en.wikipedia.org/wiki/Predatory_pricing

Lyft and Uber have wasted so much time and money. This is the problem with VC money focused on growth. There's no pressure to build anything sustainable, no pressure to build competitive advantages. Arbitrary point to point level 5 self driving is decades away. And even if it came tomorrow, what competitive advantage do these apps have? They are a single Google Maps update from being wiped out. They should've spent past few years using network effects in the same way as Facebook to protect themselves. They should've built loyalty programs like frequent miles. But they completely wasted their opportunity.

Such a reactionary comment. I don't think things will be quite as drastic as you claim. Much more interested in how self driving cars play out because that's the real goal they are all chasing. Finding markets and places to apply self driving cars or transportation to reinvent how transportation works globally.

Blaming this all on ideology is too easy an explanation.

There have been multiple reports by various uber employees (as well as 2 investors according to the OP) of a rotten culture. Add to that the leaks of taking huge losses, and people are seeing a company that isn't profitable and has some disastrous PR.

It doesn't help that the way they approach regulation, and the way they allegedly treat workers match up pretty well. They take an aggressive stance with both.

The narrative here is that a company that was once thought to be great is now showing some significant cracks.

Because it drives traffic. Traffic is money.

Most "news" these days, especially tech news, is just tabloids for people who think reading about celebrities is beneath them.

Do you learn anything useful from following these stories? No, but it makes you feel better about your own life and the company you work for. Sure we might be profit-driven megallomaniacs, but at least we're not Uber, right?

The other part is that Uber's internal culture being rotten has not yet impacted their customers. Perhaps it will later on, but at the moment it doesn't seem likely to bring about business failure.

The "one video from one driver" prompted people to look into the driver's claims, and it turns out Uber is squeezing the drivers more.

This was posted here earlier: http://www.businessinsider.com/uber-travis-kalanick-drivers-...

>The only answer I can come up with is that there is a political motivation, driven by neo-Marxism and the narrative that capitalism and big business are inherently evil.

I agree that that kind of rhetoric is in vogue right now, but Uber is definitely not the hill I'd want to die on in making that point.

Well, there's the bit where the "free market" has kept valuing Uber at absurd levels despite it being not financially viable. Also that the report from the "disgruntled employee" dovetailed well with what people already knew about the company from word of mouth, and with gender politics issues that have been a problem in SF since forever. Also that the "exploited employee" isn't even an employee, since Uber is fighting like a cornered wolf in court to keep them classified as contractors so that they don't have any of the rights and benefits that they would otherwise be entitled to in a first-world workforce.

I mean, like the article said, Uber has done some great things, and the world will be better in its wake; ride sharing was a thing that needed to be invented, and it needed someone as forceful as Kalanick to be deployed. But if you honestly think that its modus operandi is standard fare, you're the one with the cynical outlook on capitalism and big business.

> The only answer I can come up with is that there is a political motivation, driven by neo-Marxism and the narrative that capitalism and big business are inherently evil.

I downvoted you because your argument is a false dichotomy (could be true but caused by something else) with no evidence. If you're going to make outlandish claims you need evidence to back it up.

Uber's business practices have made me ashamed of the tech industry for several years now. Recent developments are just telling me they aren't only screwing drivers but some of their engineers too.

Their competition is also funded by big VCs and/or big corporations, there's no inherent problem with that. Not everyone who thinks Uber is a scumbag company is pushing some fictitious neo-Marxist agenda.

I will try to help you understand. Two years ago, Peter Sims asked: "Can we trust Uber?"[24]. The answer is no.

There's just way too much awful stuff going on at Uber to ignore all of it or claim everyone's distaste is political. (It's also silly to suggest that all of the media and/or Silicon Valley have the same set of ulterior motives.)

Here's just a sampling of Uber's misconduct. Some of these items cross categories, but I've tried to roughly divide them up.

* Culture problems: The sexual harassment described by your "disgruntled employee" has been backed up and verified by others.[1][19] Its culture has been described as a constant battle between warring factions with managers openly backstabbing and abusing other managers and employees.[7] It hires executives who have ongoing harassment claims against them, then forces same executives to resign unceremoniously.[17] Its culture has been purposefully designed to cause employees to work against each other.[18] It blcoks employees from chatting on anonymous apps.[21]

* Corporate governance problems: It behaves anti-competitively in ways that are dubiously legal in order to sabotage competition.[2] It is also alleged to steal from other companies.[3] Its executives have suggested 'digging up dirt' on journalists in order to silence them, spurring a Congressional inquiry.[8] It offered drivers money to show them paystubs from competitors.[12] It also tries to prevent drivers from driving for any other company, even though it insists said drivers are 'contract employees.'[14] It has been and is being sued by numerous state governments over its business practices.[22]

* Exploiting users and ignoring privacy: It tracks/tracked one-night stands.[9] It collects users' location data in the background when the app is off.[10] It has been subject to FTC complaints over its tracking behaviors.[11] It lures drivers in with promises of big fares, then changes those fares arbitrarily to screw said drivers over and save riders money.[13] It is alleged to have mislead users by showing 'phantom cars' on its app.[16]

* Outright and attempted law-breaking: Uber breaks laws all around the world to enrich itself, including allegedly trying to deceive government officials across the world.[4] It refused to acquire a mandatory permit from the government until faced with public pressure.[5] It refuses to treat its drivers as true employees, even though legally they are considered such in many jurisdictions, and only complies when faced with court orders.[6][20] It attempted to investigate the plaintiffs in a class-action suit against it via methods that may have been illegal.[15]

All of this together helps explain why even Peter Thiel, himself not a particularly sterling gentleman, considers Uber "the most ethically challenged company in Silicon Valley."[23] I am gleefully awaiting Uber's downfall, as you say, because it is a legitimately evil company. Big companies aren't inherently evil. Uber is a big company which happens to be evil. If even a couple of the items in each category are true, Uber is engaging in a variety of illegal and morally unacceptable practices. I don't see how you can suggest, in the face of this much evidence to the contrary, that all of this is purely political.

And by the way? There's much more where this came from. This is just a smattering I could find in 20 minutes.

[1] https://medium.com/@amyvertino/my-name-is-not-amy-i-am-an-ub... [2] http://www.theverge.com/2014/8/26/6067663/this-is-ubers-play... [3] https://www.bloomberg.com/news/articles/2017-02-23/alphabet-... [4] https://www.nytimes.com/2017/03/03/technology/uber-greyball-... [5] https://arstechnica.com/cars/2017/03/uber-rethinks-defiance-... [6] https://techcrunch.com/2015/06/17/uber-drivers-deemed-employ... [7] https://www.nytimes.com/2017/02/22/technology/uber-workplace... [8] http://www.franken.senate.gov/files/letter/141119UberLetter.... [9] http://www.marketplace.org/2014/11/18/business/final-note/ub... [10] https://techcrunch.com/2016/11/28/uber-background-location-d... [11] https://www.theguardian.com/technology/2015/jun/22/uber-ftc-... [12] http://www.thestranger.com/slog/2017/01/27/24830634/uber-is-... [13] https://www.washingtonpost.com/local/trafficandcommuting/som... [14] http://www.recode.net/2016/11/28/13768756/uber-driver-deacti... [15] http://www.theverge.com/2016/7/10/12127638/uber-ergo-investi... [16] https://www.theguardian.com/technology/2015/jul/30/uber-deni... [17] https://www.nytimes.com/2017/02/27/technology/uber-sexual-ha... [18] https://qz.com/918582/uber-is-designed-so-that-for-one-emplo... [19] https://medium.com/@contactkeala/sexism-at-uber-from-female-... [20] http://www.bbc.co.uk/news/business-37802386 [21] http://www.businessinsider.com/uber-blocks-anonymous-chat-ap... [22] http://www.mercurynews.com/2014/12/09/biz-break-san-francisc... [23] http://money.cnn.com/2014/11/18/technology/uber-unethical-pe... [24] https://thoughts.siliconguild.com/can-we-trust-uber-c0e793de...

Consider that the media is a part of the free market, that the free market is not rational, and that this is its way of self-correcting.

Probably the most effective economic trickle down.

To be fair, you could make a similar argument with a lot of these high-growth VC backed companies.

Like Amazon & Tesla?

Some companies just have a much bigger ramp up than others. Amazon has so many markets to build warehousing & logistics in. Uber has so many markets to establish drivers in.

The subsidising of rides makes complete sense; subsidised rides are loss-leaders aimed towards building habits. I haven't seen their data, but it seems like a good plan.

That's not called a Ponzi scheme, though. It's possibly a type of anti-competitive behaviour, just not that particular type.

I prefer to think of it as a wealth redistribution plan from the investor class to the upper middle class

They are aware of this, the goal is to have a large market share when self driving cars make their business model profitable.

This may not work, but that in no way makes Uber a Ponzi scheme.

It somehow reminds me of those advert bars that people used to put on their desktops and be paid to view adverts in the late 90s - early 2000s. There was so much money in online advertising back then that businesses created referral pyramids based on it.

It also reminds me of those daily deal websites like Groupon, which were controversial yet hyped. That was back when there was a lot of money in 'hyper' local services.

Now there's a load of hype in self driving cars, the problem is the technology is probably decades away. It's just the latest hype in a new cycle. Local taxi services will take up the slack once the investment dries up.

It's called "dumping": https://en.wikipedia.org/wiki/Dumping_(pricing_policy)

A Ponzi scheme involves early investors being paid with the money of later investors. Unless you sell your shares, you're not getting money out of Uber right now. Instead, Uber appears to be as Yglesias famously said of Amazon: "a charitable organization being run by elements of the investment community for the benefit of consumers."

Several folks have analyzed this in depth. The economics of self-driving cars are definitely far from clear:

https://ftalphaville.ft.com/2015/10/20/2142450/do-the-econom...

http://www.nakedcapitalism.com/2017/01/can-uber-ever-deliver...

5% is more than the entire average net margin of some industries.

Are DC Taxis not "ruthless, impersonal and corporate" enough?

gross

Do you want your car service also to be disrespectful about laws? Disrespectful about women in tech? Disrespectful to privacy?

Which may also work against them...

> If Uber stalls, it isn’t going to be saved by a loyal consumer fan base. There is no stickiness to Uber. It has no frequent-rider program. It has no social component. It prevents users from forming bonds with drivers. No one gets a heightened sense of self by identifying as an Uber rider versus some competitor. We’ll stick with Uber as long as it continues to get us where we want to go at a price we like. Someone else comes along with a better service or lower price, we’ll use it.

I don't know about DC, but in LA there's nothing lovey-dovey about Lyft. The ride is identical to Uber.

Pretty sure they dropped the fistbump years ago.

> I don't get the constant hype around self driving cars. Sure - they will be revolutionary when they get here - but the reality is they are years and years away at best.

There's a mad dash going on to be first to market on driverless cars. The basic driverless car is already being tested. The only things that need to be done are major debugging and lobbying. ETA: within half a decade if lobbying goes through.

> We have autopilots for planes, that can effectively take off, fly, and land a plane. We've had that technology for quite a while.

This is erroneous and irrelevant.

> So why is not common place for planes, at least cargo planes with no passengers? Surely companies like UPS, FedEx etc that have a large fleet of cargo planes that fly around the US and the world would have significant cost savings?

Planes are significantly harder to pilot than cars. If nothing else, look at the differences between a pilot's license and a driver's. Perhaps driverless cars will pave the way for pilotless planes, but not until safety can be guaranteed.

No one wants another 9/11.

> Why do we feel a car is easier to autopilot than a plane?

There are more necessary controls and procedures in a plane than a car.

> As soon as it is available - you'll just have Uber style copy cats with "on demand" vehicles?

If you're talking about one-offs, then probably not. The reason Uber copycats are failing right now is because of app-population and broadness of coverage. Small biz can't populate their own apps with large competitors still in the picture.

Include that with any licensing fees, barrier to entries, etc. it's highly unlikely. Perhaps if a ride-sharing-app sourcer is made that uses Uber and Lyft APIs, while giving one-offs a chance to be mixed in, we might have a nice free market.

> What benefit does Uber have at that point?

A practically free way to get even more cash.

There are a lot more cars sold (82.8 million in 2014), then planes sold (2331 in 2014), so the cost of the autopilot is distributed over a much larger userbase.

Not to mention that a plane crash is a much, much bigger disaster then a car crash, and that the salary of the pilot is only a small component of the cost of a UPS/Fedex flight, compared to the cost of the driver for Uber.

As for Uber benefitting more then Lyft, it comes down to who gets them on the road in scale first. If Uber is the one who creates the software behind the cars, they dont have to share. Of course the risk is that the car manufacturers will create their own network (Tesla has already indicated this is what they will do).

The cost of paying pilots is a rounding error compared to the plane, the fuel, the landing fees, and all of the other costs of a UPS cargo flight. It's not worth the regulatory hassle to get rid of them.

In contrast, the cost of paying the Uber driver is more than all the other costs of Uber combined and would truly be a game-changer for their business.

> I'm having trouble believing a high-flying company could really come crashing down over accusations that they are sexist assholes.

There's a nostrum in politics that mud often doesn't stick; until it all sticks at once.

Bad publicity sets a narrative that other journalists follow. Whether because it fits their own thinking, or simply to follow the herd to a higher readership, a run of bad news has a way of reinforcing itself.

Especially if there's a rich vein of old bad news to dig up and recycle.

Uber's lock-in is so soft that they ought to be paranoid about any attack on their image.

It doesn't matter if such descriptions can describe a whole lot of companies and institutions.

The fact that they can become the P.R-lightning rod for "everything bad about SV-VC culture" means they will have to actively campaign harder to recruit top notch talents.

HR is arguably the most important asset a company has to continuously acquire & grow, and it'd be highly disadvantageous to have to fight such an active & growing negative reputation in an already fierce market for talent.

Well, not to forget the legal case with Waymo, which might put a stop to all of Uber's self-driving efforts.

Uber has picked fights with local, regional and federal governments around the world, as well as reporters, other companies, etc. Many of those could potentially lead to litigation but so far haven't, and if anyone has been waiting to sue Uber, this is the optimal time for it.

With the Waymo lawsuit, the internal investigations, cash burning, leaks, disgruntled employees and drivers, a wave of new lawsuits around the country and the world could quickly overwhelm the company, preventing it from doing an IPO or even securing more funding. With the IPO delayed and valuation damaged, more of the best employees will quit, as the long hours and low salaries won't translate into post-IPO fortunes.

No.

If you know and realize that it is only convenient because of VC subsidies, you know enough not to use those services since it won't be sustainable.

I try to understand each business model I support with revenue. If it's only setup to enable growth, I pass.

Agreed. Also, this is nothing new. Consumers got the same bennies in 1999. I remember getting a bunch of $1 DVDs from some Amazon wannabe (can't remember the name now). They were trying to buy customers by subsidizing DVD sales. It didn't work. The strategy was great for my college dorm DVD collection. Not so great for their VC's ROI though.

This entire thread seems to be missing the fact that during this period of us soaking it up, all legitimate competitors can't compete and will either disappear or suffer greatly.

I can't provide you with exact sources, but I recall the same thing happening in Mexican indigenous villages with coca cola. Coca cola would subsidise the drink so that it is much cheaper than local drinks. Villagers give up their local drinks for coca cola. Once it has a monopoly, coca cola raises the prices. Villagers are unable to get back to their local drinks which no one makes anymore, and keep buying Coke.

These kind of things generally happen over many years, and you generally take it as one of the good things in life. Unfortunately before you know it, you are already paying top dollars, you have a multinational making huge margins on your back, and not many ways to get out of it.

> Nobody who lives in a market that Uber serves will ever be willing to go back to the old way of calling a taxi dispatch line by phone, waiting on hold, and being told the cab will arrive in "five to thirty minutes". Seriously. Think about this.

In New York, every taxi is now hailable from a smartphone app that shows me the current locations of nearby taxis and reliably gets me one in 3-5 minutes from most places in the city.

> Nobody used to Uber will want to waste time taking out a credit card and swiping it through a dirty slot or handing it to a driver only to wait several minutes for it to finally go through.

Even if I don't hail a taxi from the app, the screen inside the car shows a code that I can use to associate my app's payment account after I get in the car. (Also, the real problem here is drivers claiming the credit card machine broke, but that's stopped happening.)

> Compared to the average Uber vehicle, most taxis are filthy and full of all sorts of odors.

You need to clarify what market you're in. Not NYC, surely.

> The taxi/livery industry is simply too used to enjoying a monopoly business to be able to fix itself.

It fixed itself in NYC, and if it can fix itself there it can fix itself anywhere.

Seriously. I do credit Uber and Lyft with making the taxi industry realize that they're doing things wrong and have an easily-eatable lunch, but they're figuring things out. I'm more curious about places (like the college town I grew up in) that have Uber service but barely any taxi service.

Taxis are already making their own apps now in an effort to compete against uber. Medallions licences and other restrictions are gone out the window when cities allowed uber to keep doing business. Whatever monopoly they had is gone. For all the terrible things uber is, they sure disrupted the ride industry.

The problem is that all or most of the key points for why "Uber has already won" have already been replicated by competitors.

Just for-instance, Boston Metrocab has had a functioning app since at least 2012.

It: 1) Does the same ride-hailing as Uber, in the same way, with real-time GPS locations of your cab. 2) Did not, last time I checked, did auto-pay the way uber does. Is this a hard-to-replicate feature? 3) Are reasonably clean. I find BMC cabs about as clean as Uber; NYC cabs dirtier. 4) Circular reasoning. "Taxis can't do better because they can't do better."

Really, only point 2 is valid, and it's been replicated by other competitors (e.g., Lyft).

So what's Uber's moat?

Oh, yes, unsustainably low prices.

I see it more that Uber-LIKE services have won, whether or not that's Uber specifically or a myriad of similar companies. E.g. in Northern Thailand there is both Uber and the local version called Grab, which is way better than Uber

You had me at "5 to 30 minutes"

If they are really posting huge losses, they might need to hike prices.

Besides, #deleteuber shows that bad PR has at least a marginal effect.

then they are a premium car service again, one that people would gladly pay for.

just no 50b valuations

i will basically never get into a taxi again unless it is passing by and stops for me just as i need it. the price difference, if there is one, will not be a compelling reason to switch back.

The unit economics work at a much, much smaller market size.

Yeah, but they beat taxis on service. Ubers are computer dispatched, on-time, and give me pre-ride fare calculation. When pooling they give me guaranteed arrival times. I'm not going to use some half-assed taxi service for the same price, because I don't need the agita.

Whatever their company culture problems, I have found the service superb.

I'm pretty sure they will continue to invest, hopefully more wisely though. They want to grow their money, so they need to invest to do that. The "lurch" should control the ballooning valuations of these startups.

as a tech worker this is my concern as well. A contraction of the tech market due to funding drying up is bad for all tech employees...

I totally agree, I've mentioned in earlier threads that it seems to me that Uber is Groupon v2 having its Zenefits moment https://news.ycombinator.com/item?id=13788642 https://news.ycombinator.com/item?id=13585025

Webvan seems like a more apt comparison. Some of Uber's antics remind me of the way Webvan used to act.

I remember seeing one of their delivery people pull up and park in a red zone right in front of a cop. The cop told him he couldn't park there. His response, "Are you going to tow me?" was answered with "no, but..." and before the cop could finish, the driver had walked away. The cop dutifully wrote out the ticket.

Uber's scale is a lot larger, but the two feel much more similar than either does to Groupon. Groupon was much more a gimmick product that used high-pressure sales tactics to get small businesses into situations they weren't prepared for with dubious benefit. Once word got around and people realized that its benefit to businesses was much more limited than they promised, they got a lot smaller. But Groupon wasn't really burning VC cash to subsidize a legitimately-useful service the way that Uber and Webvan are/did.

While I'm in the camp that thinks self-driving cars will be viable for many routes soon, I'm not in the camp that thinks they will be viable enough soon enough for Uber.

Once fleets of self-driving taxis are available, what advantage does Uber hold over some new company that just buys their taxis without having to sink any R&D costs?

It's kind of funny to consider how long this debate has been going on and the self-driving cars excuse as merely the latest iteration of it: http://www.bradford-delong.com/2016/12/must-read-there-is-a-...

To quote Tom Slee from the comment above:

- Uber has a nice business as a status product (Uber Black Car ~ 2010)

- Uber Black may not be profitable, but Uber will displace taxis and be hugely profitable because of technology-driven efficiencies (UberX: 2014-2015)

- UberX may not be profitable, but UberPool will lead to new efficiencies in mass transit (2015-2016)

- UberX may not be profitable, but Uber is a logistics company and will rewrite the rules of delivery (UberEats, various speculative stories, 2013-2015)

- UberPool may not be profitable, but when Uber displaces car ownership the scale of the market will make it profitable (2016)

- Uber with drivers may not be profitable, but driverless cars will make Uber profitable (2014-)

- Driverless cars may not be profitable, but Uber is looking into flying vehicles (2016)

Self-driving cars provide no economic moat whatsoever.

1. There will be several wellsprings of that technology, all them with deeper capital pools than Uber.

Google is now running $5 billion of profit per quarter, nearly $7 billion in pre-tax profit. In any given year they overtake Uber's entire investment capital to this point.

Meanwhile the major car companies have hundreds of billions of dollars of collective revenue and possibly more than a trillion dollars of existing, largely fully-depreciated capital and equipment. A century of brand recognition and loyalty, with entire families swearing they'll only buy a particular maker's vehicles.

2. There is no lockin whatsoever.

Expect "AirBnB for self-driving cars" that disintermediates Uber entirely. When anyone can buy a car, expect them to rent it out at uneconomically low rates because they don't realise it's uneconomical. Meanwhile every livery company replaces their drivers too.

Or expect "Google Ride" / "Amazon Woosh" / "Facebook Gimme A Lift" to enter the market, leveraging their particular strengths.

Or subscription services, a la GE's engine-hours concept[0] or NetJets fractional ownership. All you want is a Fiat Funmobile 2-3 hours in peak and a Toyota Tyke-Transporter on weekends. Most of the time you have to buy both. No longer.

[0] In fact, Cadillac are already trialling this.

> As an Uber employee,

Yes, we know, since you almost always use this account to do PR for Uber.