Unicorns Watch in Horror as Uber Careens Towards a Down Round
markstcyr.com
markstcyr.com
The numbers are clear. Here are Uber's financing rounds so far.[1] The $1.1 billion in loans in 2016 from Morgan Staley [2] wasn't on favorable terms for Uber. What's keeping them alive right now is a $3.5 billion equity investment from Saudi Arabia's sovereign wealth fund. That was made before Uber pulled out of China, and may have been made for political reasons involving Saudi Arabia's relationship with China. They also got some undisclosed amount of money from Victor Orlovski, but the biggest investment to date from that source is $27 million, so it's probably not that big compred to Uber's burn rate. So Uber raised about $4.1 billion in 2016, $1.1 billion of which is debt which must be repaid.
Uber lost about $3 billion in 2016. There's been no new capital in 2017. Unless they can find a bigger sucker than the Kingdom of Saudi Arabia, they go broke in 2018.
[1] https://www.crunchbase.com/organization/uber/funding-rounds [2] https://techcrunch.com/2016/07/07/new-reports-confirm-1-15b-...
At this point, Uber's stakeholders - who are large, rich, and powerful - are so vested in their success that I'm sure they'll be able to find another fool to pass the bag to.
I think most people can realize Uber is an outlier in many aspects, most of which, its inability to produce a profit.
It isn't even burning cash to continue growing, like Amazon, it is just burning cash to exist. Amazon at least has proven it has a valuable model but chooses to continue burning.
To Jeff Bezos it's just one huge land-grab.
This is actually why I have infinite respect for Jeff Bezos, he stuck around through all the criticism (almost a decade of constantly hearing "it won't work! they're not making any money" even though they have been clearly the market leader for a long time and I'm sure he had clear vision all along) and finally managed to get to a point where even the naysayers gave up.
If that's the case then Uber is a very different company with a very different business model and risks, so it's very tricky to assess it as the same company (at this point). until then it does seem like the "scale at all costs" mentality is currently coming back to bite them.
The reason they need to spend a lot of money is they need to stay afloat until all others die off. Whether this strategy will succeed or not is absolutely not as obvious as you think, because there's of tons of history where companies that took the same road either ended up dominating the market (Youtube) or died off (Most others).
I'm not saying "scale at all costs" is good, but I also sympathize with them because there's not much else they can do at this point. As soon as they start charging more and go less aggressive on marketing they will lose to their competition. But they also know there are only a few serious competitors at the moment and they all have the same struggles. So if they manage to stay afloat until the competitors die off (read: get acquired), they will have much better leverage. I'm sure that's what they're shooting for.
Most of Uber's spend is on subsidizing the cost of the product. This is a competitor moat in the sense that it outprices less-resourced competition, but it's a moat that can only be maintained by continued subsidies. The moment those subsidies end, so does the moat.
Just to be clear, I also think what you say is a very possible scenario, but the problem is this thesis is based on the current state of the world. Things change all the time (For example who knows where Uber would have been if this whole autonomous vehicle thing never became the reality, and there can be all kinds of variables in the future that may work for or against them)
You really never know what will happen. It's easy to say the moat is not as obvious as amazon's, but Amazon's moat was not as obvious as we think nowadays back then. Not just Amazon, every single disruptive tech company went through this, nowadays it's so obvious that you can make money with search ads but when Google first came out people never understood how they were going to make money by sending people away from their site as soon as they arrive. Obvious things are only obvious in hindsight.
Amazon purchased real things. Uber is spending their cash on subsidizing the price. I guess you can make the argument that their moat is also their brand, but I think its very apples to oranges to compare Uber's subsidies with Amazon's infrastructure spend.
I also don't by the "they are not idiots" argument. Remember, there were plenty of "geniuses" at Enron, at Bear Stearns, At Lehman, etc.
Yet you are comparing them. My point was exactly that comparing these are apples and oranges. And it is a matter of obviousness because you seem to think it's obvious that Amazon's "moat" was an obvious moat whereas Uber doesn't have a moat at all.
I'm not even saying Uber has found their absolute moat either. I'm saying a lot of analysis we take for granted was never obvious when the companies were in their early days.
Youtube's model was never obvious either (and still not obvious in terms of profitability) yet they managed to near monopolize the online video sector. You could say the same thing about Youtube. They didn't know how to make money, and they just kept bleeding money. So bad that they had to sell themselves. Yet they have built something valuable, and someone wanted to buy them to use as a very important strategic asset.
Who knows what will happen to uber but I don't think it's so bad that they will obviously fail. It's more like 50/50. They do provide great value to people, and I am sure they are doing whatever they can to create what you call a moat, just not visible to you. I still stand by the fact that Amazon's "moat" was never obvious until recently.
If you really think it was as easy as "Amazon was spending money purchasing real things so they were actually accumulating value, compared to Uber", you should read this book https://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-eb...
There were so many points in Amazon's history where everybody mocked them and criticized them just like you're doing right now for Uber. For example at one point everyone thought a decentralized marketplace (eBay) was the future and Amazon will die off because eBay never kept inventory, which came with a lot of benefits such as high margin and low operating cost, not to mention people used to say "eBay is the true internet marketplace, Amazon is just a web1.0 company and won't survive in the world where every sale happens online peer to peer".
So basically what you're referring to as a moat now was actually considered the biggest weakness for Amazon at one point in history.
This is obviously just poorly written clickbait to piss people off. Unicorns shouldn't be worried about Uber's down round unless they have as many skeletons in their closet as Uber does. Apples to oranges. I think Uber is a horrible company, but I also don't think that random clickbait should be getting up the ranks on HN.
"I am quoted as stating: ..."
That's some next-level self-promotional mojo.
Why are people upvoting this?
sudo sh -c 'echo "127.0.0.1 markstcyr.com" > /etc/hosts'But it is really dumb. I'd like to find a better word but I can't.
You just overwrote your hosts file.
The drivers have long ago figured out that they shouldn't bet on a single horse so even that advantage is eroding.
Uber has lost billions to create the global smart-phone ride-sharing market, vastly expanding the "pie" of consumer/users/riders in cities that had been artificially restricted and ruined by the awful regulated no-competition taxicab model for 80 years. Uber deserves a Nobel Prize of some kind for destroying the old -- very bad -- order and has made riding around in first-world cities affordable, safe and reliable -- all of which regulated taxis were not. Millions of people happily/gratefully use Uber or its competitors every day. If Uber wants to make a profit, all it has to do is raise its fares 10 or 15 percent and fend off competitors/upstarts. Why does everyone assume Uber can't handle the competition in an ever-expanding market for its kind of service; Uber is still an under-30 market. If Uber wants to make its whiniest drivers happy and shut half of its moronic media critics up, all it has to do is add the tip function to the app. If it wants to get the rest of the press off its back, Uber has to learn how to do PR 101 -- which means it needs to point out the benefits, enormous benefits, that its micro-transit has brought to cities and the poorish people who until Uber/Lyft came along had to live with lousy public transit systems and the thieves and idiots who run them. It may be too late for adding tips to the app; Uber soon may be forced to add tips by the moronic politicians who mis-run NY City -- the same morons who artificially held down the number of taxi licenses for 85 years until the price for a medallion hit 1 million bucks (before Uber came along). In any case, it doesn't matter to non-investors much if Uber survives; it's already contributed greatly to urban society worldwide, in spite of the personal and professional shortcomings of its execs and a creepy few of its 1 million drivers. If Uber goes the way of the Sony Betamax, no biggie; we'll still be able to push a button on our smart phones and get a ride.
Enormous enterprises with tons of buy-in that failed:
- Bernard Madoff Investment Securities (yes, of Bernie Madoff fame)
- Enron
- Bear Stearns
- Lehman Brothers
Too big to fail means the government will step in to prevent a failure. Only the government has the backing of the entire economy.
Surely it would take the sheen off what has been a meteoric rise, but the hype cycle will continue to turn. Hopefully they can figure out the multitude of cultural problems if there is a harder reset.
Why even think about UBER?