Also known as losing money on every ride but making it up in volume.
In fact, the central concept of venture capital is premised on the idea that businesses start out unprofitable but become profitable as volumes scale.
To what extent any of this is the case for Uber is worth debating. So feel free to have that debate, and bring forth new information or new arguments that support your thesis.
Particularly not if you can't set up an operation in an Western city with expensive taxi services without losing money on every ride you operate even before centralised overheads are taken into account.
From their 2015 financials, it looks like revenues have been consistently higher than cost of sales.
Source: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
According to financials from 2015, they have higher revenues than cost of sales:
www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html
This suggests to me that marginal rides are profitable, even if they aren't profitable enough to cover fixed costs of software development or investments into new geographic markets.
And if you're subsidising rides below cost because you're trying to grow your market and you have piles of VC cash so you don't care that you're burning through money, then eventually you're going to run out of that money and will be in trouble if you can't raise any more.
Time will tell whether Uber was building a sustainable business or just burning through VC cash.
Winners don't quit, so Uber is dead to capital now: it was always based on maximum evilness and all the stuff about disrupting and ridesharing was mere window dressing.
Note to capital, wherever it is: this is what you get when you go by personality rather than studying the fundamentals of a business. You can't simply pick the most toxic individual or company, claim they're going to kill everybody else, and then prop them up with valuation. The valuation didn't fail but your pet Dr. Evil did, and that was your proxy for maintaining the 'killer' behavior. Unless or until capital can be personified as evil AIs that cannot die, this was never really an optimal strategy for capital.
From their 2015 financials, it looks like revenues have been consistently higher than cost of sales.
Source: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
Quick Forbes link I found https://www.forbes.com/sites/ellenhuet/2014/07/02/ubers-newe...
Nonetheless, my impression is that this is more the exception than the rule, based on the financials I linked to earlier.
Yup, that sounds about right.
I'm not saying this will ever offset their increasing losses, but that is what always seemed the long term goal of monopoly.
> I thought the whole point of subsidizing rides was(as OP comments pointed out) to raise demand, both for drivers and riders, they first entice both ways with the promise of lower rates and higher payoffs, then slowly increase their cut of the pie against the driver's payoff and increase the rates on riders.
Right, and by the logic that decreasing prices raises demand, increasing prices will decrease demand.
That's my point, and the point of critics that are often ignored. Their customers will bail the moment they start getting charged the $25 their $10 ride actually costs. And that increase will be to break even. Not make any money. Just break even.
Uber will never achieve a monopoly. There are buses, bicycles, and used cars for $1500. People aren't going to pay $600 per month on a ride hailing service. I've already ditched Uber, and so have many of my peers, in favor of alternatives that save money. And that's without significant price hikes yet.
The fundamental economics of having a private driver have not changed. An app doesn't change what it costs to pay someone to drive you everywhere. I hate being critical because it's often a waste of time, but Uber is sincerely one of the worst investments that Silicon Valley has ever produced.
This is true for almost any good.
I'm not sure if you're disputing OP's idea that Uber subsidizing rides is (at least in part) of an effort to kill the taxi industry, but my logic is, if you don't have any competition, why wouldn't you raise rates?
While transportation is something everyone needs, I'm (as priviledged as I am in my salary) not going to pay $20 for an uber if it's $2 on the bus.
I'll take uber when it's $10, compared to $2.
They could possibly raise their rates some, but to answer your question specifically: because there are other factors involved in their price/demand/profit/market share equation, besides just competition.
People won't pay to use the service if Uber charges what it actually costs to deliver it. They're heavily subsidizing each ride. When you pay for an Uber, they're basically giving investor money to the driver to cover your fare for you. Investors have been paying for your transportation over the past few years.
At some point, they have to actually make money, and the only way to do that is to raise prices. The issue is no one will stick with the app at higher prices. I've already abandoned Uber/Lyft/others for a $300 bike and a bus pass, because it's much cheaper and much healthier. If they double or triple their prices, which is about what they'd have to do just to break even, lots of people will be following suit.
The self-driving car game was supposed to save them, but I don't think they're guaranteed to win that fight. Tesla seems further along than anyone, and I have far more faith in Musk's ability and track record of executing than I do in Travis (or whatever committee is replacing him). Not to mention every automaker is working on self-driving cars right now to boot.
Uber has no guarantee they'll dominate that market, and considering they can't even break even in their current market, I see them as a ticking time bomb.
Agreed. I'd argue that existing car-sharing companies like Car2Go are better positioned to dominate the "self-driving taxi" market. They've already solved the challenges of owning and maintaining a shared car fleet profitably. The day self-driving technology is ready, they'll already be miles ahead of Uber.
edit: I forgot what green name means... green btw...
Newly created HN accounts are colored green so members can recalibrate before responding to troll-like contributions from new accounts (I think).
I think we need more of it though...
I've yet to see an Uber driver who started rolling in cash after the rates were dropped. 100% of my anecdotal conversations (and that's not 99.9% rounded up, but a straight up 100%) reminisce about the good ole days.
And I have a really hard time believing companies plan to fail.
It's a very clear case of dumping, or whatever it's called in English. Unsustainable low prices, suffocate your competitors, raise prices.