The Wheels Come Off Uber
nakedcapitalism.com
nakedcapitalism.com
The OP argues that Uber will never be able to charge prices in excess of the level required by a traditional taxi/limo operator to be profitable for long enough to recoup the billions of dollars the company has burned by subsidizing the price of rides. Put another way, even if Uber drives every competing taxi/limo operator out of business, as soon as the company raises prices to cover costs -- vehicle, insurance, maintenance, fuel, credit card processing, license fees, and (at least for now) labor -- new entrants (and revived old entrants) would quickly come into the market, preventing Uber from keeping prices up.
If the OP is right, Uber is truly in a precarious situation, because, as Brad Feld recently wrote: "the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment."[1]
Uber doesn't seem to have a plan to make the switch. If the markets start demanding profitability (or at least a convincing plan for reaching profitability), Uber's wheels could indeed come off very quickly.
[1] https://www.feld.com/archives/2017/06/lessons-internet-bubbl...
it's an opinion piece with a bunch of facts thrown around but no reasoning to thread it together. i wouldn't bother putting any weight on it's conclusions (or wasting your time reading it, if you haven't).
It's still going: http://www.nakedcapitalism.com/2017/06/can-uber-ever-deliver...
Uber’s real problem is that it is a staggeringly unprofitable company with fundamentally uncompetitive economics. It lost $2 billion in 2015, $3 billion in 2016, and another billion in China. It is a higher cost, less efficient producer of taxi service than traditional operators; all of its growth is explained by these multi-billion dollar subsidies as it has flooded markets with additional capacity offering unprofitably low fares.
It has none of the scale or network economies that allowed other startups to quickly grow into profitability. In its fifth year of operation Facebook had achieved 25% profit margins; in Uber’s fifth year its profit margins were negative 149%. Absolute Uber losses have continued to worsen with recent growth. Margins improved somewhat in 2016, but only because Uber unilaterally reduced driver compensation by $1 billion, leading to news reports of drivers sleeping in the cars in order to make ends meet. Uber never had any hope of profitability in a competitive market, even at its present scale.
That's Uber's big problem.
The WayMo lawsuit, in which Google appears to have a pretty airtight case, has destroyed that hope. It's the Carpathia radioing that they're 4 hours away. There's no help coming and the Titanic is going down.
Now all these shifts are likely still going to happen. A seemingly cogent analysis I came across recently [1] breaks down the costs and strongly argues for a future where individual vehicle ownership is the departure from the norm rather than the default that it is today. But it just won't be Uber that cashes in on it. Or, more accurately, it won't be the current Uber. If Uber goes down in flames, their carcass will be plucked and someone, perhaps Google in the lawsuit settlement, will come away with Uber's brand and logistics platform that can be paired with self-driving technology to achieve Uber's vision.
[1] https://shift.newco.co/this-is-how-big-oil-will-die-38b843bd...
even in your article, it's not obvious that the economics of uber is doomed. it doesn't talk about the economics of the taxi industry, but simply makes a big assumption that it's an efficient market (just considering medallions should make you skeptical of that claim), so uber must get it's economics in line with the taxi industry. that's not obvious. (maybe it's explained in the 10 parts, but 10 parts?!?! seems like an editor might be warranted).
to be clear, i'm not defending uber, just that the arguments presented aren't so convincing once you dig into them a bit (and appeals to authority make me even more skeptical. it's like saying "trust me"... it sets the alarm bells off).
It is true that former CEO personality was important for uber and different dude or lady could not achieve the same, but achievement here is losing tons of money on business that does not seem to be profitable ever. That is odd definition of winning.
Combine that seemingly solid market reasoning with them being opposed often and them fucking up almost as often and it seems surprising they are still functioning now. Their are missing leadership, their investors are unlikely to assemble a stellar team, there are existing internal and external problems. This seems overwhelming for all but the most profitable companies, and that is just what was in this short article. Even if it is wrong the reasoning seems solid. News facts or or astounding leadership at Uber are required to pull out of such a deep hole.
Their master stroke was supposed to be a self driving taxi, but they are no closer than anyone else and their bill is due. They appear to have an existential need to have that desperation move work for them for at least a few years before anyone else gets in on it. If they succeed then likely Google and Telsa will succeed within a few months of them. There appears to be no situations where they can recoup losses at a reasonable rate.
I could be totally wrong, but it looks suspicious as hell. If I had money to invest at a scale that mattered to Uber, I sure wouldn't go with them.
given what i know (which is admittedly not much), i probably wouldn't invest in uber at this point either, but i remain skeptical that the taxi industry is a mature and efficient market, such that uber has no path to profitability (setting aside all their other asinine self-inflicted wounds).
Not true -- Uber has a permanent moat, which is their steadfast, solitary willingness to be a no-tipping oasis, which others equally refuse to replicate.
Tipping is entirely about being able to advertise a lower price than the actual customer cost. Unfortunately that is extremely effective, so if one company in a market accepts tips all the others basically have to.
Meanwhile I like not being a dick to drivers. What's the big deal?
More generally, the way tipping works, there is no clear, consistent, compatible expectation, so I'm forced into a position of either a) overpaying, b) committing a silent faux pas, or c) having negative feedback misinterpreted as stinginess or ignorance.
Would you not consider that a big deal? Are you really surprised about the existence of people who don't like the tipping system, or who don't consider "just stiff them" a valid workaround?
Lyft may have similar issues, but in cities without real taxi companies (e.g. Sf) there's no real alternative to being a part of this terrible "entrepeneurship". Tipping will put uber back on my phone.
And also Uber (more than Lyft) it's by far the major player, it's entrenched in people's imagination as the representative of the very service it provides, and it just works.
"Call an Uber" is as idiomatic today as "Google something".
So until taxicab operators in major cities get a nifty app with guaranteed pricing most of people would just limit the price comparison to Uber vs Lyft.
However whomever has a fleet of automated vehicles could easily divert resources into an uber-like ride sharing app.
That's really the only way their financial model can make sense.
They should really be seeing this as essential to their survival, like nuclear bombs in WWII.
Nazi Germany had maybe 1000 people working on their version. USA had 180,000(!).
I suspect in this analogy, uber is not USA. Someone else will get this rolled out first. But I'm not 100% sure.
I'm not sure that's true though; I don't get the oft-repeated logic that self-driving cars will save Uber. OK, they save on labor costs, but right one now of Uber's (slimy, IMO, but significant nonetheless) major savings is pushing vehicle maintenance and deprecation costs onto their drivers. They won't be able to do that with self-driving cars: they'll have to pay operate a fleet, in direct competition with automakers.
This is fallacious. The end-user pays for vehicle maintenance and depreciation. There cannot be any savings by pushing around which party writes the cheque as the only source of income to pay that cheque can be the end-user.
You will find yourself hard pressed to find a company, which is the first to bring something market and being in the dominant market position.
Self driving cars will be a commodity. Whatever advantage it gives, any company will have it, so there is no way it will increase the margin.
Let's put it this way - if you had the choice between paying 1/5th of what you pay now for the cheapest ride available, or half what you pay now for a ride in a nicer, cleaner car that picks you up within seconds, which would you pick? My guess is that with those choices, more people won't pick the cheapest option available.
Theirs and Tesla's, Faraday Future's, Ford's, Waymo's, Nutonomy's, Apple's (?), Yandex's, Audi's, GM's, Land Rover's, Hyundai's, BMW' and a few others I missed but that can be found by Googling "* investing self driving".
it would be interesting to see where ridesharing investment money and the revenues the companies made could have ad a differing/better/other impact, just as a matter of looking at all possible outcomes as opposed to simply taken the state of things as a given.
A lot of Uber's costs to date have been proving that ride-sharing is a thing that consumers want to do (market education) and that governments don't want to stop (lobbying). Their competition get the benefit of that Uber's investment in those things for free, so it might be the case that Uber will fail and their competition won't.
That's by no means saying it's definitely the case, but being the first mover has downsides as well as advantages.
Of course, none of the big “ride sharing companies” have anything to do with actual ride sharing.
Many people disagree.
What I will say is that the author's bias has given him/her some major blinders and that s/he's become incapable of seeing ways in which s/he is wrong. My suggestion is that the author engage in a forecasting technique developed at Royal Dutch Shell known as scenario planning. One of the key features of scenario planning is that whenever you finish arriving at a conclusion, you then ask yourself the question, "the future that I predicted turned out to be wildly incorrect and X happened instead of Y. Which of my assumptions or expectations turned out to be incorrect that could lead to X happening instead of Y?" These days, this is actually a hallmark feature I look for in anyone forecasting or making predictions of any sort. If someone making a prediction has not given sufficient thought to being their own devil's advocate, it's a telltale sign of poor analysis. If you don't spend enough time doing this, you quickly get sucked into believing your own bullshit. Given the tone of this blog, do you think this author has spent enough time time poking holes in their own arguments? Have you seen many or any lines like "I believe X will happen leading to A, but it's possible that Y could happen leading to B instead and this is how it would change my predictions...". If someone's predictions don't present any possibilities for branching, they aren't being critical in their analysis, if you can even call it that.
https://en.wikipedia.org/wiki/Scenario_planning
The list of cognitive biases the author falls victim too are numerous. Over several posts I've definitely seen lots of examples of anchoring for example.
Consider applying your advice to your own meta-analysis. If you can't elaborate on your judgement, perhaps it's you who have blinders on?
100% no bias isn't possible. However, are you suggesting that that they shouldn't even try to mitigate their biases? Not every reader is as informed as authors who have taken time to research a topic. Society commonly defers to experts. If it becomes common and accepted for experts to allow or even embrace their biases unabashedly, then there is no reason to defer to experts any more because we will never know if we're being subject to an endless stream of lies of omission.
> If you can't elaborate on your judgement, perhaps it's you who have blinders on?
That's totally possible. However I know for my own sake that I have certainly considered many of the assumptions and predictions the OP presented. That doesn't help you any, but it doesn't hurt you either because I haven't provided any of my own analysis (with my own biases) in the other direction either. I merely provided you with some new tools to better evaluate the predictions made by the OP. If you choose not to use those tools, that's your prerogative.
More importantly, if you're going to dismiss their arguments, it would be nice to offer counter-analysis for why you think they're wrong.
Don't ever purely trust someone else's analysis without validation... that's like running a random binary you found on the internet.
Some (I think it was Gruber) said it's like a subsidy from Wall Street to Amazon customers.
I feel that reasoning is short-sighted and dangerous.
I'm a bit disturbed that people took my satire seriously. Are rich people different now? Is that what people think?
But on a more serious note, the arrogance of uber (and its backers) reminds me of times before the welfare state, before governments created barriers to unbridled capitalism. Those times were hard for the disempowered poor. If you were very rich, you could reclaim virtue by leaving your fortune to some public charity, or the church. Or you could be a patron for the arts, supporting writers and artists (that's why so many old novels are dedicated to rich patrons). Or you could pay to fund a piece of urban infrastructure, like a park or school.
That's the tone I was appealing to, but I ruined the joke by explaining it.
After the French revolution, then Bismarck's Germany, and finally post-WW1 Europe, the working class gained some power, and introduced some barriers to exploitation by the wealthy classes: barriers like unions, minimum wages, workplace safety regulations, environmental protection, and eventually taxpayer-funded medical care.
Since the 1970s, there has been a wave of corporate propaganda against these barriers. They have been called "unnecessary regulation" and "loss of personal freedom". Uber has adopted that attitude too. I think they are reactionaries who want to dismantle structures that help the working class.
Venture capitalists have dumped money into Uber not for charity, but for an expected return on their investment.
Just talk to the drivers - you will get it.
Uber can continue churning their workforce for at least 15+ years as automation continues to whittle down the blue collar workforce.
Take your own advice and do the unscientific thing of talking to the drivers. How many of them are new? How many are old? Surprising how many of those fall into the first category.
Uber has done a stunning job of disrupting a crony-capitalist, monopolistic system. If they are still searching for a way to make a profit, surely they'll figure it out before long.
* updated to remove publicly traded
Right now, there is a huge vacuum at the CEO/COO/CFO troika. That, combined with the sordid Waymo lawsuit, would give any institutional investor pause before buying a strong position. Consequently, I would argue that Uber needs some strong leadership at the top, and some sort of resolution on the Waymo lawsuit before they can consider going public.
I wouldn't be surprised if Uber was acquired, but I would be very surprised if Uber goes public in the next two years.
I tend to agree. I don't think that at this point they would try to IPO but if the numbers circulating are correct they will need cash in less than a year time and it might be tricky to raise this.
Source: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
Uber actually makes money on each ride - it's just that the gross profit from those rides is short of covering its operating expenses. 12,000 employees are not inexpensive.
Based on these financials, if Uber halted most software development and halted subsidies into underdeveloped markets, it seems quite plausible the company would become profitable. Investors might not recoup their whole investments, but the company in zombie could earn back some profits.
Their fixed costs probably include R&D (tech) and SG&A (non-tech). Customer support depends on how they do their accounting.
"Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares."
To me that sounds like selling rides at a loss.
Gross margins were positive even if overall margins were negative.