Are they planning to raise prices? Cut employees? What are they planning on doing here?
This is the nature of "predatory" pricing.
There is something to be said for volume and if a couple competitors die in the process then Uber's volume can only go up. Unfortunately their competitors have found a variety of ways to keep from being dragged down (eg: regulatory support of municipal taxi orgs) or ways to keep oxygen expenditure stable (eg: controlled expenditures through higher pricing and "friendlier" demeanor).
I am almost positive the point of subsidizing the price of the rides is to get you addicted/ build up a habit or get you comfortable using the service.
I think they are aware of the competition and are comfortable owning 60+% versus trying to get 80%+.
Their revenue is growing which is still wild despite bad press.
>Unfortunately their competitors have found a variety of ways to keep from being dragged down
Not a bad point but it is highly dependent on the market. In the US, Uber is 4x Lyft in market share.
A common problem drivers cite is that Lyft pays better, but the volume of Uber riders is much much larger.
I am not a fan of Uber, just extremely bitter at poor journalism, hence , I stopped reading at the first paragraph.
Not really. The revenue for a company selling dollar bills for 80c each will keep increasing until all the cash is gone as well.
The rides that I have taken are not subsidized. Maybe it's not statistically significant but I have yet to see the subsidy in the major cities that I have traveled in.
SoftBank obviously sees something in them.
Who knows. I don't disagree with what you said.
How do you know that?
How do you know they are subsidized?
While in reality, their overall share of the ride-hailing + taxi market in the US is ~25% as of August 2017, and far less in Europe and Asia.
You don't know what you are talking about.
https://www.google.com/amp/s/www.recode.net/platform/amp/201...
>That week, Uber’s market share dropped 5 percentage points compared with the previous week, from 81 percent to 76 percent, according to Second Measure data. Lyft’s market share gained about the same amount that week. Other ride-sharing companies, including Gett and Juno, saw a nominal increase that week.
- Assuming this refers to Lyft, Lyft's expenses compared dollar to dollar are on-par if not worse than Ubers - https://techcrunch.com/2017/11/14/unpacking-lyfts-projected-...
As long as Uber can keep the cost per ride lower than other competitors, it just needs to wait for the burn to end faster on the competitors side before turning break-even.
Uber have joined loss leading with scale, a combination that works if one has access to an endless spigot of money. The scandals have impacted Uber's fundraising. Time for eyes to match stomach.
I predict, in addition to lay-offs, we'll soon see more Didi-style hand-offs of offshore ride-sharing markets. Southeast Asia to Grab et al seems reasonable.
Disclaimer: this is not investment advice. Do not buy or sell anything based on this Internet comment.
Also Disclaimer: this is not investment advice. Do not buy or sell anything based on this Internet comment.
some interested parties (waymo/alphabet) might be happy to foot that bill.
And once autonomous cars become part of the picture, I think they're in an even worse position. Suddenly they're not competing just against would-be moguls. Now they're up against the car companies, who have strong brands, deep pockets, and the ability to make cars at cost. Imagine, for example, BMW extending their leasing business to on-demand car use. We also have existing car rental companies that will be eager to get in on the action. And that's not counting the zillion other outfits with strong brands and a taste for expansion. Apple, for example. Virgin. Amazon.
I just don't see how this ends well for them. At best, I think 10 years from now they'll be the next Groupon: the hot startup everybody everybody loved but now nobody talks much about and is trading at a fraction of their peak valuation.
There is a lot of work that goes into the infrastructure behind companies like Uber and Lyft. You need good engineers that build products that are reliable and well tested, to work 24/7.
It is a hard problem. A lot of the smaller city taxi companies that have apps contract to larger vendors as well.
So did newspapers - the very definition of mission-critical computing is the the paper HAS to hit the stands the next morning. Didn't save them from half-arsed competitors running glorified blogs...
BMW has no choice but to do this, as do all the strong brands. They can't compete in a world that you don't care about the brand because you're riding journey-by-journey with no personal investment.
Edit:
There are two possible stories here about Uber and Lyft's losses, and we can't tell which is right from the outside.
1. Uber and Lyft are in a price war death spiral, heavily subsidizing all rides to compete. Their only hope is for all competitors to die, so they can take over the whole market and raise prices. Then vague hopes of lowering costs with self-driving tech and take the surplus as profit. The plan doesn't seem viable, since they have no moat and they can't outspend GM and other self-driving players.
2. Uber and Lyft can actually make a profit in mature markets, but choose to subsidize rides in growing markets, on the theory that growing the market size increases the long term profit opportunity. The data we need to evaluate this idea isn't public, however Uber did a "prove it" quarter in 2016 where they turned the spigots to be profitable in the US. They are now pursuing growth in the US again, expanding to a larger territory and expanding Pool and other offerings like flat-rate passes in mature cities. Under this model, Uber could at any time decide to become profitable, but the revenue growth would stop, placing a cap on the valuation. Notably, there is no "predatory pricing" here.
With internal finances, we could easily tell whether option 2 is valid. You can bet Uber is constantly doing experiments on price elasticity of demand and knows exactly where the truth is. You can bet Softbank has seen numbers we have not. If Uber wants to IPO, I would expect them to provide additional public info, possibly pivoting to profitability again in the US. But doing a pivot like that permanently reduces the size of the opportunity, allowing Lyft to capture that new market instead, so they may be reluctant to do it large scale.
You have the give your drivers a reason to use your app instead of uber.
You have to give riders a reason to use your app instead of uber.
The two reasons have to be good enough to build a large enough network for the rideshare system to work.
I'd say there is a network effect for ride-sharing in aggregate, neither Lyft nor Ueber has been good at locking drivers and riders in with loyalty programs to try to keep people solely on their platform.
The truth is that all the viable competitors are likely already out there and it's going to be very very difficult to replicate what these incumbents have without burning ridiculous amounts of capital.
If the Softbank deal closes, we'll likely see a wave of consolidation with Softbank orchestrating acquisitions by Uber. It's very common for relatively young markets to consolidate over time.
No one in their right mind would start a new company to compete with the existing TNCs in 2017.
Ride sharing is essentially a local business with very low barriers to entry. You don't need to replicate what the incumbents have right away. You just need a modest number of drivers (who can also be driving for the incumbents) and a modest number of customers.
That seems sufficient to me. It's hard to name any company started in the last few years that is a major market player when then have a bunch of competitors. New businesses take time to grow.
The discussion here is about whether Uber has a moat. The point being made is that it's pretty easy to start a rideshare company. Which it is. That one hasn't become major yet isn't proof that one can't become so. As long as there's room for new companies to start and be sustainable at modest scale, then Uber can't extract monopoly rents.
Did the journalist who wrote that story cite any figures to support that assertion?
To start a rideshare company, you only need to do reasonably well in one segment in one geographic market. Then you have a basis for expansion into other areas, other segments. Contrast this with a search engine, where people really expect you to be good for everything and covering the entire internet.
However, you are right to bring up autonomous cars. I always thought it amusing that Kalanick et al were so anxious to bet the house on autonomous cars, when in fact, they are the company's greatest existential threat long-term. Once those cars are readily available and street-legal, there's nothing stopping Enterprise or Avis or the automakers themselves from becoming overnight competitors.
And once drivers are taken out of the picture, ride prices will plummet. Margins will also thin because of the likely extreme competitiveness of this market. I would not want to be an Uber investor that's for sure. In theory, the "winner" will be whoever scales the most (i.e. has the most capital to put into their fleet) and has the most effective marketing. In practice, prices may be close enough that people will rent car X because they like brand/model Y better.
If I were on Uber's board, I would advise against trying to win that war which they will lose once/if the automakers get in on it, and instead get creative about how to conquer the market in a more niche way.
Someone is going to have to program self-driving ambulances :)
1. This is probably further out than a lot of people assume. Reliable door to door fully autonomous in dense cities is one of the hardest use cases to solve but it's more or less what you need for self-driving taxis.
2. The pricing probably also won't "plummet." The IRS mileage rate (about 53 cents/mile) is probably a reasonable floor to use. That's still about half current Uber rates.
https://www.irs.gov/newsroom/2017-standard-mileage-rates-for...
"The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs."
1. Maintenance. Electric vehicles require far less maintenance than ICE vehicles. (First thing I found on Google: https://insideevs.com/ev-vs-ice-maintenance-the-first-100000...)
2. Vehicle size. Once these systems are up and running, do you think Waymo & Uber, once their systems reach any level of maturity, are going to send you a 4 person vehicle to pick up 1 person? This reduces:
a- the capital cost of the vehicle
b- its cost of maintenance (less parts, etc)
c- the amount of energy required to get from point A to point B
Which brings me to...
3. Price of electricity. Waymo, Uber, et al will get their electricity at wholesale rates.
4. Low cost of capital. The cost to access the capital to buy these vehicles will be lower than anything a peon like you or me could ever access.
5. Bulk-buying 1,000,000 vehicles. No dealers, no dealer commissions, zero customizations, less parts, smaller vehicles, no car manufacturer marketing budget...
6. Maintenance scaling. The need to scale maintenance operations country-wide is going to lead to its own interesting effects. With a hard limit on the types of vehicles in a network, most cleaning and general maintenance will, in time, be doable by human-monitored robots.
7. Ride subsidization will effectively crush any margins any of these companies could ever hope to have.
8. Shared depreciation. Depreciation will be significant per vehicle but overall, cheaper, as each vehicle will have more utilization.
I'd hesitate to guess at the effects of all of the above, but it's not much of a stretch to anticipate an additional 50% reduction here, barring any unforeseen taxes, of course.
You might pay more for the network with great coverage and lux vehicles.
You might pay less for the crappy network with dirty cars and plastic seat buckets.
Etc.
And regarding (8), many taxis are rented by drivers for their shift, with multiple shifts per car per day. Uber could be doing the same right now, but they'd rather rely on drivers not realizing the full value of their car and giving the difference to Uber.
I totally envision the points mentioned. I put the $$ figures for on-demand hail service subscription a month ago, on a HN thread as follow .
https://news.ycombinator.com/item?id=15644680
2021 : Electric Self-driving on-demand FLEET Car 1000 miles/month SUBSCRIPTION from Google, DiDi, Uber, Renault/Nissan,Tesla, VW,Toyota,GM for $400/month
2024 :same 1000 miles/month SUBSCRIPTION $200/month
------
> Literally none of the old assumptions will apply. Let's go through some of them.
> 1. Maintenance. Electric vehicles require far less maintenance than ICE vehicles. (First thing I found on Google: https://insideevs.com/ev-vs-ice-maintenance-the-first-100000...)
> 2. Vehicle size. Once these systems are up and running, do you think Waymo & Uber, once their systems reach any level of maturity, are going to send you a 4 person vehicle to pick up 1 person? This reduces:
a- the capital cost of the vehicle b- its cost of maintenance (less parts, etc) c- the amount of energy required to get from point A to point B
Which brings me to...
> 3. Price of electricity. Waymo, Uber, et al will get their electricity at wholesale rates.
> 5. Bulk-buying 1,000,000 vehicles. No dealers, no dealer commissions, zero customizations, less parts, smaller vehicles, no car manufacturer marketing budget...
> 6. Maintenance scaling. The need to scale maintenance operations country-wide is going to lead to its own interesting effects. With a hard limit on the types of vehicles in a network, most cleaning and general maintenance will, in time, be doable by human-monitored robots.
> I'd hesitate to guess at the effects of all of the above, but it's not much of a stretch to anticipate an additional 50% reduction here, barring any unforeseen taxes, of course.
> You might pay more for the network with great coverage and lux vehicles.
> You might pay less for the crappy network with dirty cars and plastic seat buckets. Etc.
I also suspect that ride pricing and scale will not be the determining factors. Look at the variety that still exists among car manufaturers after a century of competition:
http://www.thetruthaboutcars.com/2017/08/usa-auto-sales-bran...
There's such a wide variety in terms of both cost and experience that I'd be very surprised to see that drop off to one or two players.
The car brands know it, which is why they're panicking.
(Why ALL car brands? Because you're going to have companies like Bosch and Foxconn competing. I'd like to see Ford beat Foxconn at a challenge like this.)
This would be especially true if people continue to own or lease private cars, which I'm sure will continue at some level for decades at least. Look at how much stuff families keep in their minivans, for example. Or all the tradespeople who keep working materials in their trunk.
Or look at commuters. Taxi-ish providers like Uber and Lyft will have a hard time dealing with commutes because they'll have to buy a lot of vehicles to cover the peak that just won't get used much during the off hours. If people treat it like a minibus, where they share, then the providers might do well. But I suspect a lot of people will be willing to pay up for a private commute, at which point they might as well just have a dedicated car. In which case, the market will look a lot more like it does now.
Commodore 64 was a profitable bestseller.
Tramiel left Commodore while it was still very successful, founded new company, bought Atari and tried to replicate Commodore 64 success with Atari ST.
Commodore failed because they failed to transition from Commodore 64 to a better specced machines, despite having a technological marvel at their hands (Commodore Amiga).
Both! Just don't tell anyone.
It's like having Stripe getting a 25% cut from all card transactions.
When they flip the switch they become more expensive that a regular mini-cab. Customers will leave in droves, drivers will leave in droves. There s no loyalty to a middleman.
Uber may or may not be subsidizing fares, but they’re also spending tons of money on engineering and product development, both on their existing product and in an attempt to develop self-driving cars. That’s growth.
I have no idea why (maybe less drivers?) but I already stopped using Uber because of that. If their prices when even higher then I'd simply never use them again instead of the occasional time that I do now.
With Uber, I think there is some degree of loyalty just because of the ubiquity and convenience. Plus, I imagine their prices will be more or less the same as a taxi since they don't have the expense of dealing with the regulatory overhead (since they just blatantly ignore the law instead)
This is not true for all markets in which Uber operates - in NYC for example, uber cars are all registered with the TLC.