Hubert Horan [1] has done a great job exposing Uber's failed business model in 11 part series on NakedCapitalism ("Can Uber Ever Deliver?"). Same goes for Lyft.
When it comes to self driving cars, why should Uber or Lyft have any massive advantage over other players and what makes us think it won't turn into something like an airline industry which has been unprofitable for most of their history?
I’m not sure how well they will be able to diversify their product while keeping the economies of scale. If 10% of your customers is willing to pay for more leg space, can you get by with 10% of your fleet being larger cars, or does that affect the waiting times of that 10% too much, and do you need to make most of your cars larger?
Also, if you pay $1 extra per trip on your commute, that’s a nice smartphone each year.
Or, perhaps you have a small frame and the difference in leg room wouldn't impact you at all.
Also one man’s “reduced comfort” is another man’s “less luxury”. People make those choices all the times, e.g. when buying cars, train tickets, housing, or food.
Detailed cost data from studies of traditional operators in Chicago, San Francisco and Denver showed that 58 cents of every gross passenger dollar (fares plus tips) went to driver take home pay and benefits, 9 cents went to fuel and direct fees, 18 cents went to vehicle costs and the remaining 15 cents covered corporate overhead and profit.
This in essence states that taxi business has upper limit of 15% margin. That's very low however that does not mean Uber or Lyft like businesses are fundamentally flawed. It just means Uber/Lyft has to just figure out how to survive with, say, 10% margin and they have opportunity to drive out higher margin traditional businesses. The nationwide volume can still yield great profitability (just like Amazon model). So Uber/Lyft are perfectly viable and profitable businesses, at least in theory.
Also notice that driver comp is 58%. That's massive. Self-driving will absolutely change the landscape. I would highly doubt that vehicle ownership would be as important as it is now once self-driving becomes norm. It's similar to everyone doesn't own water well any more because you have water on-demand at any time you want.
AFAICT, Horan doesn’t dispute that there is business there; he disputes that it is worth their valuation. If, say, they can make a hundred million dollars of profit a year, long term, that is a viable and profitable business, but not one that’s worth tens of billions of dollars.
And vehicle ownership? I think it is extremely hard to predict what will happen. Many people currently see their car as an extension of their home. If (possibly a big if) self-driving cars aren’t a lot more expensive, they may not want to give that up. Where else would people keep their sweets to eat during their commute, spare jacket, running shoes, tennis rackets, golf clubs, kids toys (let alone kids seats)?
There also may be extra stuff people may want to keep in _their_ self-driving car, for example a computer gaming system, a yoga mat or fitness machine (once self driving cars are safe enough, compulsory seat belts laws can go away)
They were offered more "efficient" machinery, which could manufacture more textiles than the old machines. "It will pay for itself" was the pitch. But they refused as more efficient machines meant they had to pass on the savings to the customers. With lower prices, machinery was not exactly going to pay for itself.
I guess that will be the case for Uber and Lyft too. Any efficiency with low enough barrier will mean no one is reaping profits rather passing it on to the customers and hence making less money.
Edit:
Found the link:
https://www.farnamstreetblog.com/a-lesson-on-worldly-wisdom/
I have included a link in my previous post where Charlie Munger talked about this.
That is the problem with commodity business because consumers dont care where there corn or cloth material comes from. Consumers will go for the cheapest option.
Google is mining millions of captchas for their self driving cars, they could publish their algorithms for it too, but unless you have access to all that beautiful training set, it wouldn't be much of use.
I have no idea how lyft or uber is going to get that much data, maybe potentially buy paying drivers more to stick sensors on their cars to collect insane amounts of data? But it's gonna be a tricky thing to get right
How far off/difficult would it be for Tesla to create their own ride sharing app?
I mean both Lyft and Ubers "moat" seems to be their app which is not defensible against a market leader in autonomous cars that can simply switch on a new marketplace for its userbase and whole lot of other folks that can't afforda tesla but wants to be picked up and dropped off by one.
Would it be far fetched to see Tesla's market cap will combine Uber and Lyft on top of their existing market cap.
I mean it's a matter of time for Tesla...thanks to Uber's aggressive campaign efforts in spreading ride sharing, city management will be more than familiar and open to new innovators....plus Elon Musk's reputation (he might outsource some SpaceX to your city, you never know) riding him to the stratosphere....
Tesla's suburban HQ in the hills may be less appropriate (due to lack of density), or possibly more (easier to drive in suburbia vs the city), but at least one other manufacturer - Cruise, now owned by GM, is running internal trials, with hopes of opening it up soon.
It's possibly that self-driving cars won't be profitable, but it certainly won't be for the same reason.
There's reason to believe it'll be a winner-take-all market, because more data leads to lower crash rate which (in a world of rational consumers) will make them more popular, in a self-reinforcing cycle.
The U.S. Bureau of Labor Statistics reports that the average salary of a Commercial Pilot is $73,490 per year.
This seems low given the sheer number of hours of training involved.
But your last point is interesting. AlphaGo Zero suggests that for many situations, the return to more data levels off very quickly—after all, humans all learn to drive reasonably well with a certain amount of training. The early phases may have this self-reinforcing bit, and there may be an early dominant player, but we should expect that twenty years in anybody will be able to make a self-driving car that is as safe as modern air travel.