Uber Is Headed for a Crash
nymag.com
nymag.com
Investors should be hoping for a pay-off from developing technology rather than profiting purely from taxi fares.
A company that was primarily a taxi service would probably realise sooner that to be profitable by paying humans to drive is much more likely than developing, building, maintaining and improving self driving cars for themselves.
The company gets valued like many others: on their user numbers and potential future earnings, but not profits. (See also Tesla.) I don't think that's right but that's how the system works these days.
That's not how "the system" works, that's what the investment climate is like at this point in the business cycle. Money is cheap and investments are equally unwise.
Yes, if by 'miscalculated' you mean 'lied'.
Driverless train technology has existed for decades, and is battle-tested in production.
Yet no place uses driverless trains today.
Figure out why and you can move on to driverless cars.
Autonomous cars won't need guards, and have a capacity of 1 driver per 4 passengers. So the saving per person is 250x higher for autonomous cars than autonomous trains.
That's not even taking into account that the technology for autonomous cars is almost identical to autonomous HGVs - who have huge problems due to the limits of how long they can travel before the driver can rest.
Most rides are 1, maybe 2, passengers.
There’s a reason I don’t even go to Lyft anymore—Uber is way better than it was a few years ago.
If, if and if. There's no reason to believe that costs come down with significantly with (even larger) scale, or that people will prefer Uber over competitors or ordinary taxis, once they raise prices. The main reason why Uber has so little competition is that it's simply a bad business model, but massive growth in todays environment attracts enough investors to keep the ship above water for a long time.
> The investor around the table are not dumb.
That's not implied, the idea is that enough greater fools will be found once the stock goes public.
> There’s a reason I don’t even go to Lyft anymore—Uber is way better than it was a few years ago.
Uber simply has more money to burn. Enjoy your rides while it lasts.
I'm sympathetic to the idea that Uber has lots of headwind. As mentioned, the majority of costs scale with revenue in a way that isn't true of real tech companies and the autonomous driving thing is basically dead. But there's lots of reasons companies could fail - it's not enough to list them.
One glaring hole I see in this analysis is the monopoly view. Uber is establishing itself as a monopoly in some markets and pulling out of the ones that it's failing to achieve that. A pretty straight forward step would be to start jacking up prices in areas they have a monopoly whilst simultaneously driving out the competition. That would be profitable and it addresses the problem the article proposes.
But what's to stop someone like Lyft or any other cab company coming into that market and undercutting them?
This is why Uber left South-East Asia to Grab in exchange for a stake.
This assumes there is no way to undercut Uber's costs. If Uber wants to be a 100 billion dollar company then someone could be happy with being a 100 million dollar company and aim for a much smaller market.
They don't need to win every city, just take a slice of the most profitable city from Uber. Suddenly your 10 million per year profit is costing Uber 10 times that as they can't undercut you and still be highly profitable.
After that either the small guy expands, or someone else aims for the 2nd most profitable city. Eventually, Uber is left with a monopoly on the least valuable markets and steady competition on all the profitable ones.
And that's assuming they can kill off Lyft, and all other significant players which already have network effects and cash on hand.
If Uber is operating in 100 cities and you turn up in their most profitable one, they can just drop the prices and make a loss in that city until you leave.
I agree with you, maybe they don't kill off lyft and don't get to the point that they have the scale to implement their strategy, but that doesn't stop it being a decent strategy to aim for.
That gets insanely expensive in their most profitable city as you not only forgo profit you also need to drop the pice enough that people pick you. And it’s never going to be just one company in just one city that tries to compete. The might be able to pull it off, but not while being a 100 Billion dollar company.
Remeber, long term their options are be profitable or fail. They can’t continue to attract money if they had a monopoly and still can’t be profitable.
https://mashable.com/article/waymo-one-self-driving-taxi-lau...
Just a few points below:
> After nine years, Uber isn’t within hailing distance of making money and continues to bleed more red ink than any start-up in history. By contrast, Facebook and Amazon were solidly cash-flow positive by their fifth year.
Amazon was founded in 1994 and reported a quarterly profit in the fourth quarter of 2001 and, at $5 million. It then went back into the red for several years. [0]
> The app is not technically daunting and and does not create a competitive barrier, as witnessed by the fact that many other players have copied it. Apps have been introduced for airlines, pizza delivery, and hundreds of other consumer services but have never generated market-share gains, much less tens of billions in corporate value.
So its easy to copy, is regularly copied, but none of them made any market-share gains? Maybe it's not so easy to copy?
> Nor, after a certain point, does adding more drivers. Uber does regularly claim that its app creates economies of scale for drivers — but for that to be the case, adding more drivers would have to benefit drivers. It doesn’t.
For drivers the economy of scale is that they are in a market. They can be in their own market, a market of 1, and alas, they'll have no competition. But saying that a market adds no value to producers as it grows large is backward economics. The benefits of economies of scale for the passengers is more obvious and completely ignored by the article.
> Unlike digital businesses, the cab industry does not have significant scale economies; that’s why there have never been city-level cab monopolies, consolidation plays, or even significant regional operators.
There are no benefits to scale economies in taxi markets, that's why one never existed. Oh, except Uber, which does exist and is worth a lot but is stupid.
> Uber has never presented a case as to why it will ever be profitable, let alone earn an adequate return on capital. Investors are pinning their hopes on a successful IPO, which means finding greater fools in sufficient numbers.
This is just a cynical view of anything financial. I believe something is stupid. If others agree, good. If others own it, it's just because they know other people are stupid and they'll pass it on to someone stupider.
[0] https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-...
Amazon was cash flow positive significantly before they became profitable. They made a conscious choice to not be profitable (the cynic’s take on this is that they didn’t want to pay taxes).
2) Lyft has made market share gains in the US. Other companies have made market share gains in other countries, to the point that Uber has had to withdraw from several countries.
3) A larger market does not necessarily provide economies of scale for the individual driver. The larger market does not help an individual driver reduce their costs. A larger market adds some value to the drivers, but the actual fact is that the value added so far has been consistently outweighed by the downsides. This is clearly evident in the significantly less money they are making.
4) Your argument that Uber is worth a lot is exactly what is being contested. You can’t use that assertion (whether right or wrong) to prove the assertion. And Iber is hardly a monopoly anywhere. Yellow cab services still exist. Left and other competitors still exist and are growing.
5) Has Uber presented a case showing how they will be profitable? How is it cynical to point out this obvious fact?
Also, with the IPO market they don’t need to sell to someone stupider. They just need to sell to an entity whose decision makers’ interests are not aligned with the owners of the funds they are investing. In other words, pension funds, mutual funds, investment banks, etc. But yeah, there are enough stupider people as well who could lose money on this.
2. I'm commenting on what the article wrote. Of course there are competitors. I was pointing out the logical fallacy in the article. Easy to copy but no one successfully copied it.
3. So the market doesn't benefit drivers but the market is growing in drivers? Apparently the downsides of joining the market is less than the upsides evidenced by the fact that it's growing
4. The article claims there are little or no benefits to markets in Cabs. The fact that Uber has grown to this size questions that assertion. And your statement that there are other competitors also questions the articles assertion. So we're in agreement here
5. No idea but I assume the skin in the game that has invested billions has reason to believe so. Or maybe everyone else is stupid.
In Uber's case there are a lot of successful copies of the app based taxi service, some of which have pushed them out of markets completely. e.g. Lyft, DidiChuxing, Grab, Ola, etc...
Plus many local cab companies now have apps that mirror Uber's functionality. In cities that I know well I find those companies are better, quicker and cheaper than Uber, which I now mainly use as a backup or in places that I don't know.
I would say the app and and [SIC] its server-side framework is one of the most sophisticated in computing history. The companies that have something similar can be counted on one hand.