It's not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs)
What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?
1- User acquisition costs (discounts, marketing, etc - for both sides of the platform). this gets more expensive in the face of competition, and there's some hope that if you can "win" the market then eventually these costs will be reduced sharply.
2- Money as a band-aid for reliability/support issues. Frequently, an Uber driver refuses to take me on a long trip (SF to Mountain View, for example), makes me get out of the car, then marks me as a no-show or that I canceled the ride. Fortunately, my rider score is high enough that I just fill out the form describing what happened, and Uber (usually almost instantly) refunds the fee and sometimes also gives me a make-up $5 credit to apologize. With food delivery options, a non-trivial fraction of the time, the wrong order arrives, and similarly any complaint to support usually results in an immediate refund + credit. Without an easy, scalable way for the support team to audit what really happened on the ground, chances are they are not penalizing the driver / restaurant for these incidents unless there is a clear pattern in the data with a particular provider. So this is just loss for the platform. With very small margins it takes a surprisingly low percentage of such cases to really eat away your unit model.
3- Subsidizing low-utilization markets. Markets with a much higher density of supply/demand will be more efficient and profitable; newer markets will often need subsidies to get over the cold start problem (eg when uber launches a new city, you're gonna need to pay some drivers to sit idling on the road, or else someone opening the app won't see a driver; you might also discount rides even more heavily to get past this phase quicker). Compared to the other two factors, this is probably the best-case scenario for why a company might be bleeding money, and why you sometimes hear people say "Uber is profitable in XYZ cities", but it's hard to say from the outside if this is actually what's happening or if there's something more fundamentally wrong.
Add into it how easily this could be abused on the passenger side if there was an even bigger incentive, and quick $5 from the app and finding another driver (there were always enough drivers so that even if half of them would pull this trick, I'd find one eventually) wasn't too bad. Much worse would be having to do something more like talking to a rep on the phone or having to go through a lengthy appeals process.
Mostly into customer discounts and driver incentives.
Both companies are burning billions of dollars on selling people a $10 taxi ride for $5, while paying the driver $12.
Once they stop spending their way to market-share, customer demand, and driver supply will drop.
There's a price point where they are a viable, profitable business (After all, taxi firms have existed for centuries), but that price point will be higher for riders and lower for drivers, than it is today.
That is the key to the "Uber will never be profitable" brigade. Taxi firms are way, way leaner than Uber/Lyft.
Uber coordinates 15 million rides per day [1], which assuming a phone operator coordinates 20 rides an hour (unrealistically efficient-- in reality, I'm sure plenty are playing candy crush waiting for a call), that 160 a day, or an army of 100,000 phone operators to coordinate those rides. This is ususally done using local office space.
Just to pay them a salary of $40,000/yr is $4B/yr. That's ignoring the army of people needed to logistically support a 100,000 ground troops, the office space and the expenses required to so.
Uber currently has an army of 16,000 people total performing this coordination [2]. That's 1000 rides coordinated per day, per employee at current efficiency. And it's not difficult to imagine them pushing this efficiency 10x or even 100x. That's a fundamental value proposition that stands the scrutiny of even a hard-nosed conservative investor.
In Vancouver, when I was taking night taxis 3 times/week, Yellow Cab only had one dispatcher during off-peak times. She'd handle my dispatch in ~30 seconds, and her line was rarely busy.
In fact, telephone taxi dispatch was only a big thing in the brief span of time after the ubiquitous nature of cell phones, but before the ubiquitous nature of cell phones with apps.
“all these companies are deliberately spending profligately now to build their brands and win over dense populations of customers, so that in the future they can be more efficiently served. This is the exact playbook that once worked for Amazon.com”
I can’t count how many free Uber/Grubhub promo codes I’ve seen. How much they subsidize their orders, etc.
Amazon was (at least for a long time, maybe this has been forgotten) been noted for being unusually, perhaps uniquely, successfully at both the customer side and investor side when it came to executing on this.
It'd be a lot harder to compete against entrenched retailers like Walmart if they didn't have the money from the AWS side (not to mention essentially unlimited compute power to handle shopping traffic spikes).
Doesn't seem like it would take a business magician to get this company into the black, albeit at the cost of running red for a year or two more to the tune of a couple more billion dollars burned.