Can Uber ever make money? | Hacker News Reader

Can Uber ever make money?

economist.com

287 pointslxm412 comments

There is literally no way for a mass-market taxi service to make money unless they have a monopoly, or some unexpected disruptive technology comes along that gives one company an unassailable advantage in lowering costs.

The Uber app was the original innovation, but it's not particularly innovative anymore. Besides Lyft, traditional taxi companies have similar apps in some markets.

Skirting regulation and good labor practices were also supposed to help, but that can't last once you become competitive with the establishment.

Self-driving cars were supposed to lower labor costs, but that's not going to be a thing for decades if it ever works. But even if it does, it won't be an exclusive technology. They won't be able to make any more profit from it. If their costs go down, so will everyone else's and they won't be able to undercut the competition without continuing to lose money.

But in a way, that's the beauty of disruptive use of technology. Without the innovation of the Uber app, the traditional taxi cartels would have no incentive to improve their services and the fact that they have been forced to do so in order to compete benefits the consumer. They're not quite there yet, and are still catching up. The next logical step is a lift aggregation service that creates a marketplace.

I want a lift from x to y to z. Bid on me.

As it stands the price you pay for a ride in an uber is unfairly low. Driving it even lower would be irresponsible.

Call me a snob, but Uber's criteria for what qualifies as an acceptable car has dramatically declined to the point where even Taxis are sometimes "nicer". Combine that with the fact that the drivers often don't know the neighborhood and rely exclusively on GPS (so tend to be worse drivers than a taxi).

I'm left feeling like the fare - strictly from the perspective of a consumer - is actually too high.

> drivers often don't know the neighborhood and rely exclusively on GPS

I drove for Uber about 3 years ago for a couple of months when getting my consultancy off the ground, which led to my current gig.

If I had a way to tell Uber "Don't give me rides that require me to leave a given geofence--we'll all have a bad time." Then I'd have been much, much happier. Everyone wanted a ride from my suburban town to the metro area that I know nothing about. Every now and then I'd get one where start point and endpoint were both my own town.

I'd have happily taken less fares in order to drive more familiar streets, and the people who rode with me would have enjoyed it more.

> I'm left feeling like the fare - strictly from the perspective of a consumer - is actually too high.

Not to mention personal risk if you consider how dangerous some Uber drivers are.

However if you consider the cost of car maintenance, annual depreciation on a taxi-like vehicle, and petrol the fares are actually very low. I would be willing to bet that a lot of Uber drivers are wavering around breaking even on the long run. Maybe that's why a lot of drivers' cars aren't as well-groomed as they used to be.

Now, I get that "from a consumer perspective" this is irrelevant, but it does mean that a cheaper service is simply not possible without sacrificing something.

Yeah an uber that smells of farts, vomit and piss, and the seats are sticky... that has become more commonplace for standard uber.

Uberx is much nicer for an extra dollar or two (for standard trips), no more farty taxis.

But using my power of recollection - taxis were a crapshoot before uber came along too. Some were okay, some were disgusting.

I have not had (after a night out at a comedy lounge with my wife) an uber driver chase me into another uber, try and yank open the door yelling "I was first in line! You fuck! You Fuck! Get out!" while my taxi driver speeds away tires squealing.

Since uber came along, the quality of standard taxis here in Perth has increased dramatically. The result is a net positive.

> Combine that with the fact that the drivers often don't know the neighborhood

I used to travel to Houston quite a lot. Not sure if this is representative of taxis in general in the US, but the taxi drivers never knew the neighbourhood. I couldn't say "I want to go to Acme Stuff in X district", I had to give a "Cross road" (a very US thing, that) and the driver would use satnav based on that. It did seem that a lot of taxi drivers were recent immigrants (invariably chatty), so that accounts for some, but not all.

At first, this was a surprise, as in my native UK I can literally give a street name within 50 miles of where I am, and the driver cocks their head for a second, gears whir, and yes! They know it!

I feel like it depends on the city. In Phoenix I typically get a relatively nice car with a fairly normal guy or girl that drives a relatively newer car as a side gig, or to keep busy during retirement.

Conversely in Columbus Ohio all the drivers I’ve had recently are clearly former taxi drivers that migrated to Uber. The cars are old and beat up, the insides are dirty, and the drivers disregard the app’s directions usually taking us to the wrong spot.

> Uber's criteria for what qualifies as an acceptable car has dramatically declined to the point where even Taxis are sometimes "nicer"

In my travels to the US, which almost exclusively meant Houston, the taxis were always very basic, "boxy" cars; not sure about make/model, but they always felt "cheap".

Meanwhile in Europe, a lot of taxis are Mercedes E class saloons, or high-spec saloons from other makers.

I'm with you right until the line break. The thing is: even for the quality-declined cars, we are not paying enough to cover the costs. Those are simply the economics of using a phone app to hire a person to come and pick you up in their car and then drive you somewhere.

The truth is that if you want to pay less for transport then you need to not be taking human-driven taxis.

Where are you finding these magical cabbies that know the city better than GPS? My p99 experience is the opposite (Except in London where they have The Knowledge

I agree that when it comes to finding the most efficient routes across town, cab drivers are better (especially during rush hour), but once they get to the right street the experience is so much better with Uber/Lyft/GPS.

"It's the red building in the middle of the next block. No, the next block. No, a bit further. The...it's fine, I'll just get out here."

vs.

"Perfect, thanks!"

A while back in Chicago I was picked up for Uber, in a Taxi... that also drove for the other services and was tied to a local taxi company.

Not a bad ride that one, but that guy had all his bases covered...

What are your thoughts on Uber Select / Uber Black / Lyft Lux / Lyft Lux Black?

That's when Uber Black is an option. Which is around what traditional taxis used to cost.

>Call me a snob

You're a snob.

I wish they'd relax their policy on vehicles. I would have no problem riding in 90s shitboxes. I would find it novel. As long as it's been vacuumed that week I don't care what condition it's in.

It's kind of hard to predict which way the fare would go for such a service... It might actually end up being higher than what Uber is currently charging. Which wouldn't be a bad thing necessarily.

But it's really not. At one time it was, but at least in my city, it's sanely priced. When I travel for work for example, an Uber takes my wife and child to school and back. The roundtrip time is about 15 minutes, and the cost is usually 12 to 14 dollars. That's at minimum 48 dollars per hour, which is the upper end of middle class here.

My most recent trip to SF, my ride from Berkley to Downtown each day was about 30 dollars for about a 30 minute trip. 60/hour doesn't sound absurd for that region.

A few issues with your calculation: 1. Drivers are not productive 100% of the time, 50% utilization is more common, so knock that hourly rate in half. 2. That’s revenue, not profit: you have to pay for gas, maintenance, depreciation, and probably higher insurance premiums for driving commercial and/or high mileage. The IRS deduction for business mileage for 2019 is 58 cents per mile, this is meant to be a median all-in cost, so subtract that from your fare, and subtract half again for the miles spent driving between fares or getting home after the last ride of the day.

The drivers don’t have to bid. Do you find eBay auctions “irresponsible”? You can’t hide from the market.

Do you not support minimum wage laws?

The way to change it is affordable EV cars ===> less fuel costs

Fuel costs aren’t a huge factor for most cars. It’s the time and vehicle depreciation and maintenance that add up.

I totally agree.

Says you. That sounds awesome to me!

How about we let consumers decide what the right "price" is? If you don't like it, then you should feel free to use the higher priced/quality alternatives!

Is it OK that there is slave labor in the coffee supply chain? If consumer price is the only metric, then I guess that is OK?

Sure, but I wonder if this was the best way for it to happen.

Couldn't we have gotten to taxi-hailing apps without allocating a bunch of capital to companies that might never turn a profit?

I'm just curious. I don't personally care because my money isn't invested and my rides are subsidized by the people who did invest.

It doesn't seem like it. In my experience, a lot of taxi companies don't have fully-featured apps even today, and the ones that do were probably motivated by the spectre of Uber. They weren't motivated to do it because they already had the market captive.

You don't even have a pension? A lot of money finds its way to companies like Uber from sources almost everyone has. Even with no pension, your bank is speculatively investing the money in your account to try and earn interest.

Uber is a private company. If I own any equity indirectly it would be news to me.

> Without the innovation of the Uber app, the traditional taxi cartels would have no incentive to improve their services and the fact that they have been forced to do so in order to compete benefits the consumer.

The taxi “cartels” can’t “compete” with Uber or “improve their services” to match Uber. Some of the key things that make Uber attractive to customers is low rates and the ease of booking through an app. Taxi companies are *legally prohibited” from competing on rates. Rates are set by the government, and surge pricing (which allows Uber to offer cheaper rates to more cost sensitive customers by charging more to less cost sensitive customers) is illegal for taxis. Likewise, the government usually regulates metering and payment processing for cabs. It’d be illegal for most cab companies to do GPS based metering and smart phone billing like Uber.

That may well be the case, so I voted you up as I'm not sure why you were greyed out for pointing this out. But taxis are heavily regulated partly because the taxi lobby itself demanded these sorts of barriers and taxi lobbys have been notoriously effective at shutting Uber down. They appear to have a lot of political power, and convincing politicians to let taxi firms use new technology should be the easiest lobbying gig in the world.

Reality is, even in parts of the world where taxis are not heavily regulated, no taxi firms got even close to Uber's competence and sophistication. They simply don't have access to the right people or technical knowledge to produce the same experience (evidence: my local taxi apps that are trying to compete with Uber are all buggy incompetent messes).

> Without the innovation of the Uber app,

I had local services with an app before Uber, I'm sure. It's really not much of a shift from a phone call either.

But then, all Uber cars are the same as private hire cans anyway here.

It seems like the real innovation was being big enough to ignore the local rules. That and being able to say it's "ride sharing" with a straight face.

Wtf?

It is completely different. Before Uber, you had to call dispatch, give them your location or your closest estimate of it: dispatch would then manually try to find a car that was available and send them to you. This usually took at least 30-40m, if they arrived at all.

With Uber, I open the app, it looks at all available cars, finds the closest one available, and sends that car to my GPS location. Oh, and if that car gets stuck in traffic, it automatically picks another car and sends that over

Uber completely revolutionized taxi services and is absolutely nothing like calling dispatch on a phone.

Totally! The one and only time that I tried to get a taxi at my house, which is in a suburb of a major metro area in the US, I was told it would be a 45 minutes wait. I waited the 45 and nobody showed and I called again. 30 more minutes. No show. Now, I can have an Uber at my door in 10 minutes and I know what it will cost.

Agreed. In SF whenever I called cabs they often wouldn't show up at all. I suppose they found a fare before they got to me. So features like ratings and assigned cars and ability to check the status added by Uber are all huge improvements for my usage.

Before Uber there was an app I could use to book a taxi. That's one of the main reasons I don't think their app was innovative.

> This usually took at least 30-40m, if they arrived at all.

Not for me, I would and still do get cars faster using other firms. Uber says they're two minutes away and they come ten minutes later.

The only reason I use Uber is I get receipts I can push to my expenses.

Hacker News about Dropbox (2007):

"For a Linux user, you can already build such a system yourself quite trivially by getting an FTP account, mounting it locally with curlftpfs, and then using SVN or CVS on the mounted filesystem"

Hacker News about Uber (2019):

"It's really not much of a shift from a phone call either"

Hasn't Dropbox lost market value every quarter since they went public while growth has been flat and operating at a loss?

I'm not saying the HN crowd didn't miss a $10B opportunity, but they also weren't exactly wrong.

Wow, there's a lot to process here. E.g., suddenly I remember how much HN doesn't go into the nitty-gritty anymore.

You have conveniently missed that there was already an app for ordering taxis before Uber for me.

Also, yes, it's not much of a shift. I'm not arguing people rebuild it or have something together but the shift from:

Call cab firm and say where you are

App calls cab firm and says where you are

is not massively innovative. (edit - particularly when it has been done before)

I know it's fun and cool to be snarky, but you have clearly missed what I've said and equated it to something wildly different. Please put a little more effort in to your comments to make them more useful.

The Dropbox comment is amusing because that's a complex thing users would have to do and doesn't support what Dropbox supports. Switching from one app to another is really quite different.

I'm critical of U/L, but it's ignorant to say there hasn't been any innovation.

Back then, you had to know the phone number to call - I'd try to be diligent about keeping a taxi number in my contact list but it's invalid when I really need it when traveling in a different city.

Trying to hail a cab during a busy holiday? Good luck with that - cab splitting existed but nowhere near as frictionless as through apps + route-planning software. Plus phone calls usually didn't make it to the dispatcher during extremely busy times (walking out of a bar on new years).

Waiting for the cab? Better stay put where you are since they can't see your live location.

> I'm critical of U/L, but it's ignorant to say there hasn't been any innovation.

I won't say there's none, but there was a taxi app for me before Uber that knew where I was and let me book a taxi, that wasn't innovative.

> Back then, you had to know the phone number to call -

A benefit sure, but "being big" is not an innovation.

> Trying to hail a cab during a busy holiday? Good luck with that

Here when it's busy I can't get an Uber but I can book my local service. Uber is way less reliable here.

> route-planning software.

Every uber here uses Waze.

> Waiting for the cab? Better stay put where you are since they can't see your live location.

Hah! I've repeatedly had issues where Uber cars didn't seem to know where I was, their app put me in the middle of a lake once and I kept moving about trying to figure out where the hell I could meet the taxi because their position made no sense either. They cancelled on me and I had to chase them down a street and rebook, hoping it would connect to them.

So I used to call the local cab company a lot when taking work trips. Problems Uber solved for me:

- Knowing my location automatically via GPS. I don't always know where I am. I'm on a street near some bar. - Knowing how long it'll take for my cab to get to me. I don't have to assume it's on its way and wait or call the operator to confirm ETA. - Paying when I don't have cash. In NZ, not all taxi cabs take cards.

It's a major shift from a phone call. Not a fan of the company but it's certainly changed things with taxi companies now investing in their own apps and Uber alternatives sprouting up.

>> There is literally no way for a mass-market taxi service to make money unless they have a monopoly, or some unexpected disruptive technology comes along that gives one company an unassailable advantage in lowering costs.

I dont understand this comment. Traditional taxis made money for generations, why cant Uber? If anything, Uber has more advantages.

EVEN: Traditional taxis had the "rent" of medallions. Uber has the rent of Corporate HQ costs.

DRAWBACK: Uber gets raw deals in some cities because the local Taxi commission has sweetheart deals with the city (Case in point: NYC, NYC TLC, and Mayor DeBlasio: https://www.nytimes.com/2012/07/18/nyregion/de-blasio-reaps-...)

BENEFIT: More efficiency, less wasted miles w/o riders.

BENEFIT: Group rides are highly efficient.

BENEFIT: National/international scale

BENEFIT: National/international scale to get better loan rates, prices, and even self-loan to drivers.

This isnt to say they dont have to raise prices, but I dont see how they can never make money.

Taxis made money because the medallion situation limited competition, and because fare prices were fixed by the city at levels that ensured a profit.

I see your point, in theory, but the increasing medallion investment/rent just lowered profit further and further until the profit to drivers was some very low wage. The driver is not usually the medallion owner, and hence the rent for the medallion goes elsewhere. The driver just ends up with the metered fare net of medallion costs.

Similarly, Uber leads to a sort of perfect competition equilibrium (https://en.wikipedia.org/wiki/Perfect_competition) where drivers keep entering the marketplace until wages drop to some low wage, but not below that (because below that, drivers start to leave the marketplace, thus decreasing supply and increasing the equilibrium price point.)

Actually it's more like a monopsony where a single buyer (uber) can dictate the price to the sellers (drivers). Uber varies the prices it charges consumers (and therefore pays drivers) based on what maximises its profit rather than general economic welfare.

Economically, it does lead to a competition equilibrium, but it does not take into account the cost of externalities such as additional traffic and pollution generated by having more drivers.

Taxis (drivers) don't make money, or rather, they are subjected to the same degree of commoditization either way.

Medallion owners make money. All of the profits are extracted into the medallions.

It's actually a bad system, really.

'Driving a taxi' is a total commodity, there's a limitless supply of people willing to do it for sub minimum wage, so the money just goes to the owners.

Rent extraction is usually a bad way to manage things; it's kind of like real-estate speculation, but there's no need for it.

It'd be nice to see the cities embrace Uber-like systems, capture the profits from it, enforce basic laws, and somehow make it fair. I'm not holding my breath.

I feel like Uber can always make money as a marketplace - but competitive pressures from other marketplaces will drive profits down. However, is there any further growth in the model? Seemingly no unless they gain monopoly.

You are making me smack my forehead to the point of giving myself a concussion. If your comment were true, market economies as a concept would be unviable. The global economy would not exist if your comment were true. Ride-sharing is a market. People compete in the market. That’s how literally every solvent business in the world operates.

People are willing to pay to get driven around for relatively short distances on-demand so I'm not sure why that's an inherently unprofitable business. I assume many taxi companies and black car companies make money.

What's probably true is that they probably have to raise prices and deal with decreased volumes in at least many markets to do so--and probably grow more organically. And it won't be the kind of profitability that's expected from VC-funded companies.

I can imagine that running a taxi company might be a lot like running an airline (a notoriously money losing business). Four out of five of Porter's five forces are working against you:

  - relatively easy for new entrants to enter the market
  - lots of consumer substitutes
  - lots of customer buying power
  - lots of competition

Historically, the market was regulated to prevent new entrants from entering the market and preventing competition. In NYC, this was a hard limit on the number of taxis with every taxi requiring a medallion. In suburban towns, taxi companies typically need to be licensed by the town and some towns have limited the number of companies or total taxis.

Uber really disrupted that as it rolled out across the US and other countries by basically rolling out illegally and then getting customer support to change laws.

This is the conundrum of creating a better marketplace. An optimal market has 0 profit opportunities. In order to make money the market must be flawed in some way. Luckily in the real world perfect markets don't exist, but in certain sectors technology has made life difficult for people who had previously had a solid reliable income with the old inefficient system.

"An optimal market has 0 profit opportunities"

That doesn't quite right to me. A market with the smallest profit opportunity of a selection (say worse that government bonds) wouldn't see investment to correct that inefficiency. Zero may be 'best' case, practically speaking though no one's going to arbitrage an opportunity, that's less than the opportunity cost.

So it seems to me the optimal market would a profit opportunity somewhere between being the 2nd best profit opportunity and zero profit opportunity, depending what you set the opportunity cost at.

That's rediculous. If a market with 0 profit opportunities exists them time is frozen and all future innovation is impossible. It means that every possible inefficiency of every single person working has been removed. Humans are never perfect beings, and usually far from it, so there is always opportunity for more efficiency. Also the goalpoint is constantly moving as more technology is created to replace older ideas.

If we ever reach a so called "optimal market" as you describe it then GDP growth will also stop, as will personal income growth and all manner of things..

Historically things like medallions were pretty strong barriers to new entrants in some markets. But, yeah, today not nearly the same degree.

I imagine cab companies are in roughly the same position as people who own a bunch of fast food franchises. The owners can earn a reasonable living but it's mostly not the sort of income stream that people in Silicon Valley dream about.

Is it easy for new entrants though? And is there competition?

I'm not sure about the future profitability of this space, but I think you're disregarding a few key points.

1. The innovation was less the app and more solving supply problems. No app will be able to change that for the taxi business.

2. Competitive advantage in this space is having more drivers and less wait time. That drives folks to use one provider over another. The lock in isn't the tech, but the availability of rides.

You're right that the lock in or network effect in the ride sharing space is very different than other big tech cos (FB, Netflix, AMZN etc) in that they're localized, and should result in more competition.

The bet investors are making is that the market will shake out with one category leader, a runner up and virtually no competition beyond that. Should be interesting to watch.

1. The regulations that Uber skirted around and then loosened up to provide more drivers can also be used by other companies. The gates are open, but not only to Uber.

2. Drivers and customers are fickle. My market used to be mostly Uber and is now mostly Lyft because all the drivers hate Uber. When Uber and Lyft run out of cash to blow on subsidies, they don't really have much of a selling point.

The problem with Uber's business model is that the main cost is the driver, who is not going to go anywhere anytime soon. It's no Amazon, where they have efficiencies of scale in logistics, datacenters, etc.; you don't get economies of scale by being bigger in the taxi business. It seems more like Moviepass.

Are you sure there are no economies of scale?

Everyone I know uses Uber exclusively for taxis now and it's partly because whenever they travel Uber works great, but using local taxis is a pain. The "taxis are local" argument is right some of the time but many people use taxis primarily when travelling, and that's a market that really only Uber and Lyft can automate with any degree of success. I don't want 50 half-baked taxi apps on my phone.

That‘s not what an economy of scale is, that‘s branding. An economy of scale would be Uber saving a portion pf costs as it gets bigger, but that‘s not really possible because the per unit cost of a ride is tied to a driver, and they‘re not pushing drivers into driving buses or other vehicles that can carry more shared trips.

You could achieve the same thing Uber achieved with branding with a franchise; McDonalds maintains quality across franchises despite not being involved in the day to day operation. And McDonald‘s certainly doesn‘t lose money on every patty sold.

All great points. I guess we'll see where the chips land.

> The Uber app was the original innovation

No it wasn't. There were a ton of taxi related apps and startups before Uber and nothing about Uber's app was particularly impressive IP-wise - it's basically just distance search.

What Uber did that was unusual for a tech startup was to invest in lobbying - https://www.theverge.com/2014/12/14/7390395/uber-lobbying-st... - it allowed them to play across regulated markets where no one else had before.

In San Francisco there was nothing before Uber and similar companies started operating. You called a phone number (I used to have it memorized) and some surly individual would bark at you and then maybe a taxi would come in 40 minutes or maybe not.

Later, the driver would explain the credit card machine was broken and you'd need to pay in cash.

There were a ton of taxi related apps but none of them did what Uber did; at least in London. There were apps where you could book a taxi, telling them when and where to pick you up, but if you expected anyone to show up in the next 5 minutes you were crazy. And they were twice as expensive as uber, of course.

My impression was the the previous tax-related apps just connected riders with the existing establishment taxi companies. They didn't have much in the realm of enforcing accountability or reliability. It was nearly the same as calling the taxi dispatcher yourself and hoping a taxi would show up, except an app would do it for you.

If self-driving technology is mature enough to be used and there are several implementations to choose from, what stops care manufacturers to go after that market directly and undercutting everyone else?

* They have industrial facilities to build cars

* They have dealership networks to repair cars

* They have capital or can borrow easily to do it

I can even argue that all that stops car manufacturers from operating this are government regulations -- taxi medallions as well as anti-monopoly laws. Once Uber, lyft and the like undercut those regulations, someone else can undercut them.

That's Tesla's plan and the reason why they want to forbid to use their full self-driving system for providing rides to third party taxi services.

The same thing that largely keeps them from operating dealers (yes, now there are laws and contracts, but it was the manufacturers who wanted dealers in the first place) and rental car companies. Although there are legal impediments, companies often want to focus on a specific part of the value chain rather than having to own the whole thing.

Car2Go is a subsidiary of Daimler, though. And I suppose that being able to produce a large number of cars (all identical models and setups, all the same colour etc.) is something that an automotive company can easily leverage.

Silvercar was recently acquired by Audi, so that's an example of a auto manufacturer running an car rental business.

As a sibling comment noted, that is Telsa's plan. I believe GM is wanting to do something similar with Cruise.

However, I feel that both of those companies are still way behind Waymo in terms of R&D. Personally, I think that Waymo is the one to watch. If they get their first, they already have the ride hailing infrastructure/user network in place (Google Maps) and may even license the tech out to auto manufacturers.

Regardless of who is standing in a few years, as a customer I will choose to ride in a Tesla whenever possible for a few reasons. 1) safety 2) fun 3) support the transition to sustainable transport 4) if FSD is part of the equation by then I think Tesla is going to have the best implementation, based on their overwhelmingly massive lead in real data.

Vertical integration like this is generally considered bad in business. Sure it is possible, but it is better for car companies to work on making a better car than split their attention and risk not paying enough attention to either...

Are you saying in any city with an un-regulated taxi market means all taxi companies operate at a loss? That doesn’t sound right (Stockholm, Sweden for example would be a counterexample).

Perhaps I misunderstood “mass market”?

You are just fundamentally wrong. There is a cost associated with operating the “dispatch,” operating the car and paying the employees/contractors. Take that cost, distribute it over the number of rides you expect to give to your customers and then add a little on top. The question is whether or not the customers will engage in that transaction or is the cost too high? Uber has plenty of fat to cut. If it were running efficiently, there is no possible way it would go out of business. You think Uber will raise their prices 10 percent and then everyone will decide to give up ride-sharing? Uber is the most efficient method of doing taxis. It succeeds by default. I don’t understand how you can possibly think that Uber can’t make money.

There's making money, and there's making enough money to justify an $84B valuation.

> to justify an $84B valuation

He wasn't arguing that the investor were going to make money out of it. He was arguing that as a dispatcher, they can be more efficient than the current dispatcher, thus can make money.

The disruption of taxi/rental business is going to come way before from self driving cars becomes perfect. most people know how to and prefer to drive especially if its not long distance inside dense urban areas. the real use case will be the fact that self driving car will drive itself at its own pace to nearest suitable pick up point, where u can get behind the wheel and drive it where u need to go, then leave it there for it to figure out how to drive itself to next customer who needs it. half of the population prefers to drive the car themselves or their partner rather than share that tiny space with a stranger and be driven around. this completely solves the liability issue and pr nightmares that will come from 'killed by/because of self driving car' news.

Uber had $940 million in Contribution Profit in 2018. It prints money on non-pool rides in mature markets.

If I make a widget for $100 (50/50 fixed, variable) and sell it for $90, I've covered the variable costs. But If I only have one line, all those fixed costs are attributable to that one line, so its still not making a profit.

If you had multiple lines and one line that wasn't making a profit, but was making a contribution to fixed costs, it maybe better overall to keep that line in place. That isn't what we seem to be talking about here, but it depends how 'fixed' the fixed costs are.

What does that mean?

Uber revenues minus cost to operate Uber car service = $940 million in 2018.

I find local taxi companies have started making their own 'Uber' apps that accept card and it's fantastic.

And you don't have to deal with the awful rating system Uber have. Whoever thought it was a good idea to have drivers rate their customers really doesn't understand customer service. If you're out with some friends on a night out for example, of course you're going to get a bad rating (because your friends are drunk and probably a bit rowdy) which affects you during the working day or just solo.

Local taxi services are usually cheaper too as they don't do the surge pricing like Uber do. Uber have really driven me away as a customer to the local services.

Also local taxis don't cancel so they can abuse the surge system.

Your last point is the most salient. Solving autonomy is a much harder problem than making an app. Anyone who solves autonomy can easily make their own app, or can partner with any upstart in the ride-hailing world, who would be desperate to get that autonomy software. Hard to see how Uber or Lyft truly profits unless they're the ones who own the autonomy code.

A monopoly is exactly how they'll do it. If a competitor pops up they will undercut them.

They've run over local governments to get their cars into the highly regulated taxi industry and basically operate under their own rules so I have no doubt they can operate anti-competitively too.

UBER won't be a monopoly. But UBER and Lyft could offer lower costs than taxis, because of cheap labor, no medalions, and less empty rides they could offer their drivers.

So it's basically a UBER/Lyft duopoly, after the growing phase. And Duopolies are good businesses to be in.

> because of cheap labor, no medalions, and less empty rides they could offer their drivers.

You forget that dispatcher already take a pretty big cut already and I don't know where you live, but here in Montreal, we have a bunch of them that are all profitable. Sure dispatcher started to makes apps, but they only cover a tiny market (thus the apps is more expensive to develop per ride than Uber) and plenty of their clients prefer calling, thus an human operator (which Uber doesn't has to pay for).

Our government also decided a few years ago to force them to accept credit/debit card. One of my friend worked for one of the operator that rented terminal to taxis. They were profitable too.

If Uber can't make money by being much more efficient in MULTIPLE already profitable business and that's WORLDWIDE, there's something pretty wrong.

> Self-driving cars were supposed to lower labor costs, but that's not going to be a thing for decades if it ever works.

Decades? Maybe half a decade until it starts rolling out in major markets.

> But even if it does, it won't be an exclusive technology.

Of course it will be exclusive if the developing company decides not to make it publicly available. And why should they?

> If their costs go down, so will everyone else's and they won't be able to undercut the competition without continuing to lose money.

This is econ 101. There will be an equilibirium price. Or do you think just because it's easy to make pizza since hundreds of years and there are probably a million pizza suppliers in the world, the price of pizza went to 0?

>> Self-driving cars were supposed to lower labor costs, but that's not going to be a thing for decades if it ever works.

> Decades? Maybe half a decade until it starts rolling out in major markets.

What is the evidence for this? Five years ago the same claim was made, and it hasn't happened. It's not at all clear to me that mass market self driving cars will appear in 5 years, 20 years, or 100 years.

Yes, there is literally a way to make money.

Assuming you can get everyone to adhere to regulations etc..

Then Uber could be seen as a marketplace connecting drivers and riders - and there is material value in that.

And it doesn't have to be a lot for Uber to make money.

Not $100B valuation money, but money.

And there are de-facto network effects, brand etc. that play into that.

Lyft and Uber might not be worth their valuation, but there's value add there.

Do people actually use the taxi uber like apps? I ask everyone I make rideshare smalltalk with and no one has ever even said they'd installed it (small, poor sample size, I know.)

What about UberEats?

Pooling is a nice cost saving innovation.

You made quite a big claim in the first sentence but the rest of your comment doesn't explain it.

> There is literally no way for a mass-market taxi service to make money unless they have a monopoly, or some unexpected disruptive technology comes along that gives one company an unassailable advantage in lowering costs.

Confident brash nonsensical statement with no factual argument to back it up.

The fact that it is voted top comment on HN says some unflattering things about this place.

Autonomous driving is "decades" away? How do you figure?

Self-driving cars are already here (Phoenix, Arizona). That and falling electric car prices will be the key advantage.

Uber won’t be the one to benefit though, as the other companies at the cutting edge are too savvy to let them (Waymo, Tesla). It is very hard to get right and I think will give those companies an advantage for years.

I can only see them making money in three ways :

- They scale up massively and capture a huge fraction of the ride sharing market, thus allowing them to offer low cost / low margin rides, but making up for it by volumes : At least in India, they are in a good position, but they seem to have conceded the other markets with high potential for growth like SE Asia and China.

- They have a premium offering that is actually quite a trend-setter : Revive the Uber Black service and take it up a notch, target richer clientele which will be willing to pay a premium to ride in a much better car and with trained chauffeurs.

- They push heavily in the pooling space - this allows them to use their vehicular inventory better as well as drive up margins per ride : This doesn't seem to be a huge focus for them as of now, but it could change.

The other big change that could transform their fortunes is if they put out a viable self driving product. I do not think it'll be economically profitable, or even technologically viable in the near term.

Option 4: Uber uses the expertise, infrastructure, and brand it built in ridesharing to expand into the becoming the de facto standard for timely last mile delivery. This is why UberEats is such a major strategic focus for the company. It's proof of concept that they can do more than be a taxi.

An efficient platform for quickly and cheaply ferrying around stuff around town is a way bigger market than ridesharing. We're not only talking about the obvious examples like residential packages, groceries, and laundry.

But entirely new business models that didn't previously exist, because there's no efficient last-mile delivery solution. Cloud kitchen are an example of a nascent industry that could only emerge in a post-Uber world.

Courier services have existed for years for last mile.

I have a friend who was (20 years ago) paid full time by one law office to get papers to/from the court room (he worked for a company that dedicated him to that job). Part of his job was knowing the proper way to walk into a trial in progress.

My dad more than once hired a taxi to take a package to the airport. I suspect post 9-11 this isn't legally allowed, but back then if you needed to get a bug fix to a customer your fastest option was put it on a tape, put the tape in a suitcase, buy a plane ticket for "Mr Package", and then check the suitcase in the name of Mr Package.

>My dad more than once hired a taxi to take a package to the airport. I suspect post 9-11 this isn't legally allowed, but back then if you needed to get a bug fix to a customer your fastest option was put it on a tape, put the tape in a suitcase, buy a plane ticket for "Mr Package", and then check the suitcase in the name of Mr Package

I worked for a company where we would hire a courier to fly with the package when needed.

We sent a few tapes that way, but also some important equipment when it was critical to a customer.

It was by far the fastest and best way to be sure a dude would be at the office door in X minutes, on the plane in Y, and at the customer site in Z with the needed thing(s).

It was expensive, but they were really reliable and professional.

I don’t think the “Mr Package” option has been available for a very long time, well before 9/11. I vividly remember in the 1990s being delayed for an hour at the gate while they dug around the cargo hold in search of somebody’s checked bag who didn’t show up to board the flight.

Expanding on this Option 4: They become an auction platform for last mile deliveries.

- Demand comes from third party apps through API, or SMBs that are looking to make a same-day delivery. Higher delivery bids means network is more likely to fulfill sooner.

- Uber fulfills supply with their own network of drivers but also allows other regional rideshare networks to plug in.

- Reputation is keyed to driver's license, and better reputation means preferred bids and/or a better cut of the delivery fee, scaling at a ratio to cover the risk of bad/unknown drivers.

- Self driving cars become a reality, and the network allows autonomous delivery swarms to plug in and fulfill supply.

Become another locus.sh

Saying that we're going to work to dominate a low-margin sector at a staggering loss for years, so that we can enter an even lower-margin established industry and recoup our losses there, is a gutsy proposition.

Sure is. But remember, that playbook's almost exactly how Amazon became the largest company in the world.

Amazon was making real profits in each line of business shortly after entering - 1-2 years for books, music, etc. IIRC. They chose to reinvest that in further expansion but always had the option of halting expansion and being fully profitable if they wanted.

Uber has nothing remotely like that and, unlike Amazon, their costs scale linearly and their workers (who are most of the business) have no reason to be loyal.

Except that Amazon didn't have remotely close to the level of losses that Uber has. The year Amazon went public, they lost $30 million. Uber is losing a billion a quarter.

AWS lock-in is different from a taxi app. Only a few players so far managed to respond to AWS in scale and offerings.

Lots of taxi companies have their own apps at this point.

You’re saying cloud services is lower margin than retail? I don’t think that has ever been true.

> that could only emerge in a post-Uber world.

Maybe, but a lot of restaurants despise Ubereats and want it to die, so they can't count on goodwill or loyalty there. (This is second-hand from a couple local restaurant owners; I am not one.)

As I understand it, Uber is playing a sort of TicketMaster-ish game, demanding exclusivity (no having your own drivers, no using competitors) and funny terms about hosting your menu designed to make you dependent on them.

I despise Uber, and when my local pizza shop was essentially forced to start using them, I started walking to pick up my greasepie. So I guess Uber is good for me, too.

>As I understand it, Uber is playing a sort of TicketMaster-ish game, demanding exclusivity (no having your own drivers, no using competitors) and funny terms about hosting your menu designed to make you dependent on them.

This is false.

I'm really curious about this. I've known one of the people I talked to a long time, and while I don't audit his business, I believe him when he says the contract says he can't hire his own drivers.

What, exactly, is false?

> for timely last mile delivery

perhaps the only industry with worse margins than ride-hailing.

option 4 is closer to the full scope of the company. uber has positioned to be more than simply a taxi company and a strong logistics competitor

Pools are where the money is at, IMHO. If they can put together a good predictive transportation model, then I think they will really have a killer app. Personal transportation is just too costly for regular use. But having an "Uber Bus" that shows up down the street from your house right when you need it, then can bring you home right after work for maybe $5/day will have wide-spread appeal.

that's called public transit

And it's pretty terrible in some cities...especially in the United States

Option 4: sell your ride data to a 3rd party. Knowing who you are, where you travel to, what's around those areas. They - or a 3rd party - could advertise what's in the area you were taken to, track where you frequent and recommend riding to places you haven't been to in a while showing you what's "new" in those areas, etc.

I don't Uber (and have only used Lyft once), so maybe they already do this or are planning to.

I can't imagine there's that much data to sell. I don't think a lot of people use uber on a daily basis, the takeaways are gonna be "people travel to and from airports close to them".

They can deduce a lot and not to mention Foursquare profits on selling check-in info to fin companies. Also, check this blog from Uber http://www.whosdrivingyou.org/blog/ubers-deleted-rides-of-gl... where they (with some confidence) deduce when someone was involved in one night stand.

Not to mention they have valuable information about you on how sensitive you are to price changes, who you interact with (sharing rides), what places you frequent (bars, gyms, churches, etc), places you travel and on what season. It's a goldmine and more by cross-referencing with other data sets. They can even know when you are sick if you get an Uber to the doctor or if you are friendly or not (drivers also review you) and how strict you are with other people (your reviews of drivers). It's all about the meta-data.

Is that data worth enough to subsidize taxi rides, though?

And again, they only have that comprehensive level of data for heavy users. Lots of people only use Uber when they're going to the airport, as others said, or maybe when they plan on drinking.

I use it when I'm running late or public transit is messed up so it's very skewed data for me.

There's also a real risk that Congress or the states could ban them from selling that data.

Looking at Uber, WeWork, JustEat etc., I get the feeling there's a growing gap between what we were brought up to believe about entrepreneurship and innovation vs. what the reality is.

We're all familiar with the '>50% of small businesses fail' stat (not the real number) and that we should be toiling and not taking a salary for years until we break even, i.e. reach a point where we're no longer losing money on every project/sale. If you aren't able to achieve this, your pricing, product-market fit, etc. have failed, because the all-knowing, all-equilibrium-izing market has spoken.

Every politician out there shows reverence for the 'small businessperson' taking risks and bringing jobs and tax revenue into their communities. But once in office, the people they meet with are Travis Kalachian and others, people who cannot make a profit, but are excellent at convincing rich investors that they should make Travis a millionaire.

The reality is that a VC-backed company can simply outprice any competitor, and if it's not enough, can lobby city hall to change the laws to favour them. And this cash spigot can stay on for years, as long as you can show you're gaining customers every quarter. If you're a big enough play, you can move your whole HQ to a low-tax friendly country and administer local operations from there.

The jobs that are created by this are right around minimum-wage level, so how is this supposed to create wealth for anybody except the shareholders who got in early with cheap valuations?

The question (with Uber in particular) is that if this business model really covers up a huge ponzi scheme.

Before the last decade (or even 5 years?) the amount of money some of these companies have been raising would have been unheard of and required an IPO.

But if you can keep finding ever bigger investors to give you ever more money...

It's a really weird reality, because typically the worst kind of place to start a company is one with huge barriers to entry that requires a ton of money to get started. Yet that seems to have done quite well recently.

Squashing minimum wage service providers seems to be merely a side effect... these companies can't really make money EVEN WHEN they ignore regulations and exploit their not-technically-employees.

> with huge barriers to entry that requires a ton of money to get started

Just a note that the proof of concept stage was very cheaply done. Travis hired someone to make an app and the "dispatch" system was just a single php page. He then tested it out with his friends.

That said, I agree that ultimately to get to the position they are today required a ton of cash - just the getting started was pretty cheap.

Actually we have the blow-by-blow of how it all played out on our podcast since Jason was employee #7 and built out the original node dispatch system.

http://techzinglive.com

I'm not sure exactly what show he started working on it, might need to go back to 95. Full show list here:

https://www.dropbox.com/sh/frnqzndys9j3vc1/P7jHgH0BQK

Hustle recognize hustle but which podcast episode is it dude? There are 300+ eps at that link.

You guys ever going to do another episode Justin? I still have Techzing in my podcast app list, hoping it will light up again with a new episode sometime.

What motivated Travis's decision to hire someone else rather than develop the initial version himself?

I just spent 10 minutes looking for it and couldnt find it.

I think that's a really interesting concept. People think Uber will reach a scale where either it can use automation to reduce costs or jack up prices. It may well be the other way around - as it matures regulations catch up and the loopholes it was using to keep costs down disappear and their costs slowly increase instead.

Or that terrible customer experiences which are currently "exceptions to the rule" end up becoming the norm at whatever they pay drivers/charge customers... there are only so many good drivers and customers/contractors burned by bad experiences will not come back to Uber's platform.

Where I live (in Norway) we are quite well accustomed to bad experiences with overpriceed taxis and bad customer services with existing taxi companies (in large operated with immigrant drivers). Uber would give so much more transparency and security for customers that I'm baffled that it has not been allowed yet

See how well Gojek and Grab are eating Uber's lunch across Asia. Better experience and lower costs.

Places like NYC already show this in practice.

Can you elaborate? I don't have any context on this other than taking a Lyft in NYC once.

> It's a really weird reality, because typically the worst kind of place to start a company is one with huge barriers to entry that requires a ton of money to get started. Yet that seems to have done quite well recently.

That is the case if a normal person is starting a business. However, for venture capitalists, it is different.

The asset they have is a ton of money, so they are looking for businesses where that provides them an advantage. They WANT to fund a business that requires a ton of money and has lots of barriers to entry, because that is their strength.

> how is this supposed to create wealth for anybody except the shareholders who got in early with cheap valuations?

Spoiler alert: It's not.

The primary goal of a VC-backup startup is a positive return to its VC backers. Everything else is a necessary evil to attain that primary goal.

Now for the million dollar question - how is this different to a ponzi scheme?

It isn't JUST a ponzi scheme, but to some degree it sure seems like it is in part a ponzi scheme. Public investors pay back VCs and the entreprenuer and then get shafted. Actually, let's work through the Wikipedia definition line by line.

> A Ponzi scheme ... is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[2]

One distinction that could be made is that the entreprenuer isn't actually paying investors back himself. Rather the investors are finding new investors and re-selling their shares up the river.

> The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds.

In a very literal sense, when you invest in Uber's Series A and then sell your shares on an exchange after IPO, you are aware that your profits are coming from other investors. However, I think in a pretty meaningful sense people believe the value of the company has increased due to 'product sales or other means'.

It seems like a Ponzi-like startup is not illegal because it's not as deliberately deceptive nor is it schemed by a single party/person, but rather it's more the creation of the entire market and what is really causing the profits/payouts is more up-for-debate.

(I should have used the legal definition though, not Wiki.)

So it is different to a Ponzi scheme in that it has legal deniability, not in effect.

The dividends that are paid by the company are the ones that differentiate a public company shares from a ponzi scheme. In a Ponzi scheme, the earnings are from future investors money but there is no concept of dividends ... where one earns based on how the company is actually performing.

So... you're saying that the entire market is currently churning out legal ponzi schemes? Or is it that the entire market is itself currently a ponzi scheme?

Either way, I get the distinct impression that I've seen this movie before and I didn't like the ending.

Don't forget the other group of people who benefit: the users of the app.

How much of that benefit is purely short-term though? In a hypothetical world where Uber and Lyft's current pathway to profitability never pans out, what are the ramifications. The most obvious one is that their fares will increase by 25-50% depending on the market, pricing them well above the legacy taxi services that existed before the arrival of these VC-backed companies. The second most obvious ramification is that many of those legacy taxi services have been run entirely out of business in smaller markets. My home county of 1m+ people is now down to 1 shady taxi service with a handful of ancient, beat up Crown Vics (last produced in 2011) and they only hang on due to the incredibly low standards for taxi regulation in our region. If Uber and Lyft fail or become far less useful due to cost increases, there are significant barriers to entry for a new, clean, and professional taxi service to enter the market as they don't get to play by VC rules and have to start a highly capital intensive (for a small business) operation by conventional rules while only being able to attract a customer base entirely through conventional means of marketing, and all at a very small cost advantage versus the ride sharing giants.

>How much of that benefit is purely short-term though? In a hypothetical world where Uber and Lyft's current pathway to profitability never pans out, what are the ramifications. The most obvious one is that their fares will increase by 25-50% depending on the market, pricing them well above the legacy taxi services that existed before the arrival of these VC-backed companies.

For most U.S. cities that Uber/Lyft now service there really wasn't a taxi service before them. You could get one at the airport and possibly in certain other areas of the city like by major hotels. Everywhere else it was call a company and maybe they'll show up at some point.

if there is a demand I'd expect something to come up

Note that Uber/Lyft do something the taxi companies can not. They scale to meet demand. If 1000 drivers are needed between 6pm and 8pm then they'll likely get 1000 drivers. Taxi companies can't do this as they'd lose money on drivers and cars when all of them are not in use.

I don't really understand the point you're making. Why do small taxi companies have any more right to exist than Uber/Lyft? Or what exactly are they better at than Uber/Lyft that would justify keeping them around?

Any driver who was formerly driving for a small taxi company could simply drive for Uber/Lyft. So what is the benefit of having management be local vs centralized?

Because they make money and they are being all corporatey in their big corporation buildings!

Local artisnal petite bourgeoisie businesses only available to middle class people living in downtown urban areas are the only moral form of capitalism! That and when you get tired of the city and decide to start a farm in rural Oregon.

>fares will increase by 25-50% depending on the market, pricing them well above the legacy taxi services

Hahaha Right now they are 1/4 of taxi prices. Or at least last time I rode a taxi.

until the VC-subsidized pricing goes away and they're stuck paying more than they ever did for taxis.

This is really just about the dynamics of mobile hailing and logistics.

Of course it's cheaper than actually calling a Taxi dispatcher, verbally providing a pickup location, and paying cash.

But how much cheaper?

Uber, Lyft, Grab and others are in the business of figuring out those margins... and riders will pay rate increases as supply and demand equalizes.

> cheaper than actually calling a Taxi dispatcher

But we have apps for hailing Taxis...?

These do all the automated hailing, tracking the taxi for pickup (got my anxiety levels down quite a bit, I've had taxis not come for important trips), as well as payment and ratings (optional).

> payment and ratings

Underrated, never felt cheated out of a lyft or uber. I've even tipped.

You've nailed their single differentiating unique selling point.

Not really. Before Uber I’d say ~50% of the drivers I ordered never showed up. Missed tons of flights this way

Most 'small businesses' are not startups. Far from it.

They are shops, restaurants, contractors, accountants.

Even most 'big companies' are just small one's that grew into something. Starbucks, H&M, IKEA. They were never the kind of 'entrepreneurial' in the Valley/Startup sense.

It's why VC/Valley is so focused on tech because there are inherent multipliers.

Uber and WeWork are providing a value add. Both of them have upped the game in some way. Yes - the funding bubble distorts everything miserably but that doesn't take away from the fact that people want cheap and fast rides, and they want cool places to work.

The current VC-funded startup economy manages to combine the worst vices of central planning (capricious allocation of resources) with laissez-faire capitalism (impoverishment of those not at the top). It really is a terrible failure pattern.

One way to combat this as a small business is to be in it for the long haul, like pinboard

Thats an excellent question. The real answer lies in 2 things: (a) Fiat money, and thus (b) Artificially low interest rates.

As long as the money printers, keep printing, and also keep interest rates at 0%, then all sorts of market distortions will continually be produced as the dream of some return is better than the promise of none.

>The reality is that a VC-backed company can simply outprice any competitor

this assumes bad ideas get enough vc funding to do what uber is doing.

they dont.

Elizabeth Holmes would like to have a word

She got 1 VC investors if memory serves.

It looks like she raised from more than 10: https://www.crunchbase.com/organization/theranos#section-fun...

Keep in mind that this may not change when driverless cars become widely available. Maintaining a fleet thousands of driverless cars may prove to be more expensive than crowdsourcing a vehicle fleet.

There's either two possibilities for the self-driving future.

1) Hardly anybody owns cars anymore. When we want to get from point A to point B, we just call a driverless car from the network. But this type of service is a natural monopoly.

When people are ridesharing everywhere, the network with the biggest fleet, becomes the stochastically fastest and cheapest option. Plus add in the fact that they're collecting a lot more data to constantly improve algorithm. This is a winner-take-all market with fat monopoly margins for whoever wins. If Uber prevails, it's likely that their profits will be larger than the entire global auto market.

2) People still mostly own their own cars. They're driverless, but people like the convenience, customization and sense of personal ownership with having their own vehicle. Ridesharing is still an out-of-the-ordinary option for unconventional lifestyles or special occasions.

But in this world, Uber doesn't need to own their own fleet. The same crowdsourcing logic still works. Personal vehicle ownership means a huge number of idle vehicles sitting in people's driveways. Without the pain-in-the-ass factor of actually having to be the driver, expect a lot more people to put their car on Uber's network.

1) doesn't work except in narrow circs, because there will always be an uncomfortable delay between ordering and arrival. And there are a lot of situations where that's either inconvenient (e.g you're cold and getting rained on) or more inconvenient (missing a flight because an event has removed all the available cars to the other side of the city.)

2) is a huge insurance headache. And most people aren't going to want strangers doing random things in their cars - whether it's leaving crumbs on the floor, spilling booze, or having sex.

It's the AirBNB problem - the service starts off well with high quality buyers and sellers, but over time the reliability of both degrades.

My guess is that 2) will be tried for a while but will not appeal to most owners. 1) will become a thing, but "popular" self-drive-sharing will acquire a sleazy and low-rent reputation.

0) will be an expensive upscale service with guaranteed nice cars and quickest possible delivery.

But (square root of minus one) will be something else entirely - a new disruptive AI-enhanced service that gives users live local price and availability updates on everything, from transport to deliveries to fast food to accommodation to special items.

This will algorithmically disrupt the algorithms of the disrupters, who will of course complain that it's unfair that technology is destroying their core business.

Possibility 3) The self-driving future is decades farther out than Uber/Tesla/Waymo's marketing suggestiosn and the rest of the business drags them under before it matters.

There’s a third possible future, where a significant number of individuals buy autonomous vehicles as investments, effectively renting them out on a rideshare aggregator as one might buy an investment property to rent out.

However, this aggregator almost certainly won’t be Uber or Lyft. It’s very unlikely that the time between now and ubiquitous, consumer-level AVs will be shorter than the time before Uber is acquired by Verizon for pennies on the dollar.

if I build a self driving car why would I see or lease it? I would go for the monopoly you painted. I truly believe this is Elon's dream. Figure it out and they will claim you can own a self driving car for $300/month. Don't worry about the parking, garbage or maintenance. Just use your phone to request a car.

Not following how this is a natural monopoly. There aren't barriers to multiple companies operating large fleets.

In fact the market is likely large enough that multiple large companies will.

3) Is implemented in a socialist model. Government creates a public company behind it, provides some of the initial investment, privates provide the rest; prices maintain to help pay for it (+ private quota), even though costs were cut significantly; decrease/fluctuate prices over time to match costs (maintenance, fuel).

You got yourself a national fleet. Note, that my comment does not necessarily has the US in mind.

I can't fathom how.

If you maintain a fleet of thousands of driverless cars, there are at least some economies of scale you can leverage: More negotiating power with your suppliers, the ability to purchase consumables like fuel and tires at wholesale prices, the ability to have your own in-house team of mechanics who can specialize in just your fleet, etc.

If you crowdsource it, a lot of that stuff is going to have to be purchased at retail prices, which will raise the bottom line. You might be able to hide from that by capitalizing on some information asymmetry, by paying the people you crowdsource cars from less money than it's costing them to let you use their cars. But that's presumably only going to last for a short time, until private car owners wise up.

> You might be able to hide from that by capitalizing on some information asymmetry, by paying the people you crowdsource cars from less money than it's costing them to let you use their cars

People are notoriously bad at properly pricing the depreciation of their cars.

Until they starve, but P.T.Barnum covered that point.

>the ability to purchase consumables like fuel and tires at wholesale prices, the ability to have your own in-house team of mechanics who can specialize in just your fleet, etc.

But they don't purchase any of that stuff now, so doesn't matter if you get to economies of scale. I understand that when you remove the driver, a huge cost goes away, but it's replaced with having to own and maintain a vehicle.

If uber drivers make enough to make their cars a worthwile investment, then I'd assume a fleet of driverless cars are profitable.

Do Uber drivers make enough to cover complete vehicle costs? I remember reading that after total costs of ownership (depreciation, insurance, gas, maintenance, etc) Uber drivers really aren't making much.

There are so many ways to slice and dice those numbers. Drivers who already own a car they aren't going to get rid of would be paying a lot of those costs anyway (other than wear & tear and fuel). Taxes are all over the place; some pay 30%+, others nothing.

What it really comes down to is the ratio of cost of living for the driver to the amount they take home after buying gas. If I'm almost broke, want to buy more stuff than I can afford, and know I can get $100 worth of rides for $20 worth of gas in less than 2 days, the decision has already been made. As long as I have close to the same buying power, this will remain true.

It's a delicate balance, though, and when you're competing against people in more dire straits who maybe aren't as good at math, at a certain point it could become unviable.

As of 2018 it was something like $8.55 an hour median in the US accounting for costs of upkeep.

https://www.theguardian.com/technology/2018/mar/01/uber-lyft...

The drivers may not make enough money:

https://www.ridester.com/how-much-do-uber-drivers-make/#2

As a general rule, drivers should devote 20% of their earnings to insurance, maintenance, gas, and repairs. When this is accounted for, the average Uber driver earnings are barely above the poverty line.

The best way to think about Uber is a reverse loan on your car. If you need money in a pinch that's a way you get it but it's not a way to actually make any sort of decent living.

Right, but with an AI driver all of those earnings that put a human slightly above the poverty line go into Uber's pocket.

Uber drivers use their cars for stuff other than Uber. It's a way to make additional money from something you already have. That would not be the case if Uber had its own fleet.

Why couldn't the same logic work in the post-self-driving future?

If I own a self-driving car that sits in my garage from 8 PM to 8 AM, why not just put it on the Uber network and have it make money while I sleep?

As long as people still own cars, why does Uber ever need to own their own fleet? If anything without the actual pain-in-the-ass of actually having to be a driver, I'd think a lot more people would crowdsource their idle vehicles.

If a lot of people did that, I'd expect payments to drop to somewhere around the marginal cost of operating the vehicle which is mostly mileage-based. Or below because there's no shortage of people who need money now even if they realize they're basically borrowing money from their future self.

> As long as people still own cars, why does Uber ever need to own their own fleet?

Because when people without cars need cars is correlated with when people with cars are using their cars.

Who needs a ride from 8pm to 8am? Nobody except drunks. Sure you can send your car out, but you need to plan to get up early every morning to clean the puke out.

Most people follow similar schedules: they go to work at rush hour, ride with co-workers to lunch around noon and then home during the second rush hour. If you are willing to let your car out 6am to 8pm you got some possibilities - but this is when you need/want your car for your own convenience.

> Maintaining a fleet thousands of driverless cars may prove to be more expensive than crowdsourcing a vehicle fleet.

And to get to the point where it's cheaper might take decades. With Uber's burn rate there's no way it gets there.

Also, unless you are the sole IP owner of pivotal self-driving tech, it will just be a commodity that all ride-hailing services pay to use, meaning that price competition still implies the same poor margins as for traditional regional taxi operations.

Or you can have both, if car owners send their self driving cars out to make money on your platform.

I'm not quite sure everyone discussing this, including the economist article author, is in the loop with why Lyft and Uber are getting valued the way they are. Wall Street is not paying for a taxi company, they are betting that Uber and Lyft are the best poised to first rollout driverless ride sharing, i.e. one of them will own and monopolize patentable tech that the mass public wants to use. The existing experience is a commodity business where profits go to zero, that's well known and old news.

That's like investing in Yahoo in the .com bubble. Uber and Lyft's only asset is the interface between the customer and the driver, not self-driving cars.

It's very easy for someone to come up with an app to order a robotic taxi. This is probably the easiest part of the robotic taxi business.

It's so much so, that unless Uber or Lyft's service is essentially "free," a robotic taxi business will probably consider the cost of working with Uber or Lyft not really worth it and bypass them. They might also prefer the experience of users sticking with their own app in their own walled garden. The robotic taxis will probably have large stickers in them that say something like, "order your next car through us and $AVE!!!" (Just like how JetBlue encourages customers to use jetblue.com)

Or, to be quite honest: If I can actually hail a robotic Tesla taxi next year, I'd rather use Tesla's app instead of Lyft or Uber's app.

This isn't my idea man... It's literally the reason why large investors are in Uber and Lyft. No VC's are dropping money on commodity businesses.

Well, the VCs have cashing out in the next 6 months when the lock ups expire. The question is what the valuation will be then.

I agree, but will it work? If customers stubbornly pull out their lyft app despite the discounts...

It's just old-fashioned brand loyalty. If you like a particular kind of car, why deal with a middleman?

Driverless ride sharing isn’t coming, in a meaningful way*, in the next ten years, I’m willing to bet my house on that.

Meaningful such that it actually delivers monetarily

While I would agree with you, driverless tech is in fact the reason behind the valuation and balance sheet deficit. No large investors at this point think they are going to get a dividend paying profitable commodity business.

*edit for grammar

>Driverless ride sharing isn’t coming, in a meaningful way*, in the next ten years, I’m willing to bet my house on that.

You'll have to expand on 'meaningful'. I can see driverless tech being used in specific use-cases between specific locations along controlled or established routes (example, moving cargo between a seaport and the train depot).

I don't see driverless being available as a general purpose consumer vehicle that you can summon to pick up your buddy and drive back to your work.

Do you plan to short UBER on amount of your house cost?

That would be a bet on both rational markets and lack of driverless technology. That's a very different bet.

We absolutely can make some bets if you are serious.

Can you restate this with fewer weasel words?

Define "delivers monetarily" and I might be willing to take the other side of the bet.

What about Waymo in the Phoenix area? Yes, that's a limited and perfect area, but still, it works very well there.

Happy to take that bet. How should we do it?

Patents are not valid indefinitely. Given the ridiculous amounts of money thrown at this, patents will probably expire long before the break-even point is met.

Besides patents, Uber has no way to bind customers. Yes, it's a commodity business, and I see no way around it. Users can simply use a different and cheaper car, which will inevitably exist and become popular.

Both rideshares subsidize about half of what they pay drivers, but their deficit is not nearly half of their total revenue. Take out the drivers, profit tomorrow. Patent good for 20 years. That's about as juicy as it ever gets.

Take out the drivers and you have a company that makes short term rentals of automobiles to consumers. There are already companies that do this. You may have rented a car from one of them last time you traveled. Take a look at Hertz or Budget and see if those are companies you actually want to be invested in.

And regarding patents: what will probably end up happening with self-driving patents is that there will be a bunch of different entities (everyone currently working on self-driving tech) that will cross license their IP to each other. A patent in this space is going to be good for licensing fees, but not for giving yourself a monopoly on self-driving tech.

The patent may last for 20 years, but that might also be the time required to develop driverless cars and get them approved.

Well... the last patent that makes driverless actually feasible in the real world will last for 20 years, and for most of that time the development will already be done.

Approval? That's another matter.

If it’s about driverless ride sharing why don’t you buy stock in a company like google that makes money and is developing driverless cars, instead of a taxi company that loses money.

Google could build everything Uber has in a weekend once Waymo gets driverless cars working.

Because Uber and Lyft are pure plays.

Why would either be best placed to take advantage of driverless ride sharing?

Why do any of their curre t activities make you think that?

No, in its current state, they can't be profitable. Other transportation options will become more desirable if Uber had to truly charge what it costs to transport a customer so for now and the near future they have to subsidize the rides which kills the possibility of profit.

Autonomous cars will help but that won't happen for years, 5-10 maybe more. Additionally, if autonomy becomes a reality for Uber it will happen for other modes of transportation too so they will have to compete there too. That will be even harder since it's easier to get a bunch of cars working once the tech is available.

Also Uber will not survive as it stands now. Regulations and public pressure will eventually force it to conform to something similar to a very large cab company.

Every industry eventually gets hit by consolidation. A business of individual drivers can be even more profitable if it joins drivers into groups. They become more reliable, they cost less to maintain and they gain power that they can leverage against large industry actors. Maybe then, it will become profitable. But that won't happen until the industry matures.

I wonder if self-driving cars will be like Fusion, but instead of always being 20-40 years away, it's always 5-10 years away.

I do really feel like Waymo will prove successful in specific environments THIS year and increment slowly, and eventually our transportation habits will change to better utilize a cheaper, safer form of transportation.

But I wouldn't be surprised if I'm still saying that ten years from now.

The mouse changed the way we work, and it got commoditized. Just because a company was first to adopt and make a business out of a disruptive technology doesn't mean it's going to corner the market with it. In fact, history shows that it's not the best approach to be the first adopter of a technology (Kodak, Altavista, etc..)

My observation - Uber is starting to have hard times competing on local market. The quality of local competitors - their apps, fleet and service overall is growing and Uber seems trying to reduce costs in this situation, which probably won't help in a way, so to speak.

It seems like it it's the same with shared bikes. The only one making money are bikes manufacturer.

Outline Link: https://outline.com/endjbs

    If someone else might own the copyright to it, don't submit it. Outline is for reading pages that:

    1) you own the rights to,
    2) is in the public domain,
    3) constitutes fair use, or
    4) you have consent of the copyright holder.

Re Competition Taxis or Uber are not always the cheapest way. One of my friends used to do a lot of travelling to Tokyo on work assignments. The others from the company always hailed a cab and ended up paying $100 for a trip from the airport to the downtown hotels. My friend would jump onto the Tokyo subway and was always there at the hotel to greet the rest of them when their cabs would arrive. He usually paid just a few bucks for the subway token. Myself, I would sometimes get rides in the day from people I just met on the plane. But then it was a more trusting time. But maybe there is an app there that pairs people arriving in the same town. Those that have their cars in the airport parking lot and are willing to share a ride and those that are willing to pay a few bucks.

With all of the ride sharing companies burning money it seems like the real bet here is being the last one standing. If Lyft folds, Uber will have much more leverage to play with the margins.

This is basically it.

I have a choice between 4 services in my city. I pick the cheapest one whenever i want to go somewhere (Thanks VC cash burn)

Last man standing gets the monopoly.

Theoretically, couldn't they just fire almost all non-maintenance engineers and continue running the app without building new features? Wouldn't that make them profitable instantly?

Stopping expanding would probably have a bigger impact. Are they really doing a lot of new features/incremental infrastructure development at this point? (Though I don't know how much they're still blowing on self-driving.)

This might be ignorant, but I've wondered about this for a while.

Isn't Uber essentially a software company? The drivers doesn't get anything besides their share of the fares?

According to the free part of the article they've lost 7.9 billion dollars since 2009.

How expensive can it possible be to develop and operate their software? According to some sources uber takes a cut from 20-25% (although some claim much higher fractions in practice)

http://www.businessofapps.com/data/uber-statistics/#6 claims ~10B _quarterly_ revenue for 2018, with net loss at close to 1B. (EDIT: seem the revenue is counted as full fare price - not ubers cut, so that brings "actual" revenue to ~2B/Q)

How are they not making money..? Lots of normal taxi services have booking apps too. If they IPO it'll be interesting to see a more detailed breakdown of their costs.

EDIT2: found the IPO prospectus including some numbers: https://www.sec.gov/Archives/edgar/data/1543151/000119312519...

I want to talk to someone who has invested in Lyft (or plans to do so for Uber) through the public markets and is in it for a long-term buy and hold. Like someone who really thinks the share price represents the net present value of all future cash streams for Lyft/Uber.

I think I'd have a hard time finding someone like this. You don't have to believe the company will make money, you just have to believe you can sell your piece of the company to the next guy for more.

> You don't have to believe the company will make money, you just have to believe you can sell your piece of the company to the next guy for more.

This is why people invest in gold and dogecoins.

> you just have to believe you can sell your piece of the company to the next guy for more.

Almost sounds like a Ponzi scheme

I always try to bring this up in re: Uber/Lyft et. al.:

https://www.ianwelsh.net/the-market-fairy-will-not-solve-the...?

> Here is the thing about Uber and Lyft (and much of the “sharing economy”).

> They don’t pay the cost of their capital.

> The wages they pay to their drivers are less than the depreciation of the cars and the expense of keeping the drivers fed, housed, and healthy. They pay less than minimum wage in most markets, and, in most markets, that is not enough to pay the costs of a car plus a human.

> These business models are ways of draining capital from the economy and putting them into the hands of a few investors and executives. They prey on desperate people who need money now, even if the money is insufficient to pay their total costs. Drivers are draining their own reserves to get cash now, but, hey, they gotta eat and pay the bills.

Tesla is in the best position to win in this arena. As the article points out it's cutthroat so the one with the lowest costs, acquisition and operation will win.

Telsa makes it's own cars, the cars have super low operating costs: built for 1m miles, almost no ongoing maintenance, powered by electricity that is already much cheaper than gas and will continue to get cheaper. And finally no driver with self driving software.

No one else has this combination attributes for the lowest cost operation. Though it could be Tesla after it's bought by Google.

Uber wants to be the Walmart of taxis where they start with super cheap pricing to hook in new customers and then turn the switch on once everyone is dependent on them.

It'll be very hard or impossible for Uber to be a monopoly and having more competitors means the prices will have to compete to remain attractive to people.

An unlikely idea for Uber becoming profitable is if they form a cartel with Lyft and other Uber-esque services to give all users no choice but to pay the high prices, but then they'll be competing with traditional taxi services once again.

I think Uber can easily make money if they function more as a marketplace and less as an opaque transportation company.

Their job is to connect riders to potential taxi providers (which is what they are, since they're all 'contractors'). Contractors could have a rating that's viewable before accepting a ride offer from the driver.

Fire almost all of their staff, just need a skeleton crew to keep the webstore and ride-match stuff up. Stop wasting money on self driving stuff, it's never going to happen. Take a flat rate per-ride, done.

It’s so very hard to find any ride share profit Signal within all the Noise of monetary policy and VC weaponisation of capital.

Airlines at least have the possibility of temporarily defending margins on city pairs with mismatched supply/demand.

Perhaps surge pricing on ride share is an analog to that.

The accumulated debts of ride share players seems akin to picking up pennies on ground getting stickier and the steamrollers are accelerating.

It will be interesting to see what happens if/when full spectrum subscription ride share options become available.

They have other lines of business. I think Uber Freight has a lot of potential to make money (and might already be doing so?). I'm a little skeptical of Uber Eats, though.

What's the point of these speculative pieces that just list pros and cons? Give me actual projections, explore what it would take for them to be profitable. Otherwise it's just not that interesting

The people writing these pieces have neither the depth, nor the insights to generate those projections. If they did, they wouldn't be writing blog posts for ads clicks.

Will the Patriots win the Superbowl? Will Brad and Angelia get back together? Will Biden beat Sanders?

So much of the news is now just speculative junk where after you finish reading the article, you realize you got nowhere and just wasted your time. Sometimes I'm embarrassed at how much time I've wasted on junk news.

"Uber can't make money and here is why" is a factual claim and news. Those are the stories that the economist should be writing. "Can Uber ever make money" is pure speculation and a waste of time.

Authors who write for the Economist are anonymous, so there’s little incentive for making a bold call because there’s no payoff for being right.

So UBER is just an more advanced cab company. You call a driver to drive you from A to B. It tries to under cut the traditional cab company significantly, and unfortunately that means a loss is needed until they can get rid of drivers using autonomous systems. At that time when it will also drive the cost down as they will Not be the only one with autonomous systems. It will look more like a commodity unless you are an monopoly

The same way Amazon can make shareholder money back. Stay out of reach of the law forever. In ueber case it bets on cutting out the trad taxicompetition- one way or another.

Means ueber will want to be the market structure provider like Amazon for rides Haring and bets on becoming mandatory for all mobility related services.

It really jars the mind- all those billions betted against trust busting.

Here’s the full article: https://outline.com/endjbs

Uber isn't in the taxi business, it's in the self-driving car business. Taxis with drivers are just a stopgap, just like DVD's were a stopgap for Netflix.

The Economist is right that there are few real network effects or moats around the taxi business. But Uber's valuation depends on it:

- Developing the best driverless tech

- Being able to roll driverless taxis out to an established customer base faster and at far larger scale than anyone else (main advantage over Waymo/Tesla)

- Using a headstart in driverless tech, compared with huge data advantage from millions of Uber rides, to maintain the #1 position

Of course all this depends on Uber being able to develop the best self-driving tech, and getting such a data+scale first-mover advantage to stay ahead of competitors.

Skeptics will say Waymo will have the best tech, and expand/scale its taxi service effortlessly, and thus that Uber's existing customer base doesn't provide any advantage at all -- everyone will just jump ship from Uber to Waymo.

As a customer I would just use whatever is cheap, safe, and fun. Tesla M3P, no chatty-but-dull driver = cheap, 5+ star safety rating = safe, and performance = fun.

Uber will eventually profit from long-term SAAS+Ops+robots contracts with municipalities and governments, assuming they can grow/operate for that long and out-lobby and out-execute Lyft, Ford, Tesla, Google et al.

I would say.. no?

The optimal solution would be an exchange that provided order books with bid/asks for each passanger and driver.

Alternatively you could have a real-time auction to make it easier for the passanger.

The exchange could take a 5-10% cut on each ride.

If I was a car manufacturer I would invest heavily on Uber. The fact that people need to have a new car to work for Uber is one of the main factors that keep the auto industry out of recession.

people need to have a new car to work for Uber

Quite the opposite. There have been complaints in this thread about how the cars are getting shittier and shittier.

For Lyft for Oregon the car needs to be 2004 or newer for most of the smaller cities, 2009 or newer for Portland. https://www.lyft.com/driver-application-requirements/oregon

Uber is much the same. 15 years old in rural areas, 10 years old in Portland. https://www.uber.com/drive/eastern-oregon/vehicle-requiremen... https://www.uber.com/drive/portland/vehicle-requirements/

Realistically, a 10 year old car is closer to "junkyard" than "new".

I feel like there is a hidden metaphor for OSS companies hiding in this article:

> Customers benefited, but no one else did

Customers being the users of OSS, the ones not benefiting being the companies making it

Well, this may drive a crowd away, but maybe the best way for monetization is to make Uber a subscription based thing. Obviously, it would have to be cheap though.

Moviepass tried do so the subscription thing on a very large scale and that didn't really work. Netflix pulls it off since they own most of the content and some of the distribution network.

It didn’t work for Moviepass because they were trying to sell a subscription at a price that was less than one movie a month.

AMC is doing it quite successfully. The difference?

- they made a deal with the movie distributors to account for all shows to be sold for $8.99. AMC keeps 50-70%. Worse case, AMC pays $6.30 per movie. Movie Pass had to pay the full retail price.

- AMC has crazy margins on concessions. Add to that the theatres with bars and full restaurants.

- They make money on pre movie advertising.

Netflix pulls it off because they have nearly 0% cost of goods sold, so it doesn't matter how much you use Netflix, nearly all of your subscription price contributes to profit. Not so with companies that sell physical goods and services.

Or developing driverless cars and shoveling all the profits.

Is Uber yet selling the information on who took a ride, when, from where and to where? I expect them to monetize that. Privacy? Is that something edible?

I would love an all you can ride monthly subscription. I know Uber/Lyft have done limited trials but nothing truly an unlimited subscription.

I would totally Moviepass the crap out of this. Road trips across Utah and the Colorado Rockies, Pacific Coast Highway, etc.

Amtrak used to have a similar pass arrangement.

There would be limits for this to work, like a geofence

http://archive.is/LP5BL

Uber can't make money from taxi service. It's trying to mimic Amazon model where profit comes from subsidiary service. Uber is yet to find such thing. Without valid profit source I don't understand how SEC approves an IPO for a license to suck away average joe investment. Uber is walking a very thin line between being a hoax and a business.

Uber is not making money? How? Why?

Their expenses are higher than their revenue.

If I bought 10 McDonald's franchises today, my expenses would be higher than my revenue for probably the entire first year if not more.

If things are going well, and I make another bet by buying 10 more, my expenses would continue being higher than my revenue (even if the first 10 stores become profitable).

If I keep doing this, I may not show a profit on my balance sheet for a long time.

This example illustrates why "expenses are higher than revenue" doesn't reveal anything and that such a simplistic picture of a business is useless.

What would it reveal if your marginal costs were greater than your marginal revenue? Has anyone done a cohort analysis?

They're blowing a ton of money on R&D for autonomous cars. Also they are spending a fortune on lawyers to fight every municipal cab company in the world. Also, their business model is undercutting the existing competition, which makes big profits hard to come by.

Here's two answers:

https://twitter.com/neilanalien/status/627873374505562112?la...

If there is enough demand. So if people stop buying cars and rely on Uber then maybe.

Uber's plan is to own every car once self-driving cars are realized.

Uber might make sense as a public utility. If it's going to lose money no matter what, why not fund it like public transportation? Lots of taxes on the back end offset by user fees to take some of the sting off and mitigate overuse.

> If it's going to lose money no matter what, why not fund it like public transportation?

Why would we as a society care if Uber exists enough to socialize the cost of it? I kind of like using Uber, but probably not enough to justify footing the full bill for it (thank you VCs).

Yes Uber can make money, once they have an EV that selfdrives.

Yes, as soon as the car drives itself.

Tesla rents out their ai customer owned fleet taxi service to Uber and Lyft

Why use uber? Just take a bicycle...

Uber prints money on non-pool rides in mature markets. The losses are all going to fund expansion and single-rider pools.

I think they print money on pooled rides in certain cases too. Especially going to/from the airport.

source?

https://www.sec.gov/Archives/edgar/data/1543151/000119312519...

$940 million in Contribution Profit in 2018 and that does not net out new markets and non-pool rides.

So, to re-affirm more emphatically, Uber prints money on non-pool rides in mature markets.

No. Relevant article by an expert:

  https://www.nakedcapitalism.com/2019/04/hubert-horan-can-uber-ever-deliver-part-nineteen-ubers-ipo-prospectus-overstates-its-2018-profit-improvement-by-5-billion.html

What is the point of this article? If you're going to ask a question, do some work to actually find an answer.

Betteridge's law of headlines:

  "Any headline that ends
   in a question mark can be
   answered by the word no."[a]

This opinion piece makes a compelling case that profitability will be hard to come by for Uber, Lyft, and their various smaller competitors.

[a] https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...

Uber made 997 million in profit in 2018. Read the S1. ️ #fakenews

Where do you get this from? They lost $3B in 2018. Uber's S1 clearly states as one of their risk factors to maybe never make a profit.

Whether or not it makes money, Uber is making cities more polluted and less safe already.

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