Uber Lays Off 400
nytimes.com
nytimes.com
Need more users pre IPO to juice the growth story -> Hire more marketers -> Cut costs post IPO
I'm not arguing it's effective, but it's certainly a reasonable outgrowth of the various goals they've had over the last year or two.
> Need more users pre IPO to juice the growth story
Or, "VCs tell us we need to spend their investment quickly in whatever areas will generate a hockey stick growth in valuation. We can always fix our business model when we're ready to."
> Cut costs post IPO
Or, "We no longer answer to our VCs. Now we answer to the public market who cares a lot more about the fundamentals of our business. Now we need to improve our fundamentals to push our market cap upward."
The VCs do everything they can to drive up the valuation, except make money. They then sell their shares to the public markets for an incredible profit and let them deal with the problem of actually making money.
I fear venture capital (and Silicon Valley) is much more about value extraction than value creation these days. I am still somewhat young so I have a limited frame of reference - maybe it was always like this.
Obviously you can find examples to support either side. Amazon and Facebook weren't the money making machines (for all the talks of Amazon not making a profit, AWS clearly does and their free cash flow is insane) they are today when they went public. But there are far more companies that didn't turn out that way.
Travis Kalanick was very clear that Uber could not survive without self-driving cars. And that doesn't seem to be panning out.
But the number of tech startups that go public is small. Only one YC backed company has ever gone public - Dropbox. And it seems to be proving Steve Jobs right. It was never a product, it was a feature. It still doesn’t have a clear road to sustainable profitability.
Even out of the few that have gone public within the last 10 years, most of the tech darlings still haven’t become profitable.
I think the real irony is that AirBnB is their biggest darling, and it's not a tech company. The history of that company is very interesting, going back to Paul Graham making a note of them being the first founders without a technical background to get into YC (the third cofounder who is technical was added to the roster later on, or at least given the title).
That said, I have high hopes for Stripe, Ginkgo Bioworks, Gusto, Docker, Gitlab, and some of their other companies (not that they'll necessarily go public, but that they'll become real companies - I'd argue this describes twitch).
Maybe I'm being too optimistic with Gitlab. I know next to nothing about their business, other than hearing good things from people who have used it.
That said, I doubt I would've seriously considered investing in any of them except for Stripe until the previously listed companies had shown significant traction. I'm actually somewhat pessimistic about AirBnB's valuation 5-10 years from now compared to today.
But then, I thought for sure the iPhone was going to flop. So what do I know?
Docker is just as much in danger of being clobbered by the cloud providers as ElasticCo, Mongo and all of the other open source companies. AWS is making money off of us running Docker. Docker itself is not making any money from us.
If you think about it, most of the venture capital goes in financing duds. That's an unfortunate truth about entrepreneurship. So a VC is more or less forced to extract as much value as possible from the successful ones. Not saying it is right or wrong but stating the way things are working.
VCs use their capital and connections to create moats around their investments to make their industry unprofitable for all competitors.
The VCs are still locked in and haven't been able to sell afaik? The public markets have 6 months to figure out fair price before they get theirs
Effectively bypassing the lockup period, and insuring any downside to the share price for the cost of the interest on the loans, while maintaining the opportunity for any upside.
They've effectively done one better than just selling the stock.
We were taught as children the market returns 7%/yr. People took this too seriously.
This has all the signs of the housing bubble.
If you're interested in tech layoff data covering people who work in the San Francisco Bay Area, read an analysis that I published: https://medium.com/layoff-aid-blog/tech-layoffs-are-surprisi...
They’ll say “saudi investors bought into secondary offering at X share price” instead of “round completed at Y valuation!!!” Which is just X share price of last purchase multiplied by total shares in existence
Public companies can do secondary offerings from treasury or from creating brand new shares from nothing (dilution)
Liquidity is one of the benefits
Planned payout is, and has been the same ever since limited liability companies were invented by humanity: excessive cash flows plus liquidation value of corporate assets at end of life. Hoping on anything else is speculation (nothing wrong with that, but it is just speculation, i.e. trying to sell to the greater fool).
If you take out a ton of debt while burning through cash reserves then your market price plummets. Same with issuing new equity, through dilution. At least pre-IPO, the investors could lock in favorable pay outs on their funding rounds - now this is all visible to the public investors.
I think Beyond Meat are currently demonstrating the perils of doing a secondary offering whilst the company is unprofitable.
so this is more of a hilarious red flag of incompetence, if one planned to add to a position in this
but it does the prove the point that the company and shareholders have many financing options: the issuer is unscathed here, they will create shares and exchange it for $50,000,000 or maybe $40,000,000 due to the 20% drop from announcing it, oh no. Those private shareholders are still planning to make 9 figures.
I fully admit that I'm not in marketing, so there are surely nuances I don't know. But that scale of marketing department is orders of magnitude above any other place I have worked, with the possible exception of IBM in the 90s. Just maybe... this was a reasonable move.
For a company that's about the gig economy, they make some strange staffing choices.
Because of differing cultures, we respond very differently to color palettes, design aesthetics, safety concerns, cool factors, etc. And since the entire point of marketing is to sell, then the the brand's visuals, branding strategy, responses to concerns, etc, all have to be completely customized for the local market in order to engage customers.
For example one common difficulty tech companies often encounter while trying to enter Japan was how difficult it was to acquire and retain users compared to anywhere else. Some gave up, some would keep trying, and surprise—it would magically work out when you hire a local ad team, local designers, art directors, etc. Western companies' sleek, advanced designs are easy to use and navigate, but the locals understand that culturally, the Japanese society resists change. They are used to early day yahoo/geocities level of banner ads and flashing gifs on a page so that they can feel certain that what they are using can be authentically catered to the Japanese people and supported. Overly simple designs like a Bootstrap framework was simply too frightening, new and confusing.
Same can be applied to pretty much anything from fashion, beauty, food, retail of any kind, to things like Uber, which specifically has its own complexities to solve while trying to enter a taxi-efficient market like that; a completely different marketing problem to solve than say Australia's safety concern as you mentioned.
TL;DR: Can't easily centralize marketing because local cultures and needs are always different; and you need locals to know what locals will want/engage with.
They've most likely (wisely) decided to centralize those decisions, so not a huge surprise.
FWIW, the operations teams (small, local, non-technical teams stationed random cities around the world) built Uber into what it is today. Scaling/automating those jobs was always an inevitable.
They spent ~$3,200,000,000 ($3.2 billion) on sales & marketing in 2018 of which ~$1,800,000,000 is direct media / HR cost to drive customer acquisition.
In 2019 this number, as of the first quarter, has gone up substantially to a >$4b run rate.
With a burdened cost of $150k/yr for every single member of the 1,200 marketing team that makes up $180m of the total.
Uber operates in 600+ international major markets.
1200 employees (5% of organization total) covering and executing nuanced marketplace approaches for a budget of that scale is not out of range.
(1) https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spend...
In 2019 that number as of Q1 has shot up to a $4b+ run rate:
https://investor.uber.com/news-events/news/press-release-det...
- -
Even more interesting in that number.
The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts".
This is the line item for costs where they pay a driver more than they collect from a customer.
So they put the "customer discounts" number, which represented $1,400,000,000 in total expense, into the marketing budget.
Leaving ~$1,800,000,000 spread for all other sales & marketing activities.
I am very in the weeds in the 2-sided logistics marketplace customer acquisition data if you have other questions :).
The gigantic and unsustainable CAC numbers experienced by Uber, Lyft, and others is due to the present level of competition for these drivers & customers. This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach.
This cost has now been handed off (in the USA anyways) to Lyft & Uber stock holders. Somebody is going to run out of capital or experience a precipitous drop in stock valuation that will force the market's hand here and reduce demand and re-normalize.
It is financially unsustainable for this # to keep climbing as a percentage of revenue barring a massive change to the cost structures.
The only massive change imaginable in the structure was when Travis got away for a few years claiming autonomous would cure all, this is obviously not going to happen in the timeline he was pitching.
I think that the CEO taking a hard position and firing 400 people in his marketing department is a good indicator that when they next report earnings CAC is going to be a huge mess and maybe shed some light on how UBER plans to navigate that downshift.
(2) Will drivers still drive if this incentive is taken away? -=> Yes, following my comment above I think that the current CAC and retention numbers will normalize (for one or other other of the major players) and that the delta savings will be pushed back into increased driver wages.
(3) What are some of your favorite interesting insights from that data? -=> Outta steam sorry :)
Do you think it is even possible to have a winner takes all in the global hire car market? The barrier to entry is exceedingly low.
>Coca-Cola has made a yearly commitment to large ad spends. In 2017, the beverage manufacturer spent $3.96 billion, in 2016, $4 billion, and in 2015 $3.96 billion on global advertising.
But I'm not sure if that's a comparable figure, as "advertising" is only a subset of "marketing". Still, if the latter is basically just the former plus salaries, it still suggests Uber is overpaying and/or has some inefficiencies in how they operate here.
[1] https://www.investopedia.com/articles/markets/081315/look-co...
>Driver incentives. Driver incentives refer to payments that we make to Drivers, which are separate from and in addition to the Driver’s portion of the fare paid by the consumer. For example, Driver incentives could include payments we make to Drivers should they choose to take advantage of an incentive offer and complete a consecutive number of trips or a cumulative number of trips on the platform over a defined period of time. Driver incentives are recorded as a reduction of revenue to the extent they are not excess Driver incentives (as defined below).
>Driver referrals. Driver referrals refer to payments that we make to existing Drivers to refer new Drivers onto our platform. Driver referrals are recorded in sales and marketing expenses, as they represent the receipt of a distinct service of customer acquisition for which there is evidence of fair value.
https://www.sec.gov/Archives/edgar/data/1543151/000119312519... (pp. iii)
EG they put ~$300,000,000 of the "Driver Incentive" cost into "Cost of Revenue" line item that represents:
- "Any amount paid to a driver that exceeds the revenue earned by that driver (for instance, if a driver’s earnings from a trip exceed the fare for that trip). Excess driver incentives jumped by about $300 million in 2018 from the previous year, largely due to Uber Eats."
And then they stick $1,800,000,000 into "Sales & Marketing" representing:
- "Discounts, promotions, refunds, and credits for customers,"
- - - -
A popular criticism of UBER is that their unit economics are not sound - eg they can't make money at scale on a per ride basis.
So this giant $2.1b glut of Driver Incentives and Customer Incentives is one of the areas to deeply study and build a position around if you'd like to be an UBER stock holder :)
These retention numbers, for any business that needs returning customers or service providers pretty much make or break all the customer/provider acquisition economics.
In Australia we've got drivers advertising other services directly to riders. Most of these are probably subsidizing rides to enter the market, but how long can uber continue losing money as competitors try and enter the market?
Creating a monopoly then jacking up the price. Not doubt shafting drivers and their customers.
So some developers with VC money can develop an app, launch in a city, and force Uber to cut prices, because people will be happy to install a FastRyde app and get rides for $3 less than Lyft/Uber.
As others mentioned, its not hard to clone Uber. They don't even have the network effect of Facebook or Twitter. No one cares if their friend uses Lyft and they use Uber, they just care about the one time they make a journey, and how much it costs (along with safety I suppose, but that is an extra cost Uber try very hard to avoid).
The drivers are free to run whatever apps they want simultaneously, because Uber only works when exploiting them as "contractors" free to choose when and how they work.
I think Travis Kalanick was right, they need self driving cars, now...
Where the unit economics get completely messed up is Uber Eats. In my local market (Wellington NZ) the eaters are paying a flat delivery fee of $5.99 to $7.99, while the drivers are being paid $5 per pickup and $1.35 per km. This results in drivers earning anywhere from $5 to $20 for each delivery -- and that's without even taking into account any driver promotions. No wonder Uber had to come up with an "excess driver incentives" line item!
Sometimes Eats will have the driver pick up two orders at the same time. This lets Uber collect two delivery fees from the customers while only paying the driver a single pickup fee plus the kms from restaurant to customer A to customer B. In theory this should work in Uber's favour. But their system all-too-frequently will make insane assignments, such as batching together two orders for customers that live in completely opposite directions. There will be situations where the customers have each paid, say, $7.99 for delivery... and the driver ends up earning $30 from the trip!
So this is cutting very deeply into the 35% commission that Uber charges restaurants on the total order value. They're trying to hide the insane unit economics of Eats by spreading the various revenues and costs around different line items...
Turned out that avoiding empty trips in transportation is hugely dependant on volume by time and region. It is also a very hard problem to solve as you need to match availability data from busses (which needs to be collected in a scaleable way), trips (which need to be in the correct regions and times) and then simply come up with an optimization algorithm to sort it all out. Peace of cake... Not. Especially if you want to link that to your pricing already during customer booking instead of after-the-fact discounts.
One might suspect that the transportation industry which has the volumes and the cost pain of empty trips might already have solved it if it woupd have been that easy.
Hiding $1800m of ride discounts under Sales and Marketing feels deceptive. If a store advertises "summer sale, 30% off!" for a month, you can reasonably call that marketing spend.
Uber is different. If my flight's leaving in 1h30m, I pull out my phone, open Uber, type in LAX, open Lyft, type in LAX.
Say Uber is $17. Lyft is $20. I pick Uber. If there's a "promotion" going on under the hood to produce that $17 number, is that marketing? It's really just price competition in a cutthroat, negative-unit-economic market.
Given that, Uber laying off 400 people has a dual effect. It's cutting sales spend. It's also creating news to distract from the fact that >50% of the sales spend is really per-ride losses.
Marketing has large budgets to spend (multiple of their salaries) on marketing campaigns. They're usually incentivized to spend as much as possible on whichever marketing campaign they can come up with, with little accountability on whether it brings any ROI.
It's the equivalent of software engineers wanting to use the latest tools for resume building, no matter the situation. The difference is that marketing lives on spending money, hence cutting headcount there has a big multiplier on cost savings.
By the way, a lot of marketing is still not quite metrics driven. Unlike the internet, when spending money on national TV, sports teams, tube station ads, there is little feedback that can be captured.
And even on the internet, how do the new junior marketer learns that google/facebook ads don't have a positive ROI for his use case, assuming he's measuring at all? That's by spending a few million dollars in vain.
Anyway, that is not to say that marketing is useless, it's an important aspect of some businesses. The capital costs involved are fairly high though and can quickly spiral out of control. A big part of the marketing/advertising industry is a scam operating at a loss, an elaborate conduit to transfer money from the client to the advertiser.
Maybe it’s because I’m from a small country, but can a single country have more than one “major international market”?
A "major market" is basically a city/metro.
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
It was ridiculous. There was no real money, just app developers paying each other for installs.
https://danluu.com/sounds-easy/
> I can't think of a single large software company that doesn't regularly draw internet comments of the form “What do all the employees do?"
Granted he's mostly talking about engineers, but I'm sure someone more knowledgable about marketing could write an almost identical essay.
I also can't think of a single large software company that doesn't, in the long run, survive by either endlessly buying and extracting all the value out of smaller software companies, or creating a moat that makes it almost impossible for new competitors to emerge.
Having worked for a small software company that got acquired by a large one that used the former survival strategy, and therefore witnessed firsthand the subsequent doubling of headcount and simultaneous halving of overall productivity, I can offer one of what I assume are several possible answers: Paperwork. And lots of it.
To take the example of support, pre-acquisition, the support team had a reputation for being one of the best and most knowledgeable in the industry. That reputation went up in smoke rather quickly when the acquiring company decided to merge support into their existing support vertical and adopt its existing policies, including things like requiring the support and the product development teams to communicate through JIRA instead of using informal channels like instant messages or (in exceptional cases) pulling a developer into the call.
The end result was that the mean time to find a resolution for the non-routine issues went from hours to days. Ironically, while management claimed this would reduce disruption for the development team, it actually increased the time that developers had to spend on supporting the support team, since it made communication so much more difficult. Which, in turn, means that it slowed down both customer support and product development by bogging them both down with paperwork.
The promise of software at scale is that the marginal costs of selling one single additional unit are basically $0.00
As a result if your product sells for $500 you can spend $495 and still make money.
This leads to all sorts of adventures in driving that additional marginal unit sale such as:
- Localization - eg Microsoft Office is available in 102 languages! So now we need a local market product manager, sales team, distribution team, translator, QA, etc, etc.
- Enterprise - Huge swaths of money spent on conferences, thought leadership, any bullshit you can think of to potentially get a decision maker CTO to befriend somebody on your sales team.
- Government! - Selling to the gov't is extremely profitable but extremely long and complex sales cycle. Now we're hiring lobbyists, contract specialists, etc, etc.
- Support - Happy users are your mostly likely next buyers
etc etc
Of course all these employees are doing something. People will always invent more unnecessary work if the budget is there.
If the budget isn't there, the unnecessary work just isn't done and nobody notices.
Ever notice there isn't marketing for potatoes, bread, rice, etc. ? People buy those things anyway. The latest smartphone? gotta convince everyone to buy it.
At my last company engineering spent $10m installing fiber into some remote community. The marketing for that project was $15m.
So the marketing around "doing something" costs more than actually doing it.
If your numbers are correct it sounds like some kickback scam.
According to this survey[0], only 25% of people even know what "fiber-to-the-home" means. Not a perfect proxy for "fiber" itself, but I imagine most non-technical people are not aware of it.
[0]: http://www.bbpmag.com/Features/0714feature-ConsumerSurvey.ph...
How are normal people supposed to know fiber to the home is actually fiber?
Gotta pay all those salaries somehow.
That's why films are often known as flops even when they make their "budgets" back. You're not in the money until you double the budget.
edit: Also, considering the vast majority of that marketing money is spent before the film comes out these days, and all the sales are made within a month - as much is spent on convincing people that a film that nobody has seen is going to be good as is spent on the film.
The driver aren't employees. The cars in the fleet aren't their assets. The insurance is handled by someone else and there is no licensing.
Uber, itself, is just an app with a giant marketing department. The app itself isn't even that different than it was in 2011. 99% of the functionality that people actually use is exactly the same as it was when they started.
It’s so hard to not get into this state during rapid growth, and to get out of it, and return to being a focused, lean, efficient (and eventually profitable) company, layoffs are basically the only answer. Often LOTS of layoffs. In a few years, I’ll bet many other departments at Uber are hit the way marketing just was.
1) I never subscribed to these e-mails
2) The e-mails contain a link to unsubscribe in this format: click.uber.com/f/a/<strings>
3) You get redirected to uber.com/unsubscribe
4) They make you manually fill your e-mail
5) When you press unsubscribe:
- It makes a request to uber.com/api/unsubscribe?email=<email-address>&et_job_id=&et_list_id=&et_batch_id=&message_uuid=&content_identifier=
- Response is always 404 Not Found (Tested on Firefox, Chrome, IE, Edge)
There was a good year or so period where I ran into 4 or 5 critical bugs that stopped me using the service entirely for days or weeks at a time. One of the dumbest was being unable to enter a credit card because the form required a field that wasn't being rendered. 6 months later I switch credit cards and again can't use the app for weeks because it wants a 5 digit postcode even after setting the country to 'Australia', but the server side check was still working and 86'd any combination of bs 5-digit code that was working.
Several times I've had something go wrong with the ordering system itself (on the UberEats side). Once an order was put through twice and two meals showed up on my doorstep. Another time I copped a cryptic error message followed by a Javascript crash and my card was charged but no order was logged upon refreshing the page (which indicates to me that something wasn't properly atomic and maybe some business logic was happening on the front end that shouldn't be? Presumably fixed now, I hope)
Even right now, as I type this, there's a bug on UberEats introduced in the last few days or weeks that's leaking variable names through to the front-end. I've got 'components.BadgeSoldOut.message' and 'components.CartItemCustomization.upTo' all over the place. I'm sure when that gets fixed another one will crop up next week.
404s and broken systems seem par for the course.
This was after I reported that my 72 year old mother was asked to get out of the car by the driver after sitting in it, because he learned of the destination after starting the trip and did not want to take her there. Uber does not show the destination to the driver before starting the trip.
I was probably speaking to a bot, or nobody had the patience to fix the problem.
Edit: I haven't used Uber since that incident.
The food delivery companies just need to figure out these problems, which a hard, for non-pizza foods.
That said, a lot of food delivery is some high school kid driving his car around mostly working for tips. You start tacking on the costs of a large delivery-as-a-service company and your costs go up a lot without all that much economy of scale.
With just delivery services there is a lot of standing around time.
Most pizza delivery is an ancillary service to the restaurant itself. Are there very many profitable pizza-delivery only businesses?
Also you could argue that for the genre of restaurants where delivery is profitable as an ancillary service (pizza, chinese, etc.), they already offer delivery and there isn't any profitable market for the restaurants where they didn't have it before.
I read all this in a book ages ago but I was skimming through some wikipedia articles that mention some of what I'm talking about if you're interested:
Are you sure? Seems like the restaurant mostly exists for marketing, awareness, and as a place for people to not come in and eat.
90% of Pizza Hut’s orders are deliveries. 65% of Domino’s are deliveries. Over the entire industry, carry-out and delivery account for over 75% of revenue (delivery alone is 30% or so).
• https://www.cnbc.com/2018/12/05/pizza-hut-execs-dissatisfied...
• https://www.reuters.com/article/us-dominos-pizza-delivery/do...
• https://www.statista.com/topics/1610/pizza-delivery-market/
Also according your statista link, delivery only accounts for 30% of revenue in the pizza industry.
Pizza Hut has already moved into EM markets (like Africa) and is gradually expanding. Domino’s could do the same thing, and probably better with their superior tech stack.
In theory this could work better for some food delivery companies as they charge the restaurant rather than produce themselves and run the overhead of stores, etc.
But I can't help but notice that these numbers are all for US, and US is a very prosperous country with low income inequality and high-paid workers. In other countries, where labor of low-level workers costs less (compared to the purchasing power of those who order delivery) it could be a completely different picture. Here, I earn a salary which would be around middle-class in US, and yet, my Uber ride usually costs around $3-4 (as opposed to $30 in the article).
[0] https://www.livemint.com/Companies/9cuyxq0GMXuDWaGuMWYsZL/Sw...
[1]https://inc42.com/buzz/zomato-in-talks-for-1bn-war-chest-to-...
[2]https://www.livemint.com/Companies/cjK3T36vZl1easaVBMXVNN/Sw...
In my naive view they are "just running an app" / acting as a mobility marketplace and they make money on each transaction. Given the traction and market dominance they have this sounds like a really attractive business. So how do they manage to run such big losses every year and which items on the expense side are so crucial for the business that nobody at Uber dares to cut into them?
My guess is that their traction and market dominance are far more fragile than you think. Because their drivers are contractors and not employees, they can't be forced to only work for Uber, so even though they created the pool of drivers, they have not "captured" them. So a huge cost is the ride subsidies which maintain their market position. Once the ride subsidies end, there is no reason that a locally focused company can't compete for the same drivers and riders.
From what I've read, when Uber started their app technology was borderline magical (pushed the boundaries of what smartphones could do), but since that's no longer the case, there is much less of a barrier to entry.
If the price of the rides were correct, they'd lose market share to competitors, and fewer people would be willing to pay them.
Then there's local competition. Most countries have their own uber-like startups, which may be competitive in other areas.
And as others have mentioned, this business model doesn't scale very well. For every new country they enter, they have to hire new teams, do the marketing, put themselves into the laws of the land.
But I specifically think the law-aspect is the largest risk to them. One local ruling could basically wipe out their margins and business model, and essentially put their investments at a loss in said country.
It's not like they can enter a country with a 100% absence of established Taxi companies - wherever they go, and have gone, there have been opposition that's tried to get them classified as a regular taxi company.
Assuming their chart is representative of an average booking, $1 in excess incentives corresponds to a $10 booking. If so, 15-20% of their bookings appear to produce no revenue and cost money through excess incentives. They must be doing this to stay ahead of their competitors and/or encourage people to use the app.
Once the gross revenue picture is done, you have the relatively fixed operating costs. They are spending a fortune on marketing and consumer incentives, as are their competitors.
Overall they lost a bunch of money but made up for it through selling off the Russia/SEA businesses for a few billion. They also marked up their investment in Didi (which I believe they spun off before). But that's a paper increase.
So, they could become leaner. They also may continue to grow their way out of the hole. They do make money on most transactions. But becoming operating-profitable is a matter of putting competitors out of business and increasing demand for rideshare generally. They also need to get people to pay for the currently unprofitable trips. (Personally, I wonder how often they are leaving revenue on the table with their incentives.)
They are constantly running promotions to encourage drivers. They are constantly running promotions to encourage riders.
It's not clear that they make very much if riders and drivers are at the regular rate either. They've got to pay the merchant fees for all the card not present transactions, and maybe platform fees to apple and google, too?
My general impression is that Uber and Lyft have artificially inflated the size of the ride sharing market by subsidizing rides with investor money.
It seems to me that they have a lot of physical growth, so what is happening to their finances?
That's what I keep getting stuck on. It's getting easier to compete with Uber and I don't think that's going to change. They have a well known brand but even that feels like it's on verge of becoming genericized.
I live in NYC, and there are half-dozen major rideshare apps here in some form - but I often travel to places where, if there is any major service operating there at all, its Uber... maybe Lyft, but certainly not Via or Juno or Gett or any other smaller names.
I don't want to load my phone up with a bunch of different apps and give my data to a bunch of different companies, so guess which app I use even at home where I have plenty of options? Uber. The barrier to entry of getting a new local competitor up and running is small, but the convenience of being able to stick with one provider no matter where you are is big.
Upstarts will lose a lot if they offer shared prices without matched riders.
We also have Express Pool where you get picked up / dropped off at some walkable distance from your actual origin/destination to make it even cheaper for the consumer and more efficient for drivers.
At one point Uber was even competing with the bus / streetcar with a special ride type where you would have to be picked up or dropped off at specific points along one street but they discontinued this.
I would definitely consider these sorts of shared rides as a moat.
Just looked at an Uber trip in Toronto, and the breakdown is:
Express Pool: $8.44
Pool: $11.25
UberX: $17.38
They've been doing this to grab market share for the last decade. Undercutting competition is not a profitable business.
They make profit from some rides. And the amount of profit matters, too.
I think self-driving is the cold fusion of the 21st century, but the reason unlicensed taxi companies are pursuing it is because if, by some miracle, it comes to fruition, it might make their business viable, but it would be hard to compete with an automaker running autonomous taxis when you have to buy your autonomous taxis from the automaker you're competing with. If they can build it on top of existing cars, it makes it more possible to compete; and if they end up with an enabling patent, it means they'll probably survive in some form.
Right now, all of these are fully on the drivers. This will turn around if Uber rolls self-driving cars worldwide.
Uber wouldn't work if they owned the fleet - it's a huge advantage to just be the app + ops + acquisition costs
That's not my understanding of the figures, which say that they're charging plenty enough to cover the costs associated with the ride, but are blowing lots of money on aggressive marketing. The transportation costs (i.e. driver pay and customer service) are not what's killing them.
I virtually completely stopped using Lyft//Uber since they increased prices in SF. I know a lot of other people that stop using them also. Most rides are above 15$ which is above what I'm ready to pay to get somewhere in the city. I walk, use my bike or drive whenever possible. The new price point simply doesn't make sense anymore.
And in most places, customers are way more price sensitive than I am.
This is the story of just about every Valley startup. Seemingly greater losses the larger the userbase grows. When asking how this is possible, everyone will answer "you just don't understand, this is a good thing."
Uber's main expense is the driver. The vehicles pretty much always stay the same size so they don't actually benefit from economies of scale. And drivers (and customers) are fickle; most drivers and customers have more than one app on their phone. If Uber hikes prices or slashes driver compensation people will just leave. Uber has a growth story if you believe that AVs are just around the corner, but that's a pretty big if.
Uber mostly made it to the IPO with the help of Softbank, one of if not its largest shareholders. Softbank had a $100B Vision Fund. With that kind of money you could be unprofitable for a while and still be a going concern.
AV only offers a growth story if you believe the drivers' earnings are high enough to more than cover the additional costs to Uber of buying, fueling, and maintaining the AV fleet. With AV prices likely to be significantly higher than traditional vehicles for the foreseeable future and since most studies show drivers' net income near minimum wages this seems pretty unlikely to me.
https://investor.uber.com/news-events/news/press-release-det...
Generally, you would go to the 10-K to get a quick snap shot.
I direct you to look at the "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS"
You can see that they made about 1.4B (in Q1) after paying the drivers but then they spent 2.2B on:
Operations and support, Sales and marketing, Research and development, General and administrative
Note, of these categories, Sales and Marketing was the largest and eliminating it completely (not recommending this) would get them to break even.
The problem with Uber is that their technology isn’t that innovative and their platform isn’t that sticky.
If Uber wants to take a loss on my ride, I'll be there every time.
Last I checked, Uber made money on each ride in New York and San Francisco. The model can make money. I just don't know if it can make money everywhere.
I suspect this is actually mostly propaganda and exaggeration, and that the actual practice—to the extent it exists—is more like offering a small sample to a well-known existing customer.
I have first hand experience that this does indeed happen...
Drug dealers have a desire to expand their customer base just as much as any other small business but have very limited ways in which to do so.
Mostly it seems to be propaganda that drugs can be addictive after a single hit, which is complete BS.
Meh, but let's also not pretend that they didn't make a lot of money by working for a company that treats the people that provide the actual service, the drivers, like shit.
.75 persons per market? While I'm sure that cost ads up, in terms of "human resources" it's relatively minor at best.
IIRC, it was somewhere near minimum wage. If you can't make a profit or are far from profitable and your front line workers are making that little money.... how do you ever without dramatically raising prices?
I really doubt corporate office cuts can achieve it.
1) These cuts appear to be exclusively in the marketing department taking department from 1,200 to 800 - that is a BIG ASS cut of 33% [EDIT from 25%].
2) Seems like this was a warning shot by CEO Khosrowshahi who comments "[M] any of our teams are too big, which creates overlapping work, makes for unclear decision owners, and can lead to mediocre results." - I'd be doing my best work @ UBER right now or warming up the resume.
3) Uber has >25,000 FTE worldwide as of article writing.
https://www.latimes.com/business/technology/story/2019-07-29...
Uber operates in >600 major cities across the world at this point.
1200 employees would indicate about 1 person per market per side of the market.
It is much more nuanced than "let's be centralized" and the idea of handing it all over to an agency is a joke.
Marketing / customer acquisition is literally their highest non-driver line item by a gi-fucking-gantic amount.
Sales & Marketing represents $3 - 4billion dollar cost vs a total marketing payroll of ~$165,000,000
There are absolute returns to pull out of each market by having localized expertise and control.
The fact that even on HN the consensus to my thread is that this should be outsourced indicates the degree to which UBER has masked their real DNA - this is one of the world's largest direct response marketing agencies with a ride-sharing platform attached!
If the CEO is taking head shots at marketing you can be absolutely sure that under-performers in the rest of the organization are on notice.
https://www.cbinsights.com/research/report/how-uber-makes-mo...
https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spend...
Now that they have something nice built and are all over the world, it's a great time to cut costs. A lot of the people they've hired probably have some equity and so they're probably just fine getting laid off after the IPO.
> Average: $67,935
And that's for a manager. 40k may be a little low, perhaps they're making 50 or 55, but it's not unreasonable for a normal marketing job.
That's lab rat money. I'd say 5-10k more, so we're close, but that's a double digit percent difference from 40k.
30 million, 60 million, 80 million. Point still stands.
They might also have a small amount of shares as part of their compensation. Paper money that will never leave the Uber accounting book now.