Uber And Lyft take more from drivers than they say: survey | Hacker News Reader

Uber And Lyft take more from drivers than they say: survey

jalopnik.com

99 pointscleansy77 comments

Seems we are developing an economy of almighty middlemen. Apple taking 30%, these guys are also in that range. When I was contractor there were agencies that would often take 40% or more cut.

There was this dream of the internet enabling the smallest players to be able to sell directly but instead we have these powerful institutions that take a huge cut out of every transaction.

We see this because small players have a visibility problem: if they stick to their private little corner of the internet, they have to put a lot of effort into getting noticed and attracting customers. Likewise, customers also have a harder time finding good offers if they are hard to notice. Centralized market platforms (Amazon, app stores) reduce that offer on both sides by pooling both sides and making them accessible to each other. And because of the inherent networking effects, these platforms can ask a nice premium and still be attractive.

This is a really bad trend. The little guy never develops a reputation. Let's say you are the best Uber driver or the best Amazon merchant with a perfect track record. The day Uber or Amazon decide to cut you off you lose everything. You have nothing to show for.

it would be better if these platforms were neutral entities that just connected sellers to buyers in an efficient way. But they try to totally control the sellers.

Back to the contracting example. For a while I worked with an agency that took only a 3% cut for filing paperwork with the big company. they provided an efficient service for both buyer and seller (me). But the 30% guys are just parasites that control the market.

> the 30% guys ... control the market.

Why is that? Is it because they were providing a superior service? If they were providing an inferior service, how did they control the market?

Because many of them created their market space years ago and are now so established that it's difficult for a competitor to stage a worthwhile effort to draw revenue away from them. Because they have so much money available to them they can even afford to deal with a challenger by dropping their prices/rates lower than that competitor, operating at a loss for however long it would take for that competitor to die off, and then go back to business as usual(the "Walmart" strategy).

You refer to this as the "Walmart" strategy, but I don't think that's a standard interpretation of Walmart's strategy. From what I can tell, Walmart is more focussed on the long term, contracting with supplies in ways that allow them to keep prices low enough to prevent competitors from ever entering the market. Can you find any examples of Walmart actually following the strategy you suggest?

https://www.investopedia.com/terms/w/walmart-effect.asp

It's generally understood that "back in the day" (whenever that was) when Walmart was going through it's greatest period of expansion that Walmart would be able to enter an area and have a negative effect on existing businesses that didn't have it's advantages (massive corporate bankroll, improved supply chain, variety of offerings, etc). Eventually those business would atrophy, often closing. At this point, the local store had established itself and was able to behave in whatever manner it wanted (raise prices, lower wages, etc) because they had essentially become the only game in town.

At this point, as they are so entrenched, they probably behave in a very different way and have different needs.

>Because many of them created their market space years ago and are now so established that it's difficult for a competitor to stage a worthwhile effort

I find this opinion (which is common on HN) hard to reconcile with the idea that established companies are "old and slow" and susceptible to "disruption" (also common on HN).

Like, no one can take out Apple's AppStore stronghold, but Tesla is going to bankrupt a century-old trillion dollar auto industry with a global supply chain infrastructure? Which one is it?

Aren't these different things, though? Auto companies aren't platforms for the small guys to sell their things.

Nobody is saying it's impossible to sell your product without going through one of the big platforms, just that it's expensive and difficult to market your product without doing so.

Also, I don't think it's ever as simple as established companies being "old and slow" so startups can "disrupt" them. Some companies are old and slow in certain dimensions, but at the top of the game in other dimensions.

Further, established companies have inertia, which can work for or against them.

I do agree with you, mostly with the point that every company/industry is different.

But I have to point out we do hear things on this site like, 'the auto industry is old and slow", and I think it's false. Some of the companies are, and some are quite progressive. Industries are rarely homogenous.

Because there are business where it is natural for customers to cluster. It is not natural for car customers to cluster since nothing stops you from purchasing from a different brand, there is little or no vendor lock-in.

On a social platform or online marketplace there is a natural tendency to cluster, customers do not want to maintain multiple social profiles or bookmark 10 "amazons".

> it would be better if these platforms were neutral entities that just connected sellers to buyers in an efficient way. But they try to totally control the sellers.

This is more true of Apple than of Uber or Amazon. There are ways to build your own reputation. You can operate your own store and your own website and also at the same time make your products/services available via Amazon for the people who look for them there first, and include information about your own website on the retail product packaging. The real problem is that building a reputation is hard and a lot of people will fail. The large majority of small business fail. That isn't something Amazon invented or caused.

By contrast, what Apple is doing would be like there being a city where Uber owns the roads. You can go where you want (unless they decide you can't), but you have to take an Uber, you can't use Lyft or a taxi or buy your own car or get a ride from a friend.

Which is a much bigger problem, because it prevents anyone from going from client to competitor. It prevents, for example, what Valve does with Steam on Windows (and other platforms), or Amazon or F-Droid does on Android. Even once you're a big enough producer to justify doing your own distribution, you still can't. But that's how distribution competitors come about, which means there can't be any, and then you're completely at the mercy of the monopoly distributor. If they decide they don't like you, or they start to compete with you in your market, or they just fat finger some paperwork, you're completely excluded from the market. Can't switch to Lyft or Walmart, can't strike out on your own, you're just dead in the water.

Most companies will never make it to the point where that matters, but the ones who do are really important because that's where competition in distribution comes from. Recall that Amazon started off as a book store at a time when Walmart was considered unstoppable.

And the platforms become middlemen. Infact, they are the definition of middlemen.

What needs to happen is a standardization and commodification of different platforms. I think Elizabeth Warren has this as a part of her campaign.

"What needs to happen is a standardization and commodification of different platforms."

Exactly. Right now the seller gets commodified instead of the middleman.

Right. The biggest problem is that they make it extremely hard to compete with them.

Being a marketplace, it's hard for another player to capture enough of both sides of the market to gain momentum. Buyers will just go to the big players, which can then take a hefty 20+% commission. It's a hard-to-break circle. Any ideas?

Other examples: Booking.com, AirBnB

Lanier's local-global flip.

Is that any different from other industries?

Marketing, processes all cost money.

Every party in the chain wants something.

Retail (at least used to) have 30-50% margins

Want to sell ringtones? You pay the channel.

Hire sales? They want a high commission. Lower if you have a big brand / marketing behind you

Code/driving/“the product” is only 20% of the game. And often not the most difficult to do at a sufficient level.

How is it that Uber is losing money? They have such a huge amount of income, There is an Uber on almost every block in America. They don't pay their contractors a living wage and seems to me they have extremely little overhead. They don't have to maintain cars or even have an HR department for their employees. All they do is develop an app that does nothing special. Is it all R&D?

A transfer of wealth from the rich and the poor to the middle class

Buying market share via heavy discounts. They used to subsidy fares a lot, now it's ubereats that is subsidized most.

Could you ELI5 for this?

Think on how much cheaper rides are with Uber, Lyft, or any similar service, compared with an ordinary taxi cab. The reason for that is that you're splitting the fare with a venture capitalist.

The reason why VCs were willing to do that was that they anticipated that Uber (in particular) would monopolize ride-sharing. After that, they intended to replace the drivers (who are still the most expensive part of the ride) with self-driving cars. I spoke with a Google employee, about two years ago, who told me that everyone in the self-driving business hoped to have some big advances ready by 2021.

Turns out that autonomous vehicles are a lot harder than anticipated, so the ride-share companies have had to pivot. That explains Uber Eats.

As sketchy as Uber has been, I have no sympathy for the traditional taxi cab companies. They refused to adapt in the face of a new situation staring them in the face. The New York City medallion-owners just expected to continue farming from the cab drivers with zero effort. Parasites.

I spoke with a guy who had recently come to America and needed a ride. His friends couldn't drive him, for some reason, so they tried to arrange a cab. While they bickered, trying to find a cab company phone number, this guy downloaded the Uber app, punched in his credit card info, and his ride showed up before his friends had finished finding a cab company.

Nevertheless, Uber is a sketchy company and desperately needs regulation.

The article says they take 30% of each fare, but we are splitting it with a VC? This does not add up to me.

You get an Uber. The overall cost of your trip should be $15 once you figure in all the various costs and overhead.

But you get charged only $10. Uber has already eaten $5 of the fare for you. That money has to come from somewhere. The 30% they take on the $10 isn't covering what they've already knocked off the price.

That money has to come from somewhere. That somewhere is the VC.

The 30% they take is really only stemming the bleeding.

That's what I don't understand. What are the various cost and overhead? If a trip cost $10, the driver gets $7. You are telling me $3 to uber doesn't cover overhead? Overhead to me seems extremely small, what is the marginal cost on an uber ride to uber?

Other costs include vehicle depreciation, insurance, maintenance, gas, etc.

Hubert Horan is an analyst who goes into these costs into detail. http://horanaviation.com/Uber.html

Isn't all this offloaded to the driver though? e.g. not Uber's $3 cut

There is a huge amount of Uber right now that needs paid for but is out of sight, though. Developers for the app and infrastructure, but also entire offices of engineers dedicated to R&D for driverless cars. Eats into that $3 quick.

> If a trip cost $10, the driver gets $7. You are telling me $3 to uber doesn't cover overhead?

Your mistake (I think) is that you are connecting the costs to the prices on a per-trip basis.

In the hyper-growth phase where the objective is to gain mindshare and market share, their VC and IPO cash can be used instead of charging reasonable prices.

For your scenario it’s entirely possible that the price of the ride is $10 but the cost of the ride to the driver is $12.

That's a different discussion.

I'm not the one telling you that the $3 doesn't cover overhead. Uber is. Taxis that cost more are.

Uber is charging less than fair market rates for the services it provides. It's using money from other sources to prop up parts of the business that can't support themselves.

But their cost to run servers/app should not be costing them 30% of each ride. They should be making good profit. They are blowing a lot of money in other areas if you look at charts that outline this.

The cost of the servers, no. But there are processing fees, employee salaries, etc. If you have a link to those charts outlining where they're spending their cash, I'd actually like to look at them.

>Buying market share via heavy discounts.

Then leveraging their new-found monopoly by raising rates and becoming profitable....right?

Except that articles like this (and the multitude of others) demonstrate that this simply will not happen. Riders and drivers do the work, pay the costs and will revolt.

> They don't have to ... have an HR department for their employees

Uber has something like 22,000 actual employees. They definitely have to maintain HR departments.

not in the context of giving millions of rides a day. They don't have an HR department to handle the vast majority of their employees(the drivers) is the point.

They are burning through VC money by subsidizing the cost of each ride, thus artificially deflating its actual cost. Once the gravy train runs out, these ride sharing companies will have no choice but to jack up the prices to their actual value. You'll then have normal cab prices, but without the headache of hailing one.

> They are burning through VC money by subsidizing the cost of each ride

I've never understood that. How are they subsidizing it? They take over 25% of what the customer pays and all they have to do is run the app. Whether they charge $10 or $15 for the same ride the cost to them is the same. It doesn't make sense, they don't have any extra cost by making a ride cheaper.

Because the cost of a cab ride is not $6 to drive entirely cross town. It just isn't. Uber is popular because it's cheap as shit. If SuperRide came out, and it was half the price of Uber, no one would ever use Uber again.

But that doesn't mean Uber is losing money by offering it less. It costs the driver more to drive farther for less, Uber doesn't have a higher expense for a longer ride.

"Investor reports reveal riders only pay 41 percent of the full cost of each ride, with investors footing the remaining 59 percent."

I hope this explains it more clearly.

https://www.vice.com/en_us/article/9a3vye/uber-true-cost-uh-...

Still doesn't really explain it. A taxi ride is not 59% more expensive than an Uber, yet a taxi driver is getting paid a better wage. So Uber is definitely burning more money in other areas not related to the ride itself. In Canada now the cost of an Uber when they tack on their safety fee and booking fee is pretty much on pare with what a taxi company charges for the same ride. And now taxi companies where I am from have their own apps just like Uber to request a taxi and get an upfront fee. So now I can easily compare the two costs and see that a taxi is usually the same fee or a $1 or $2 more.

Taxi companies are better at scaling than Uber. They can do bulk vehicle procurements and sign service deals. It is no wonder they can pay wages and not be that much more expensive.

Sorry maybe I am failing to understand a concept here but Uber does not even have to worry about vehicle costs at all, not to mention no expensive overpriced taxi medallion.

December 2016. Are you really going to base your position on data that out of date when things were far more opaque?

How about using the S-1 or quarterly filings instead.

Is it really cheap as shit? I've taken cabs and Ubers around Seattle and never found that one is particularly more expensive.

For some rides (especially Pool rides, in aggregate) Uber charges the passengers less than what they pay to the drivers.

Uber also pays driver incentives beyond fares (e.g. for completing a certain number of rides).

I am aware they pay the drivers incentives, but I am not sure I agree about the Pool rides, do you have a source for that? There are plenty of sources out there which speak about how drivers dislike Pool rides and often turn them off or reject them because they make less money off them versus a normal fare. So I am not sure I believe that Uber gives the rider more, in fact I feel like Uber makes more because now they are collecting a percentage off every rider in the pool whereas the driver is paid a set amount

You won't have normal cab prices, you'll have cab prices plus the cost of Uber's 20,000 engineers as well as whatever ROI that that VC money is expecting.

As I understand it, they are able to streamline or bypass some of the regulation of traditional taxies use and offer a cheaper product this way. So it would be a cheaper cab ride plus the 20,000 engineers and profit.

> They are burning through VC money by subsidizing the cost of each ride, thus artificially deflating its actual cost.

They're not losing money on rides.

Uber is two things. A moderately profitable ride sharing company, and a loss-making VC-backed R&D enterprise working on things like self-driving cars. If they shut down or spin off their R&D they could continue on as a ride sharing company indefinitely -- they could probably lower prices because they're not using that money to supplement the VC money they're spending on R&D.

But you only separate the R&D if you think it won't ultimately lead anywhere. If they eventually actually get self-driving cars working then it's obviously to their advantage to be the same company that people are already using for car service.

Did they not just spin off their R&D?

>How is it that Uber is losing money?

Because driving individual people around in expensive cars burning expensive fuel is not a profitable business (in the economic sense). Where are all the billion dollar taxi empires? It's a tough racket. It's equally laughable that Uber's "killer app" is going to be food delivery.

But uber isn't paying for the car, the insurance, or the fuel.

Because America is not the only market they are operating in. Because ridehailing is not the only industry they are operting in.

“Jalopnik also conceded that there might have been selection bias for drivers unhappy with the cut being taken out of their fares.”

Inaccurate headline

Totally anecdotal: while travelling abroad I tried to order an Uber with my regular account and card. The process went well up to the point where I could see the price but then failed because my card was not accepted for some reason. Immediately switched to "cash" and the price displayed went down. The original price was 30% higher. The same evening I repeated the same steps with another fare and got the same outcome.

I'm not sure if this was a coincidence, some local policy regarding paying cash vs. card, or Uber doing something shady. But I asked all my friends to compare the price with the driver (or pay cash, although this may be less convenient) if they ever use Uber. I've read articles before that Uber was showing the driver a lower price than the customer in order to give the driver a lower cut. If this is the case then it wouldn't work when paying cash.

Also consider that prices are dynamic. They change by the second

I imagine this would be the case for minor variations. But I could not reproduce such a massive difference simply by refreshing the search (the differences were always after the decimal point). Also the time of day (middle of the week, ~13:00 and same day 22:00) doesn't really suggest surge pricing would explain i, especially twice.

I understand that 2 data point don't really make a reliable dataset.

How is this not directly fraud?

There is this [0][1]. As for my example above I don't have nearly enough data to draw a conclusion. But enough for suspicion when combined with the previous links.

[0] https://nakedsecurity.sophos.com/2017/04/10/uber-showing-dri...

[1] https://www.theguardian.com/technology/2019/apr/18/uber-lyft...

It's not fraud to charge different customers different amounts of money for the same service. Fraud requires misrepresentation; failing to volunteer information like "you could get this service cheaper if you paid a different way" wouldn't generally rise to that level.

It may be a breach of contract between Uber and its payment processor, though. Often, credit card merchant agreements prohibit businesses for charging more for credit card payments than for equivalent alternatives. Maybe Uber is just flagrantly ignoring those terms, or maybe it has negotiated its way out of them.

Which country was this?

For example in US the fare you pay and what the driver gets is completely different.

I think Uber/Lyft provides much broader service compared to Apple/Google's 30% percent cut for App store purchase and subscriptions , What they charge for just hosting your app and providing payment gateway is outrageous.

You're also paying for access to sell your app to the tens of millions of people that use iOS or MacOS.

It's well known that they are in the red.

The question is, if the entire business model does actually work and the good thing about capitalism is that we will see it over next 1-2 years as it's like natural selection. If drivers stick around (or self driving becomes reality), and riders are happy with pricing then both their customer bases are happy and business will flourish.

Otherwise, stock will fall and they disappear.

Something is going wrong if a middlemen takes such a big cut and still can’t make money.

The free market will tell us.

It works well for companies like Apple, Ticketmaster, etc..

That's what I tried to highlight with my post, which seems very reasonable, so I don't understand the massive downvoting.

Looking at Ticketmaster or the Apple app store it seems that a free market will lead to monopoly behavior once players grow beyond a certain size.

But that's what the consumers must have wanted. It's "free" market after all. There's no way it can be manipulated. Completely logical, always responds the way it "should" market.

Correct, if a business model works and is successful it can lead to a monopoly. And there are laws that try to tackle that.

But its going off topic because Uber and Lyft are far away from that position, they hardly have a functioning business model in the first place.

>so I don't understand the massive downvoting

I'm curious about this too. Sure, I'm argumentative and sometimes post a bit too aggressively in my tone, but I've had seemingly innocuous posts get down-voted within a minute or two of posting them.

Normally I wouldn't care, but it seems like HN has an algorithm that punishes people who are consistently downvoted ("slow down"). It is possible to game that system?

This reflects my experience with this post, it was immediately (within a few minutes) downvoted drastically.

Now it has normalized it seems and is neutral.

I couldn't imagine being told to stop by getting a message on my phone from the passenger in my backseat. Very degrading.

It's not really a message from the passenger. They updated their ride to include the additional stop (a feature), and are apparently allowed to do this realtime for the trip they are currently taking.

For the driver this would just appear like their current destination suddenly changing, which I guess you have no option to deny except for asking them to leave your car and canceling the trip entirely.

Being able to make major trip changes mid-ride is pretty crappy for the driver. I'm also surprised the multiple stop feature isn't just for simply letting someone in/out of your ride. But apparently Lyft actually encourages you to use it to stop at the store. [0]

> Whether you’re picking up a friend or a bottle of vino, just add your stop into the app and your route will instantly update — making it a seamless experience for you and your driver.

The person in the article was driving for Uber. The verbiage on Uber's site for this feature is more focused on passenger pickup/dropoff, but also doesn't make it clear whether you're allowed to spend time visiting a store. I found a rideguru post indicating you're limited to 3 minutes at a stop, but can't find this officially.

[0] https://blog.lyft.com/posts/add-a-stop

[1] https://ride.guru/lounge/p/whats-the-2-stop-rule-on-uber-is-...

Edit, found this on an Uber blog post. Do riders really know, Uber? Do they?

> Riders know that each stop should be less than 3 minutes, so you can get back on the road as soon as possible.

https://www.uber.com/blog/multiple-destinations-us/

Unfortunate,but somewhat expected given their continual operation at a loss. I’m curious who takes more.

Even if so, how does it matter?

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