Neither, and New: Lessons from Uber and Vision Fund | Hacker News Reader

Neither, and New: Lessons from Uber and Vision Fund

stratechery.com

106 pointssidhanthp61 comments

I think Uber missed the opportunity to be a more full fledged wallet (which is what Grab started a few years ago). They have a "cash" product now where you can load money, but it's too little too late IMO, and the incentive to load money vs use your cc is small (e.g. tiny discount).

Starbucks is the obvious model here...IIRC they have one of the most success mobile payment apps in the country, even competing with Apple Pay despite being relevant to them alone. They have something like $1.6 billion in balances, which they can monetize (free loan + interest).

Starbucks' annual revenue is about 25 billion. Let's say they are making a (very generous!) 5% on that balance. That's 80 million dollars or about 0.3% of their annual revenue.

Starbucks doesn't run its payment app so they can make money on the float.

Uh why would you consider it revenue? It’s more like risk free profit. Meaning they keep some tiny amount of every cup of coffee sold, but 100% of interest earned.

And it’s important enough that they call it out in their earnings report. And the more interesting use case is that it’s a billion dollar 0% loan, not necessarily that they make interest off it sitting in a bank.

And the more interesting use case is that it’s a billion dollar 0% loan

Maybe this would have been exciting a decade or two ago before interest rates dropped so far. Now Startbucks can issue all the debt it wants for...checks notes...about 2.3%.

Ok. That is still more than 0. And it will continue to be 0 whether interest rates rise or fall in the future. And you missed the other point about how they actually move gift card liabilities to assets after a certain about of time because people forget about balances, so it’s actually negative.

I think it’s a bit naive to think that holding $1.6b in balances is not useful or meaningful to Starbucks or a company hoping to emulate their mobile wallet success.

This feels pedantic, but to answer your question: because it is revenue and calling it profit is incorrect.

It may be a very good revenue source which a high margin and very low expenses associated with it resulting in a large profit, but money in is revenue and money in net of expenses is profit. Parent was discussing the former.

Obligatory Buffett-esque: "Cash isn't always about the profit. Sometimes it's about access to it."

Don't wallet plays make more sense in places without strong CC usage already? Uber is strongest in developed countries, which have a strong CC culture already.

How do you explain the popularity of the Starbucks mobile app? The fact that it rivals Apple Pay in usage is proof that the answer is no.

But people don't use it more than a special gift card and loyalty program although, and it seem that starbucks does not have ambitions to be a general wallet. I'm guessing why starbucks promoted it heavily is to reduce card fees eating into their margins and all the other typical loyalty and gift card reasons.

I'm not seeing rumblings anything close to something like grab pay coming from starbucks for example.

Exactly. The typical purchase size at Starbucks is small enough that the CC fees (which are something like 3%, but also have a minimum per-transaction cost which is something like $0.25) are problematic. If all that Starbucks gets out of it is that those people who use their wallet are paying about $0.20 more to Starbucks (and not the CC company) per purchase, that already is a win for them.

Plus, many Starbucks customers go there 5 days a week, so it is easier to get a one-place payment method used. For other places, where one shops once a week or once a month, it would be harder to get people into the habit of using their special payment method for just them.

In urban cities like SF people use Uber just as frequently. It isn't a once a week or once a month purchase. Point is Uber shares a lot of the same purchasing behavior as a Starbucks customer (low dollar, high frequency) and would stand to benefit from a similar wallet app. I believe Uber is also working with some cities to be the app to buy public transit tickets from, so there is some path forward to using an Uber wallet to buy other things.

And again, as I pointed out in my original comment, Starbucks is not just saving per coffee transaction fees - they are monetizing $1.6 billion worth of balances.

They even consider "old" balances that haven't been touched in a long time an asset vs liability (e.g. forgotten gift cards become free money).

What happens if people start ordering taxis from within Google Maps? And what if Google Maps adds more taxi services? What if Android starts integrating the function of ordering taxis that way? What would happen to Uber's value then?

You can't "own" a market unless you also entirely own the way people access that market.

Have to transition taxis from meter to set-pricing first. The uncertainty of getting into a cab and agreeing to pay an unknown price is a big part of why I avoid them.

I’ve been hit with a ridiculous price at the end of a ride enough to distrust the whole concept of giving them a blank check.

Some cities are better at this. https://www.chicago.gov/city/en/depts/bacp/supp_info/2012_pa...

That's a pretty standard taxi price structure. Open, but not clear. I have no idea based on that how much a trip will cost, even if somehow I managed to keep that whole table memorized.

It seems like it could easily be combined with or even integrated into a maps API like Google Maps. Plot the route and plug the length into the formula. I guarantee it's simpler than Uber's formula.

Been hit by that with Uber as well, due to traffic. 'You were so late you missed the first act of the show AND we charged you twice as much as we said we would!' was a fun night.

Uber has used fixed up front pricing for years.

Since I already use Maps for so many things I would definitely use it for taxis if the rates were comparable. As long as Uber is somewhat cheaper it's not that hard to open their app.

What happened if another search engine comes out, what happened another online shop opens, would Google and Amazon face extinction?

That other search engine/shop has no eyeballs aimed at them yet, so is no threat.

So you essentially saying Google can do anything successfully since they already attract lots of traffic

That actually happened. I booked Ubers and lyft from inside Maps a couple years ago.

Seems like that feature is just gone now...

If you search for directions, and select the mode of transport icon that looks like someone hailing a taxi, Uber and Lyft options are still displayed; the option hasn't been removed.

But now that just opens the Uber app. It used to book it entirely within maps.

I have booked Ubers through Google Maps.

Uber would not have a problem with that. Rather the entire future of Uber relies on invention of self-driving cars. If they get that, they can stop relying on drivers which are currently 80% of cost and reason they are not profitable.

When I was in Singapore I used the "grab" app, which is super popular and has both regular taxis and uber-like drivers (and food and other stuff).

What's different about Singapore and grab? Seems like a good model to me but it must involve heavy regulation to work.

Isn't Grab government-owned?

No it isnt: https://www.crunchbase.com/organization/grabtaxi#section-inv...

Another great post. Does anyone know what software this blog is published with that creates the hypertext bubble where the content can be extended in a little pop up?

I wondered as well, since I've seen it on Instapaper and marco.org, and always wanted something similar! If you inspect the element, you'll see some classnames that give it away: http://www.bigfootjs.com

Instead of giving me a fish you taught me how to fish in this case thanks. I know how the answer and picked up what is now an obvious method for figuring it out myself next time. Much obliged

The whole beginning of the article is based on the assumption that Uber's story is played out. I don't think we can call that one yet, IMHO the market hasn't discovered what is Uber WORTH just yet.

When does the market discover what something is worth? I only know of two main lines of thinking:

1) that the market is more or less a random walk, and prices are approximately random. 2) that the market is efficient and the price at all times accurately reflects all available information.

So Uber is either priced accurately (forever) or randomly (forever). I'm not familiar with a third line of thinking that it's random for a period of time and then accurate. Or approximate for a period of time and then accurate.

The third line of thinking is a combination of the two: "In the short term, the market is a voting machine. In the long term, the market is a weighing machine". This is a popular quote from Benjamin Graham (https://en.wikipedia.org/wiki/Benjamin_Graham), who taught Warren Buffett. It's basically the whole principle behind value investing.

The idea is that ridesharing is still early on in the monetization/profitability/growth curve. Right now, its possible to value online advertising companies (google, fb, linkedin before acquisition etc) based on some multiples of revenue and growth. What those multiples are fairly well agreed upon and relatively static. The argument above is that the multiples are not well defined in the rideshare sector, and its hard to find a stable valuation for these companies based on that. As uber and lyft turn profitable-ish in the next 6 - 8 quarters and focus on revenue growth as opposed to purely gross bookings growth as well as stemming losses, the multiples these companies are valued on are going to change a lot.

Looking at just ride sharing is too narrow. Some companies are already talking about ”mobility as a service”.

I need to get from A to B. The best way can be a combination of transport methods. Like sometimes it would make more sense to start with electric scooter, then jump to Uber. Or maybe take Uber, then train and Uber again. Or train one way, car share vehicle back.

I assume in future I will have an app that handles all this, without me making the separate bookings or checking time tables.

I’d likely pay extra for the convenience of doing everything through one company. Or maybe their monthly subscription plan is just too attractive.

I was thinking something similar, and it occurred to me, "what if the actual long-term value of Uber is less than $0?" If it's true that Softbank is still underwater on their Uber investment, then they have a big problem. If Uber (or a company like it) were trying to IPO in a post-WeWork environment, they would do considerably worse than they did, I think.

This seems to address the larger "what is a tech company" question. Laying tech over the top of what are traditional businesses doesn't seem to result in what we might expect as a tech company.

He’s forgetting that Uber’s goal is to be a driverless platform in which case they’d capture significant portions of the drivers margin. Now a software company.

On Vision Fund, he seems to think that there is only one viable VC model. I happen to disagree. Warren Buffet made a lot of money investing in boring companies, and now technology is spilling into ancient markets to transform them. Seems like those companies could be just as big if not sufficiently bigger than the incumbent.

> Uber’s goal is to be a driverless platform

Everyone keeps using this argument but I don't buy it. Uber itself hasn't once stated that this is their goal, not even to shareholders. When the company was founded in 2008 self driving cars weren't on anyone's radar. And it ignores the fact that if/when self driving cars become viable the entire "ridesharing" landscape will be instantly changed, and Uber will not have any inherent advantages over Google, Cruise, all the auto manufacturers and any other one of the 50+ companies currently in that space. Rather than connect riders and drivers they would have to buy and maintain vehicles in every city in the world.

Uber is currently, at best, keeping the self driving option open by putting some research dollars into it. The fact that they are betting the future of their company on it is just online speculation.

I think that argument was dropped, even by Uber, after the fatality.

One of the reasons I’m sceptical about Uber is the rotating mission plan.

> Uber itself hasn't once stated that this is their goal, not even to shareholders.

Uhhh what? This is patently false. So, like maybe, people think that this is Uber's strategy, because they literally dictated it was part of their strategy.

Autonomous vehicle is mentioned 103 times in their S-1. [0]

We also hope to add autonomous vehicles, delivery drones, and vertical takeoff and landing vehicles to our network, along with other future innovations.

Our Autonomous Driving Strategy

We are investing in technology to power the next generation of transportation. Our Advanced Technologies Group (“ATG”) focuses on developing autonomous vehicle technologies, which we believe have the long-term potential to provide safer and more efficient rides and deliveries to consumers, as well as lower prices. ATG was established in 2015 in Pittsburgh with 40 researchers from Carnegie Robotics and Carnegie Mellon University. ATG has primary engineering offices in Pittsburgh, San Francisco, and Toronto with over 1,000 employees. ATG has built over 250 self-driving vehicles, collected data from millions of autonomous vehicle testing miles, and completed tens of thousands of passenger trips. Along the way to a potential future autonomous vehicle world, we believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while Drivers continue to serve most consumer demand. As we solve specific autonomous use cases, we will deploy autonomous vehicles against them. Such situations may include trips along a standard, well-mapped route in a predictable environment in good weather. In other situations, such as those that involve substantial traffic, complex routes, or unusual weather conditions, we will continue to rely on Drivers. Moreover, high-demand events, such as concerts or sporting events, will likely exceed the capacity of a highly utilized, fully autonomous vehicle fleet and require the dynamic addition of Drivers to the network in real time. Our regional on-the-ground operations teams will be critical to maintaining reliable supply for such high-demand events. Deciding which trip receives a vehicle driven by a Driver and which receives an autonomous vehicle, and deploying both in real time while maintaining liquidity in all situations, is a dynamic that we believe is imperative for the success of an autonomous vehicle future. Accordingly, we believe that we will be uniquely suited for this dynamic during the expected long hybrid period of co-existence of Drivers and autonomous vehicles. Drivers are therefore a critical and differentiating advantage for us and will continue to be our valued partners for the long-term. We will continue to partner with original equipment manufacturers (“OEMs”) and other technology companies to determine how to most effectively leverage our network during the transition to autonomous vehicle technologies.

Our Growth Strategy - Investing in advanced technologies, including autonomous vehicle technologies.

[0] -https://www.sec.gov/Archives/edgar/data/1543151/000119312519...

They are doing research, and have autonomous vehicles on their long-term roadmap - that much is public knowledge. What I am arguing against is the general belief that Uber's goal as a company is to get rid of human drivers.

Reread what you just wrote. Why would a for profit company put time and effort into research for a technology that replaces humans and that not be part of their goal? I'm thoroughly confused...

I don't understand how people think self-driving is Uber's solution. Right now drivers are a variable cost. Is Uber going to buy or lease fleets of self-driving cars (that will depreciate and need to be replaced)? That seems like a CapEx heavy business and it's not clear it's a better one from what they have right now, which is only possible because it's a giant labor law hack at scale.

uber will likely be the demand aggregator for self driving fleets, as well as own a medium sized self driving fleet, similar to how amazon is a demand aggregator for online retail, as well as maintaining its own physical products for high profit/targetable areas.

there's no particular reason to believe why Uber should 1. survive the years (more likely decades) until autonomous driving is actually ready and more importantly, why Uber would be in a great position to capitalise on this, given that they don't actually own any cars.

Any large car manufacturer would be perfectly well positioned to partner up with an app startup to deliver autonomous sharing services themselves, given that they already have control over the distribution of the vehicles. Or one might even imagine that blockchain technology eventually lives up to its hype and some distributed solution makes the need for an intermediary unnecessary altogether.

I think the value of a brand is under-estimated by HN in general. Brands make people do irrational things and brands do form moats. So while the hardware might be owned by someone else, is it hard to imagine that Uber might be the first association that 1bn people make with "needing a ride"? My answer is no, it's not hard to get there given what I know.

No doubt that car manufacturers will partner with a non-Uber software company. And Uber will partner with someone for hardware. I feel like we could look at how industries consolidate and have an educated guess about how it will play out: some car manufacturers combine to gain more leverage, some create their own proprietary software, some try opening up their cars to multiple software options, one manufacturer exclusively partners with Uber, etc. Phones and computers come to mind as probably sharing _some_ parallels.

So I think the question in our simple discussion is whether the value of the brand and internal knowledge of the software side (data, et al) outweighs the value of having the hardware figured out. And maybe given that this is complicated, it's less about who is in a stronger position and more about who executes better while pursuing that strategy.

This is a great article but I doubt many people will actually make it to the second half...where everything is tied together.

https://stratechery.com/2019/what-is-a-tech-company/ - should really be read first

I read that article when it came out, and I still don't really understand the obsession with putting a "tech" or "non-tech" label on companies.

Besides that, there are companies that do not satisfy the author's definition that are pretty clear "technology" companies (e.g. Intel).

What explanatory power does the label have?

It means different business strategy. Tech companies can have massive revenues without having many employees. They write software, this is the initial big fixed cost, then making a copy of the software or servicing another customer in a SaaS is extremely cheap. This has not started with software - a factory has the same characteristics in comparison with manufacture: https://medium.com/hackernoon/aggregators-bffd36063a72 - but with sofware it goes on another level. The Stratchery article is great in analysing all the angles of this.

The point is that there's nothing particularly "tech" about these companies, unless you're redefining the word completely. They're scalable companies. They're low marginal cost companies. They're software companies. Fine. But that's not what a "tech" company is.

This pervasive notion that the "tech sector" is software companies from the Bay Area is creating an engineering brain drain that seems oblivious to the fact there's technology in literally every industry, and it's probably damageable to innovation.

The Stratechery analysis seems to me to just restate obvious things using homemade terms ("aggregators") and doesn't explain much. I must confess I still don't understand the hype around that newsletter which to me has the style and substance of run of the mill B-school case analyses. I wish there was a "tech sector" equivalent of Matt Levine.

In common language you might call a software house a tech company - but in the context of business it is good to have a term that would distinguish companies that are good candidates for facebook or google like growth. The "What is a tech company" article is an analysis of what that means.

I kind of agree that Stratechery does a bit of word juggling - "aggregators" are a good example of this - but I still like his writing because there is more in them than just that :)

I found it incomprehensible from the start.

EDIT: The first five sentences invoke Uber, the author's previous article, the Wall Street Journal, Gurley, Damodaran, and two different dubious valuations.

Uber is a taxi company until it can show meaningful revenue from other business models on its platform.

Addison Lee is a taxi company. They operate in London and some other UK cities. They have a website and an app where you can book taxis:

https://www.addisonlee.com/apps/

Having booked, a taxi comes and takes you somewhere, then your card gets charged.

The service is substantially identical to Uber's. If Addison Lee is a taxi company, Uber is a taxi company.

For extra resemblance, Addison Lee's drivers are notionally self-employed, but they've recently been put through the same "actually they're employees" wringer as Uber:

https://www.crosslandsolicitors.com/site/cases/Addison-Lee-v...

> I am not saying that the category isn’t viable, and technology truly makes these companies different than the incumbents in their space, but they are not necessarily tech companies either.

> Neither, and new.

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