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Comment by supperburg | Hacker News Reader

Right, but would they be profitable if you took out the advertising and expansion costs? From the document I saw, yes. Can you please explain where are these enormous costs that are necessary to run the business? Is it SV salaries? Are their servers costing too much money? It doesn’t make sense. It’s like saying that the concept of dispatching taxis with a computer is not capable of being profitable. It simply isn’t true. It’s like people who said Amazon and Tesla were vapor ware because they were unprofitable. Everyone in the media and most people on HN couldn’t fathom the concept of subtracting R&D.

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It's not an easy question to answer, but the majority of the cost were salaries and marketing. We didn't consider the one-off costs of e.g. legal, from what I remember.

It was in the order of thousands (I think either $2k or $22k, sorry for the rounding error) per user signup that Uber paid in terms of marketing and advertising - and that was regardless of if they generated any money. It was way more for driver signups since the driving bonuses were pretty sizeable.

The amount of staff Uber has is way too much, in my opinion. Uber's internals are the definition of "over-engineered", to the point things were just too complicated for any single person to really work with, let alone understand to any degree. We had teams internally that were making the same thing but had no idea each other existed - and this happened pretty frequently.

There was a lot of turn and restructuring in upper management, not to mention pulling out of China and then having months in a row with almost daily sexual harassment/discrimination/bad CEO news stories breaking out. So the rest of the company was just kind of left to fend for itself for a long time, just burning even more money despite nothing getting released.

I knew one other engineer that... to this day, I'm not sure he even wrote a single line of code. He was always hanging around other people, wanting to chat. When you'd casually ask "so what are you working on these days?" he'd just shrug and smile. Never got a straight answer out of him. He was higher up in the ranks than I was, younger, assumedly paid more. Couldn't answer basic questions about writing code, but loved to brag about his new designer shoes and stuff. Just an anecdote.

It was insanity. Everyone I personally interacted with hated working there, and it was clear it was way too crowded. That, along with the marketing/ad spend, made me convinced Uber would never be profitable.

Wow what a substantive and interesting comment. Thanks

> It doesn’t make sense. It’s like saying that the concept of dispatching taxis with a computer is not capable of being profitable.

If that’s all you are doing, then yeah, that’s probably not profitable because competition would just eat your margins. You’re essentially a broker matching drivers with passengers, and they can use any service they want. They will choose the one with the lowest cost to use and that pays the most to serve i.e. they will use the one that leaves the least amount of profit for the broker.

Therefore Uber has to have some other value add, which will eat into profits (unclear what that could be, I think they were hoping it could be robotaxis); or, they have to spend massively in advertising to maintain mindshare, which will also eat into profits.

This is why they spend so much on advertising and expansion. They want to be the first player in town because when there are more players, it’s a race to the bottom. You can’t take out the advertising and expansion dollars and say they would be profitable without them, because those dollars are staving off competitors for as long as Uber can. Imagine a future where you have an “Expedia” of taxi services, that search dozens of providers and gives you the lowest one. That’s Uber’s future if they stop their spending.

The question of profitability then becomes: how can Uber justify its existence while staving off competitors, and can they manage this before going under? Maybe given an infinite time horizon and infinite VC cash, Uber could be profitable one day, but for now I don’t think it’s clear they are or will be soon.

> If that’s all you are doing, then yeah, that’s probably not profitable because competition would just eat your margins.

So markets don’t exist? Businesses can’t exist in a market? This is economics 101. No wonder everyone is so off

No, that's not what I said. My point is explicitly that markets do exist, and that markets are the mechanism by which Uber will find itself unprofitable, because they aren't adding enough value to the equation. Having the app and the scheduling algorithm was a game changer a decade ago, but now that part of the business has been effectively commoditized.

But Uber doesn't want to be 1 of 1000 taxi players in a crowded market with no margins. They want to be taxi king of the world. How do they stay on top when every local municipality can hire some college kids to make a close facsimile to what Uber does? Sure maybe it's not as good as the Uber offering, but they don't have to support a global taxi empire, so they can offer their service for a lot less than Uber can. If that app takes hold in city X, why are people going to use Uber when they come to town 30% more expensive than your small town provider?

> Right, but would they be profitable if you took out the advertising and expansion costs?

An issue with this line of thought is that you think that they could one day flip a switch and just like that stop expanding or acquiring new customers.

Two problems with that are: 1) most likely if they stop growing, they start shrinking - it’s not like they are the only ones out there doing what they do, and 2) a lot of their marketing and expansion expenses (as corroborated by the sibling comment) don’t go towards acquiring new customers, but rather new drivers, which given their turn over, they can’t stop putting money into.

So basically if they stop spending money on advertising and expansion, they will loose all their drivers and slowly churn customers as well.

Hence, it doesn’t matter if they could technically be profitable without advertising and expansion, because then their business becomes unviable.

Uber pays drivers a substantial amount through bonuses which are categorized as marketing and advertising. Your claim that they could operate without marketing is saying Uber could operate without drivers. Without bonuses, they would lose a significant amount of driver supply, without driver supply, the rider experience is slow, when it’s slow - they lose customers.

Advertising is a core business expense for them needed to run the business.

Excluding an integral part of the costs to say they are profitable is like saying you are cash flow positive, after including external funding. There is a reason why companies are running their books the way they are. Very good and valid ones!

I don’t know if that’s a technical accounting term but “integral” is the key word there. Massive expansion is not integral to the normal operations of a business. R&D and literal billion dollar ad campaigns are tools to expand and grow into whatever space is open from lack of competition. Amazon filled their space, Tesla theirs and one of the computerized taxi companies will fill that space. Until they do, they will spend money on expansion. So that’s the key. It’s a temporary state. “Integral” is a completely incorrect term for the cost of that growth. The viability of a business is based on how much it costs them to actually carry out their core business.

And maybe Uber has already gotten as big as they will get. It doesn’t change the fact that they don’t need one billion dollars in advertising. And also, what you are asserting is that it’s impossible for a computerized taxi company to exist. So do you think it would be cheaper to have a human dispatcher? Obviously you can run a profitable taxi company. It’s been a thing for a long time and the computers aren’t making it any worse or more expensive I can assure you.

There's a bunch of ways to rationally explain the losses in any operation. None of them make it profitable.

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