Uber, DoorDash and similar firms can’t defy the laws of capitalism after all
economist.com
economist.com
My experience is anecdotal but I visit my home country every year for a few months and I can clearly notice the declining quality of Uber's services:
1. Vehicles, on average, take at least 10-15 mins longer to get
2. Even if you find a vehicle, 60% of these rides are canceled (either by the driver because they call me and find out they don't want to go that way or they just don't move at all and I'm forced to cancel)
3. After all this, if I am lucky to get into a commute, every driver has complaints about Uber (complaints include intransparent pricing, delays in payments). Most of these drivers are completely dependent on Uber or similar services and have heavy debts that they are now unable to service.
4. Uber's app itself appears to get bloated by the day and while they do appear to make an effort collect my feedback when rides get canceled, not once have I got an impression that the feedback matters at all. Additionally, payment options are numerous but they require me to complete multiple steps to finish which puts me off using it (not Uber's fault I suppose but is part of the riding experience).
Given that they are competing against flag-down autos and rides, not to mention public transport and private vehicles (as electric bikes and cars get more popular), I think their model is not sustainable anymore and I expect them to struggle further as riders withdraw and once the demand-supply gap grows further, it's a downward spiral.
It's actually getting really noticeable. It used to be easy for me to hail a taxi or get an Uber from a pub, it's next to impossible now
Rides in central neighborhoods such as Chamberí used to take 2-3min at most, now it's very common to see waits of 7-8min.
VC start-up burning money to make things or subsidise customers in attempt to acquire them is neither.
I'm really starting to hate when these terms that have rather specific and well understood meanings are thrown at anything. If you want to call it something just say it is big scam. Scam really could be anything. Not specific thing.
[0] https://techcrunch.com/wp-content/uploads/2021/11/Screen-Sho...
As for "creative accounting", pretty much everyone in this industry segment uses EBITDA. That's the language investors and media use to talk about earnings calls for not just Uber, but also Lyft, Doordash, etc. If you want to make a case for why GAP analysis would make more sense vs EBITDA given the maturity of the industry, I suppose a more elaborated argument is in order?
[0] https://www.investopedia.com/terms/m/mark-to-market-losses.a...
What I'm pointing out is that a) the argument about "duping investors" doesn't really make any sense anymore now that Uber is a public company (since raising VC rounds by giving them paper equity is no longer really a thing), b) the balance sheet numbers have been trending towards positive cash flow (and fairly aggressively, at that), even despite a pandemic that could accurately be described as the worst thing that could possibly happen in this industry segment and c) the core vertical (rides) is actually cash flow positive and funding other parts of the business.
For example, in the table linked above, they've accounted for all revenues, but not attributed all of their expenses by segment. According to their filing their total loss from operations across all segments was $572M, however if you add up all their segments in the table, they come out to a $8M profit. That's what bothers me. If a company has 3 segments that generate 100% of its revenue, how can it claim that $600M in operating expenses shouldn't be attributed to any of those segments, thus making one of those segments profitable.
I think everybody in the industry segment uses the same sketchy metrics because they are also terribly unprofitable.
I think the narrative people are pushing about bleeding money on every ride is too simplistic though. I could definitely get behind an argument that, for example, driver incentives ought to be bucketed under mobility, but on the other hand, attributing a Didi valuation fluctuation to a business vertical is obviously silly. Personally, I'm not convinced that there are enough "hidden" losses in misc categories that are "rightfully" attributable to mobility to offset the Q3 performance, and my understanding is that many analysts are bullish on Uber right now because they see the trend in these metrics, adjusted as the metrics may be. I guess we'll see what happens next year.
Uber drivers have always done ok in the short term, new or old, it's Uber that loses money on every ride. And if the drivers are not coming out ahead long term due to maintenance costs, that's not affecting newer drivers any more than older drivers.
What makes it a ponzi scheme is that the initial investors and the people that run it knew they couldn't possibly make money and yet they were able to get tons of investors to pour capital into a business that couldn't make money. New investors aka public markets paid out the old investors aka venture capitalists.
We've simply built systems we cannot maintain as well anymore, under new resource constraints.
I have come to depend on Lyft and Uber and they are failing me and have been for a long time now. So long that I now plan to get a driver's license and a car. I don't know how else to make it in this world. If you're at a business and it's closing soon, and raining outside, you are likely to be outside in the cold and rain for 30 minutes waiting for a car.
It's ridiculous. I'm giving up and have already booked my written drivers test for WA.
There are places in the world with substantially better transit than Tacoma. It’s always been a pretty difficult place to live without a car, except maybe for a brief period between 2013 and 2021 when Uber was heavily subsidized by VC.
>Real business flywheels do exist. Software makers have managed to lock users in and thus generate gross margins typically above 70%.
No, it's not just "lock in" it's the magic of minimal to zero marginal cost, near zero "stocking" cost, instantaneous reaction to demand, etc. Software and digital services firms face dramatically different scaling curves than traditional physical products/services. That they also in turn have been able to continuously add in ways not limited by IRL physical constraints and experience real network effects certainly helps, but I suspect one of the big foundational issues for a lot of these valuations is people naively applying software business lessons to businesses based around hardware and real world physical human interactions. It doesn't cleanly translate though, they aren't the same thing.
But these gig-economies clearly aren't software or content. And they have very real minimum price. And not even robotaxis will fix that. Just because you make software doesn't mean you are such tech company, see WeWork...
[0] Yes I know WINE exists. It doesn't really affect the argument here; the fact that it's legal to reimplement APIs merely puts upper bounds on the size of the software monopoly. And those bounds are really high - reimplementation is far more difficult than just, say, pirating Windows.
Did my MBA thesis on this subject with the benefit of 20 years of engineering experience. The numbers simply do not work unless you change how cities and residences are built, which would cost far more than you'd ever gain from solving Last Mile costs - the breakeven time is of the order of 100-200 years!
The VERY WORST are US-style suburbs. The best would be Asian-style urban - which NO US CITY is other than some parts of Manhattan.
I suspect these will need truly significant infrastructure changes to actually function as last mile.
> The Kiwibots do not figure out their own routes. Instead, people in Colombia, the home country of Chavez and his two co-founders, plot “waypoints” for the bots to follow, sending them instructions every five to 10 seconds on where to go.
> On the ground in Berkeley, people also do a lot of robot support. Traveling at 1 to 1½ mph, the bots would take too long to chug to local restaurants, so Kiwi workers pick up the food at restaurants and take it via bikes or scooters to meeting spots around campus to insert into an insulated bag in the bots’ storage compartment.
> The average distance a robot covers for a delivery is about 200 meters (656 feet, or one-eighth of a mile) which makes them fall short of a “last-mile” solution.
From https://www.sfchronicle.com/business/article/Kiwibots-win-fa...
Capitalism does not optimize for sustainable global maxima, only local ones - and in this case, the incentives aligned for this to be a local maxima.
They know that the path finding algorithm isn't the important part right now. The most important thing is proving that the robots can provide the service.
These types of path finding algorithms already exist, so it's just a matter of automating and improving margins.
Do you include India in Asia?
This article is thousands of words of the exact same talking points we have been hearing for a decade. What's the "after all" part?
No. They posted an adjusted Q3 profit of $8M, with an actual Q3 loss of $2.4B.
I don't know what you are basing this on but it's definitely not based on data.
$UBER EPS over the last few quarters:
-1.28 0.61 -0.06 -0.54 -0.62
$DASH EPS
-0.30 -0.34 -2.67
The only way they are getting profitable is on an "adjusted basis", in other words when they exclude most of their expenses. That's not a business, that's a game.
Actually, I think a lot of businesses are just that.
If you need 10 rounds of funding to keep running, your profit model is "obtain investor money".
(Probably controversial, but IMO 3 rounds of funding is pretty sus.)
Can you explain what you mean by that? People often say this and I never really understand what they mean. Most businesses which aren't unicorns just sell stuff for money. What's a ponzi scheme about it?
I also think calling these startups ponzi schemes is disingenuous. They are not lying about anything - they're offering a very clear, risky bet to people, which some people are taking up. That's their choice. (If they are lying or committing fraud, then obviously that's a different story).
They would come up with a new idea, get money, and then botch the execution, over and over.
I've been a part of companies where the owners cashed out millions of dollars after round 3 of funding where the business never really sustained itself, yet continued to receive funding.
In the end, both examples didn't really mind if the business failed, because they already got their massive paycheck from it. To me, that's some sort of legal ponzi scheme.
> I've been a part of companies where the owners cashed out millions of dollars after round 3 of funding where the business never really sustained itself, yet continued to receive funding.
Just as an example, founders don't cash out without the investors knowing about it. It's a negotiation in which the investors knowingly decide that it's worth paying millions to founders in order to get a piece of the company.
That might be wrong! It might be a bad investment. But it is in no way fraud, and there is no reason at all to feel bad for those investors - we're not even talking about retail investors, we're talking about investors who pay lawyers and accountants 10s of thousands to do due diligence on companies, and who negotiate for a living.
That is nothing at all like a ponzi scheme (again, unless someone is lying somewhere along the way / committing fraud).
I certainly wouldn't say they are fraud.
I think my examples are instances where people are good at selling an idea and not having full intention of executing well after receiving financing.
I'm certain that some percentage of entrepreneurs actively think "If I can just sell my idea to investors, I can get rich regardless of whether the idea works or not." That's my ponzi scheme analog.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
Can you please clarify what is wrong with that exactly?
I've been a part of this site for like 10 years, and I think that any site that invites public comments is bound to have controversial topics come up. Further, I do my damn best to be respectful on this website, so your blanket characterization of my comments is unfair.
I appreciate that you put effort into being respectful on this website! That of course counts for a lot, in fact it's the most important thing. It's just that generic/unsubstantive comments are a separate issue.
I would love to have a bullet proof fully reasoned human readable argument, but many times it's hard to translate abstract thoughts into text.
Will try to do better, I really enjoy this site and the content/discussion in comments.
Clearly, that wasn't clear. Text is hard to convey tone and context. :)
The more apt comparison is calling a cab to take you to the airport. I've never had to wait more than a few minutes at any hour of day or night, and the pricing is equivalent to Uber.
I would take public transit where I live but I’m about 1-2 miles from the nearest bus stop that could get me to the airport (too far to walk with checked luggage). No big lots or houses where I live - people crammed in. The bus is unpredictable and runs infrequently and takes a very long route to get to the airport. (1+hr) If I take the train, I have to go even further walking and then I have to pay something like $9 then make a transfer (more time spent) and pay another $6. The time spent is maybe less than the bus but because of transfer - it can be quite slow.
Add in that I’m usually traveling with a partner and I love to get to the airport just as boarding starts and this is a colossal waste of time + money. I pay the $30-35 for a Lyft/Uber and it’s way faster and more reliable. Sometimes cheaper too. It’s like 1/3rd the time spent (20-25min) vs 1.5hr+. Oh and I’m not adding in the unpleasantness of either transit option - just cost and time…
I live in the peninsula of SFBA and go to SFO at least twice a year. Seattle has much better options for SeaTac if you’re in the actual city.
I've realized that I can just drive to the airport, pay for long term parking ($13/day) and still come out even with Uber fares for trips as long as 3 weeks. This is something I used to do a decade ago. It's hilarious that we have gone a full circle on this.
What REALLY gets my goat is how much mental real estate these wannabe entrepreneurs get.
Personally, I joined the tech industry because I was more inspired by the smaller, incremental innovations that generated value. Something like CRT TVs becoming razor thin, or mobile phone cameras overtaking traditional cameras in resolution, or the Apple M1 chip/ARM, THAT was what I used to think of when I thought "Innovation".
However, smart people around me these days, they have no interest in actually doing hard, innovative things. The definition of "smart" today, is actually to raise a bunch of VC money and get a "net worth". And that makes sense, doesn't it? Why work hard, when you can "generate" "billions" of value with just a Powerpoint slide deck?
The end result of all this is that people actually get discouraged from doing the hard work and actually generating real value! Yeah, why should I spend time understanding Supply Chain basics, or studying Operations Research theory? Why should I actually come up with an improved heuristic for Travelling Salesman? Let me just make a shiny Powerpoint, and head on into my first VC meeting.
For now unreality keeps the market high.
Does this mean that Tesla would have a smaller profit margin without subsidies, or that Tesla would not be profitable in real terms without the subsidies?
Compare Tesla's revenues against other trillion dollar companies and it clearly seems overvalued. Here's Bloomberg's analysis - https://www.bloomberg.com/news/articles/2021-10-26/tesla-is-...
Ah yes, the internet-of-cars market. It would be very wise and lucrative to dominate there.
“If something can’t go on forever, it won’t.”
Platform economy can create huge profits if you can lock in the markets. Create moat that keeps competition away.
Uber, DoorDash have none of that.
Uber's global brand recognition can help with tourists and business travelers who just want familiar, but they are small fraction of the market Uber needs to lock in to justify their market cap. Uber is not like Amazon with returns to scale.
E.g. nothing is stopping Google from offering a competing service, right from within Google Maps, or Android.
That sounds like good old normal capitalism as I understand it.
Edit: fixed run-on sentence
What we are seeing is an unprecedented combination of quasi-monopolies, rent-seeking, and an economy disconnected from real production of goods and services.
It has been called neofeudalism.
Unfortunately "capitalism" is a pretty ill-defined term. I wouldn't include "rent-seeking" as a characteristic of "capitalism" but apparently you do.
This makes it very difficult to have coherent discussions. For what it is worth, I think "rent-seeking" is probably a characteristic of all economic systems and therefore isn't something peculiar to "capitalism" and so shouldn't be used as a criticism of "capitalism".
According to what theory?
https://en.wikipedia.org/wiki/Rent-seeking fits squarely into capitalism.
All of these companies are EBDITA profitable with decent margins and the net loss is them reinvesting in marketing, product and M&A (from their earnings reports). As the effects of covid wanes, their profits are going to go up very quickly which will be seen over the next year.
Thanks I guess lol
I might be wrong though.
https://finance.yahoo.com/quote/DASH/insider-transactions?p=...
https://finance.yahoo.com/quote/UBER/insider-transactions?p=...
People would not be willing to pay the price however.
An efficient economy doesn't mean you can do anything you can imagine is technically possible; it means that market rates with everything priced in properly will discover whether or not enough people value it enough to pay for it.
Local economies were functioning well before for years, you were getting food from around your area, which is perfectly acceptable and efficient.
Doordash works today because venture capitalists are throwing millions of dollars at it, and dramatically subsidizing the cost of the delivery.
In other words, you can do that today because someone else is willing to pay. The VC's money won't last forever though. The question is if the economies of scale it creates will be enough to reduce the cost of delivery such that it is a sustainable business.
Most available data says "Probably not."
You weren't willing to pay the unsubsidised price.
- delivery was under-served and over-priced, and taxis charged too much, often because of viciously expensive auctions for limited legal taxicab slots, with the city raking it in and the drivers having to recoup it from fares
- Uber and friends are exploitative dumping schemes that tighten the screws on their gig workers even while they firehose money at customers
I couldn’t get a taxi in Chicago with a full beard. Period.
I've always wondered what the extreme end of this could look like. It seems like here in London companies in this same area are popping up almost weekly in areas like grocery delivery, food delivery, ride-sharing, etc, and they almost all have absolutely crazy initial sign up discounts. I suspect there is an entire class of people that are effectively taking advantage of this and I wonder how much they manage to save.
Is that like how in theory, theory is always right over practice, but in practice, practice is always right over theory?
Yaawn another one of these "{insert successful company name here} is not unsustainable because of blahv blahh blah" articles. In spite of endless negative media coverage, Uber is still valued at over $50 billion. I remember all the endless articles from 2012-2018 about all the debt Uber had and how it was not sustinable. If anyone believes that these companies are not sustainable, the opportunity to short them or buy put options on them exists right now. Almost anyone, individual or hedge fund, can stand to profit from the inability of Uber and Doordash to keep defying 'the laws of capitalism'.
Stocks can remain irrational for a long time. This advice is bad for precisely that reason.
A high market cap does not invalidate any argument. Enron was highly valued, real estate funds were highly valued, Theranos was highly valued, etc... until they weren't.
Most of the functions of the main delivery platforms could easily be achieved through smart contracts, and then drivers would act as owner-operators instead of "independent contractors". They would also be able to get 100% of the fees associated with the delivery.
You could use the blockchain in some ways, but I don’t see how the companies themselves could be easily replaced.
... or just a database?
Much better to store every menu of every restaurant on thousands of computers and use menu updates to decimate coral reefs.
Why does that need a blockchain? Wouldn't that just be an API?
What?
> Most of the functions of the main delivery platforms could easily be achieved through smart contracts,
These Crypto conversations always seem to follow the same format:
1. Define a problem, but reduce it to a single, or a few, causes
2. Oversimplify the existing solutions to the problem
3. Propose smart contracts as a solution
4. Hand wave how smart contracts actually contribute to solving the problem
5. Ignore the new problems that smart contracts, and the required market places, would introduce
There is a lot of technical work behind the scenes whenever there is payment involved and whenever there is real time matching between two changing positions that also needs efficient routing for the matched driver to arrive in under 5 minutes.
Users don't install apps and a lot of startups (or just app developers) don't get it. Yes, users on average they will have quite a few apps on their phones (lets say ~100ish), but there are millions of apps out there. And most users will just have one app per (most) category. Not only because it's inconvenient to go and install that new app and then register and maybe enter your card details (if you don't have google or apple pay), but because it's just easier to think "food => DoorDash" (or Wolt, or FoodPanda, etc.), "taxi => Uber" (or Bolt or maybe your local taxi company), "ride => Lime", "search => google", etc.
And once you have a lot of customers, the rest is simple. (Getting a lot of customers is hard and, of course, can't happen without building the other side of the business, but that's not the point.) If it wasn't for this, there would be competing delivery companies, multiple per cities, not just one, maybe two.