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[aeolist]

https://ftalphaville.ft.com/2016/12/01/2180647/the-taxi-unicorns-new-clothes/

Silicon Valley elites justify the subsidies in the name of monopolistic growth expectations and the building of “eco-systems”*. They believe if monopoly status is achieved, profitability will follow naturally from that point.

Yet, as FT Alphaville has long maintained, there is no reason to assume Uber's obliteration of local competition across the planet will create a sustainable business in the long term. Costs are costs, even if you're a monopoly. As long as people have cheaper alternatives (public transport, legs), they will defect if the break-even price is higher than their inconvenience tolerance threshold.

The fact Silicon Valley thinks otherwise is sadly symptomatic of the emperor's new clothes groupthink dominating the sector. Though it does explain the sector's obsession with popularising the idea that public transport can be done away with. (Less investment in public transport will lead to fewer competitively priced alternatives, empowering the Uber monopoly in the long run).

http://www.nakedcapitalism.com/2016...standing-ubers-bleak-operating-economics.html

If rapid growth could not drive major margin improvements between 2012 and 2016, there is no reason to believe that Uber will suddenly find billions in scale economies going forward. Fundamentally digital companies like Amazon, EBay, Google and Facebook had massive operating scale economies because the marginal cost of expanded operations was close to zero. Aggressive pricing fueled the growth that drove major margin improvements and also created major consumer welfare benefits.

By contrast, in the hundred years since the first motorized taxi, there has been no evidence of significant scale economies in the urban car service industry. That explains why successful operators never expanded to other cities and why there was no natural tendency towards concentration in individual markets. Drivers, vehicles and fuel account for 85% of urban car service costs. None of these costs decline significantly as companies grow. As the P&L data above demonstrates, Uber has not discovered a magical new way to drive down unit costs.

Uber's refusal to consider an IPO may best be explained by the recognition that publishing detailed, audited financial data confirming these massive losses and the complete lack of progress towards profitability could undermine public confidence about its inevitable march to industry dominance.

There have been hundreds of articles claiming that Uber has produced wonderful benefits, but none of these benefits increase consumer welfare because they depended on billions in subsidies. Uber is currently a staggeringly unprofitable company. Aside from the imposition of unilateral cuts in driver compensation, there is no evidence of any progress towards breakeven, and no one can provide a credible explanation of how Uber could achieve the billions in P&L improvements needed to achieve sustainable profits and investor returns.

Uber's growth to date is entirely explained by its willingness to engage in predatory competition funded by Silicon Valley billionaires pursuing industry dominance. But this financial evidence, while highly suggestive, cannot completely answer the question of how an Uber-dominated industry would impact overall economic welfare.

Ever thought Uber's prices were too good to be true? Well they were.

 

[jstevenson]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

 

[sarcastor]

Well I guess those employee free lunches aren't really free.

 

[DOWN]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

Yeah, they want to be the go to when they finally are first to breakthrough the super cheap automated ride share industry

 

[bigkrev]

So if that stuff had happened and they were forced to consider their drivers employees and all the stuff that goes along with that, would they have had to shut down? This business plan seems super untenable, because I think we are 10+ years from them having a full fleet of self-driving cars which seems to be what they need to get solvent

 

[Tom Nook Sawyer]

So if that stuff had happened and they were forced to consider their drivers employees and all the stuff that goes along with that, would they have had to shut down? This business plan seems super untenable, because I think we are 10+ years from them having a full fleet of self-driving cars which seems to be what they need to get solvent

They want to kill the competition first so they can then raise prices

 

[commedieu]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

.

 

[Cheebo]

I always wonder how the drivers feel about Uber being pretty open about them being a mere stop-gap solution till they go automated. They are what dvd by mail was to Netflix.

 

[dave is ok]

Right now they're basically hiring as many drivers and giving as many rides as possible to look more attractive to VCs

 

[guek]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

But don't uber drivers provide their own cars already? And wouldn't automated cars still need a human driver in the cab?

 

[br3wnor]

Only used Uber a handful of times but couldn't believe how reasonable the fares were so this isn't surprising.

 

[aeolist]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

it is going to be several years at least before automated cars replace human drivers at a broad scale, and it's going to start with easier stuff like long-distance trucking. even when good automated systems come out laws will require humans to be at the control for a long time.

uber has $13 billion in venture capital and i'm not sure they'll last long enough to see that through, and in the mean time they're undercutting and destroying competition with an unsustainable business model.

 

[Joni]

The question is how Uber will produce automatic cars cheaper than GM, Ford and all the others. It won't be the only company that will have selfdriving cars. It is however the only that doesn't have the money or the factories.

 

[aeolist]

Right now they're basically hiring as many drivers and giving as many rides as possible to look more attractive to VCs

that's been their model for years, and people are finally starting to recognize it as a ponzi scheme.

 

[Bruce Springsteen]

How long can they sustain this? good lord they must have deep pockets

 

[Faddy]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

That won't work because Uber will then take on the buying the vehicle, costs of maintaining the car, providing insurance etc.

Automation looks like it will massively increase their costs compared to the contractor model they currently operate.

 

[The Albatross]

Further, at least in Massachusetts, $0.20 of every Uber ride goes into a tax that subsidizes traditional government-subsidized taxi companies:

http://www.slate.com/blogs/future_t...xing_uber_to_subsidize_the_taxi_industry.html

Uber, a company losing $2b, is apparently subsidizing the government.

They want to kill the competition first so they can then raise prices

Yep, basically do what the taxi companies did 80 years ago by aligning with organized crime --- but... legally.

 

[freeofgreed]

But don't uber drivers provide their own cars already? And wouldn't automated cars still need a human driver in the cab?

I don't think so, that would defeat most of the purpose behind it. I remember California tried to pass an ordinance saying that driverless cars must have human drivers for the first couple of years IIRC, but that's about it. Eventually the end game is to remove the human element completely and to only have them as passengers.

Also drivers provide their own cars, but they still need to be paid, which driver less cars won't

 

[DOWN]

But don't uber drivers provide their own cars already? And wouldn't automated cars still need a human driver in the cab?

In 10 years, I am sure many places will not require a driver. We're like 5 yrs from the automatic cars hitting the masses, right?

 

[WorldStar]

Ever thought Uber's prices were too good to be true? Well they were.

Lyft is cheaper than Uber, at least here in Los Angeles, and I'm pretty sure they killing it

 

[TheAbsolution]

I always wonder how the drivers feel about Uber being pretty open about them being a mere stop-gap solution till they go automated. They are what dvd by mail was to Netflix.

As a driver, seeing as how I only do this part time and all, I dont care. Money in my pocket is money in my pocket. Beside I'm in college anyways so this was always gonna be short term lol.


On topic, Uber cut rates way too hard way too fast and they give drivers like myself massive incentives. Like, .75 cents a mile (at least here in Atlanta) is total bullshit and I have a feeling that customers are able and willing to pay more. That and tipping in app are the two things that would make me happier as a driver.

 

[Cub3h]

How long can they sustain this? good lord they must have deep pockets

Whoever becomes the dominant player in the self driving, "rent when needed" car market stands to make tens of billions a year. It looks like Uber is in a race against the clock until the investor money dries up.

 

[B-Dubs]

Yeah, they want to be the go to when they finally are first to breakthrough the super cheap automated ride share industry

It wouldn't be ride sharing if they own the cars, it'd just be an automated taxi service.

 

[Skellig Gra]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

Based on these financial numbers there is no chance they can pull that off. That capital investment for the cars will be astronomical.

 

[LJ11]

Said it in another thread a few months ago, nothing earth shattering, but their model is unsustainable, need the bots asap. Knew it was Isabella Kaminska article as soon as I saw the alphaville link, she and others have been all over Uber for months.

 

[aeolist]

Whoever becomes the dominant player in the self driving, "rent when needed" car market stands to make tens of billions a year. It looks like Uber is in a race against the clock until the investor money dries up.

i don't see any reason why monopolizing the human-driven taxi market necessarily leads to domination of the self-driven taxi market, especially when so many other (already profitable) companies are investing in that future as well.

 

[Enduin]

That won't work because Uber will then take on the buying the vehicle, costs of maintaining the car, providing insurance etc.

Automation looks like it will massively increase their costs compared to the contractor model they currently operate.

Massive upfront costs for sure, but in the long run maintenance and insurance will probably be much much lower than what they currently deal with. Cutting out the need to provide even the current sub-standard wage they provide drivers now, which is not going to last much longer, will be a huge boon for them.

 

[DOWN]

It wouldn't be ride sharing if they own the cars, it'd just be an automated taxi service.

Maybe that's a misnomer but they allow you to pool with other riders along the way to your destination

 

[entremet]

Love Uber.

Taxis are horrible and I don't miss them.

 

[Sky Interloper]

They want to kill the competition first so they can then raise prices

Monopolies 101.

Uber is trying to snuff competition indeed, but their Silicon Valley approach doesn't seem to work very well with the scale that transportation involves. Undercutting the alternatives is not going to fly when the economic foundations of the company are shaking because of their business model.

Honestly, their endgame is probably going to be really atractive for any of the tech giants, so I expect Uber to be absorbed to fulfill those automation dreams before unprofitable years pull the rug out from them.

 

[WorldStar]

I should also add Lyft is about a thousand times more popular in Los Angeles than Uber

I live in an extremely active social area and Uber drivers are uncommon compared to Lyft

I'll see a few local drivers on Uber app yet my Lyft app shows them everywhere

 

[Rockandrollclown]

If its untenable now I wonder how they are going to manage when they have to purchase and upkeep millions of automated vehicles?

 

[Sean C]

I don't think so, that would defeat most of the purpose behind it. I remember California tried to pass an ordinance saying that driverless cars must have human drivers for the first couple of years IIRC, but that's about it. Eventually the end game is to remove the human element completely and to only have them as passengers.

Also drivers provide their own cars, but they still need to be paid, which driver less cars won't

Sure, but that would still entail enormous upfront costs in addition to the ongoing maintenance of the cars. It would be a good while before any savings manifested.

 

[dave is ok]

They wouldn't just phase out the ride-sharing overnight. They would probably offer automated as a special service at first like Uber Black Car or whatever

 

[guek]

I don't think so, that would defeat most of the purpose behind it. I remember California tried to pass an ordinance saying that driverless cars must have human drivers for the first couple of years IIRC, but that's about it. Eventually the end game is to remove the human element completely and to only have them as passengers.

Also drivers provide their own cars, but they still need to be paid, which driver less cars won't

In 10 years, I am sure many places will not require a driver. We're like 5 yrs from the automatic cars hitting the masses, right?

Yeah I think driver-less cabs will be the end point but I think it'll be a long while yet.

 

[Purple Cheeto]

If its untenable now I wonder how they are going to manage when they have to purchase and upkeep millions of automated vehicles?

Most of Uber's money is spent on lawyer fees because of the fact that they're running an illegal taxi service with sketchy employment stuff. Once they drop human drivers a lot of those issues go away.

 

[Big-E]

I don't see how ever is poised to take over. My city is full of ride share services and when the automated cars take over, they just need to convert their fleet. Uber would need to build their fleet.

 

[ClosingADoor]

If they want to lose money on it, fine by me. Over here the Uber cabs are just normal taxi's called through the app. Works fine and is cheaper.

 

[WedgeX]

So they are trying really hard to gain market power in order to become a monopoly.

We have market regulations for a reason.

 

[Sean C]

I haven't gotten the impression we're anywhere near driverless cars being cleared for widespread commercial use, so if Uber's business plan involves haemorrhaging money until we get to that point, they're in deep, deep trouble.

They want to kill the competition first so they can then raise prices

Seems like once they do that there's no reason the cab companies can't come back, though. They aren't that huge an infrastructure investment to start, you mainly just need cars (as Uber itself showed).

 

[WorldStar]

No one mentioning Lyft is it not big outside of SoCal or something?

just curious

 

[Sulik2]

The article misses ubers entire long term strategy. They want to be robot taxis in five years with zero driver overhead. They establish the brand with humans until automated cars are ready to take over and bring in the profits.

 

[freeofgreed]

Sure, but that would still entail enormous upfront costs in addition to the ongoing maintenance of the cars. It would be a good while before any savings manifested.

Yeah I think driver-less cabs will be the end point but I think it'll be a long while yet.

Oh absolutely, I wasn't disputing that. Uber is completely fucked.

 

[B-Dubs]

Maybe that's a misnomer but they allow you to pool with other riders along the way to your destination

That's just splitting a cab. It's a concept as old as time. Unless the car is on a set route, then it's called a bus.

 

[LJ11]

Most of Uber's money is spent on lawyer fees because of the fact that they're running an illegal taxi service with sketchy employment stuff. Once they drop human drivers a lot of those issues go away.

Right, it's regulatory arbitrage, fighting it out in court to keep their drivers exempt. Shit won't last, these guys are employees. If you don't keep your rating high you get dropped, you have to respond X amount of rides or you get popped. When that app is open, you're on the clock and have to focus on Uber. You better take X route. 1099 my ass.

I got into a ride last week and I always talk to the drivers, this kid was paying almost $600 a week to rent out the car from a service so he can make cash while trying to get a full time job.

That's just splitting a cab. It's a concept as old as time. Unless the car is on a set route, then it's called a bus.

They're fucking around with that too if memory serves.

 

[Zaph]

Probably stating the obvious, but this article isn't saying you're paying only 41% of the per-ride cost. You're not getting a $100 ride for $41, but if you factor all of Uber's spending (including all those legal fights, settlements, tech, R&D, advertising, buy-outs, talent acquisitions, etc), they would have to charge you $100 for that ride in order to break even as a company.

Which makes a lot more sense because here in London, Uber is good value, but slightly more expensive than their mini-cab competition (but used more because they're far more convenient).

 

[Any Questions]

They want to kill the competition first so they can then raise prices

Remember NOKIA.

Don't invest. Invest in the AI company who is going to come next.

You can bet it isn't UBER

 

[aeolist]

Seems like once they do that there's no reason the cab companies can't come back, though. They aren't that huge an infrastructure investment to start, you mainly just need cars (as Uber itself showed).

trying to enter a low-margin market versus a monopoly is not something that's ever going to get investor funding.

 

[David H Wong]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

That could be a REALLY long way away. Not self-driving cars - we have those - but self-driving cars that don't require a driver to be present. I mean, does everybody realize that? Both the tech and the law require a human behind the wheel for when/if something goes wrong, and that person still has to be paid.

Getting truly driverless vehicles that can deal with rural country roads, weird weather conditions, etc is so far off that it might have to wait for a total overhaul of the nation's infrastructure. Creating a car that can drive and turn and follow GPS is no big deal. Getting a car's AI to be so advanced that it can deal with any weird road surface or traffic fuckup is way over the horizon.And once it exists, working through the legal and liability implications is further still - there'll be a whole lot of lawsuits needed to decide who pays when a car's AI fucks up and kills six people in a head-on collision.

 

[zoukka]

Uber is trying to hold it's place until it can actually cut the costs with automated cars. It's a risky strategy but if they pull it off

But that's at least a decade from now.