> 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.

Sweden's largest taxi company currently operates in 50+ cities in Sweden, Norway and Denmark. So "never" is probably the wrong word.

If there's one positive thing about Uber, it's that they brought an end to this medallion monopoly.

Uber and related apps are a bit overrated in terms of their "innovation."

You see, Uber-like "radio dispatch" services have existed in the NYC area for decades, but they used regular phone voice calls, not apps, which was slightly less convenient, I guess, but barely. It was not really qualitatively different IMHO (you waited about the same amount of time, and have about the same amount of certainty about the fare and whether they'll show up.). In fact, it could arguably be easier, as you didn't have to sign up for an account, download an app, set up payment method ahead of time, you just dialed a phone number

The only real innovation ridesharing apps have brought IMHO, are carpooling options like UberPOOL, Via, etc. This was not as practical to do before apps that could automate the dispatching and matching involved

Important to keep in mind that that is not only a lot of cars for SF, but also that they aren't just driving a bit and parking. They're driving and driving (and driving and driving), when they're not blocking traffic picking up or dropping off.

In urban areas there are good reasons for restrictions on numbers.

However, a simple toll would be fairer, as it would treat all cars equally, regardless of whether they are or are not taxis

But that is a quirk of the current American taxi system, not something inherent to the industry.

UberPool is one pointed example of scale economics working. Another would be Uber's brand encouraging more riders and the ability to scale into smaller markets that taxis normally couldn't service.

Well, they do, indirectly, in that that is part of the money the driver is paid. Yes, one way they've improved the numbers is squeezing their drivers more, but they can't do that forever. They're already encountering a lot of pushback.

I question the claim that Uber is serving a bunch of small markets that traditional livery services do not. Do you have an example?

Go on.

Uber's long-game, and the reason they've been funded so handsomely, is the autonomous taxi plan.

Its a pity that taxi companies were so slow to adapt to Uber by providing convenient ways to summon and pay for a cab. All that people really want is to get from point A to point B without a hassle.

Have you ever picked a taxi in Nordic countries?

Those guys already had Uber like apps and all possible ways of paying for a ride, before Uber was a thing.

Any time I've had to use an uber clone apps (from a traditional taxi service, not lyft) they haven't instilled a lot of confidence in me to how reliable they are.

This was the most amazing thing about Uber, to me. I live in Boston and used to take cabs all the time pre-Uber (still take the occasional cab from the airport). Cab drivers are rude, frequently claim the credit card machine is down (despite violating city laws saying they're literally not allowed to drive with a broken CC reader), take the long way / detours to run up the meter, air conditioning or heating might be broken, the cars are dirty, no real recourse for bad service. Even if they have a GPS, drivers refuse to "waste time" by typing in your destination address and require turn-by-turn directions. I'd call a cab and it was hit or miss whether they'd show up or not. I even had a cab driver threaten to call the police when I didn't have cash after he tried to claim that Boston was "cash only" on Saturday nights -- and he was driving me to my HOME in the South End, so it should have been pretty clear I wasn't a tourist unfamiliar with local laws.

Even with the most well-designed and reliable app in the world, cab companies can't compete with Uber -- it's the service and consistency that really made it take off.

IMHO it was a small price to pay for deleting my Uber account.

Almost every regular/licensed taxi I take here, the driver has Uber/Lyft/99Taxi app running simultaneously so they can reach more clients. In that case, it's the same quality of service as before (which is just fine where I live, so Uber/Lyft aren't disrupting anything here).

1) Dial a 10 digit number

2) Someone says "Hello, XYZ car service"

3) You say "I need a car at the corner of Sample street and 123rd road"

4) They say "5 minutes" and hang up

It takes the same or less time as using an app like Uber with fewer things that can go wrong.

One Saturday night we wanted to go out to a place 10 minutes away. We called a taxi cab around 7:30/8:00. We were told that it would be between 2.5 and 3 hours for a cab, if one came. We were considered "out of the way" when we were a 10 minute ride from downtown/the main bar area in the city. Forget about getting a cab back from those bars. We used jitney cabs all the time to get home. Yellow cabs wouldn't bother or were too infrequent.

There used to be a similar/related practice called "slugging" as well, it seems to have faded as Uber rose up.

With the Curb app, your request goes out to multiple cab companies and you usually get a cab that is very close.

They employ more than 2000 Engineers, many of them in the Bay Area. Those cost easily more than any manager in a Taxi corporation..

I assume they want to do more than let the product stagnate, not to mention the resources they are putting into driverless vehicles.

In your opinion, is work not worth doing if those mammoth companies are pursuing it?

Also, you say it is a risky endeavor. Would you argue that the driverless vehicle is not an inevitability? I would certainly argue that betting on Uber to come out on top is risky, but that doesn't mean there isn't money to be made.

Depends on what it is, and what kind of resources you have. In this case, you're talking about a massively difficult task (between the technical and regulatory aspects and the safety-critical nature), and at least two mammoth (i.e. well-funded internally) companies are already working on it. What exactly is a company with zero expertise in the field (a mobile app? Please), with absolute reliance on VC funding, likely to bring to the table? A lot of risk, that's what.

Yes, I think driverless vehicles are probably an inevitability, but I wouldn't look to Uber to come out on top here, any more than I expect Tinder to come out on top in asteroid mining.

Uber isn't even profitable with their core business of being a not-quite-taxi company. They quite obviously don't have the money to build their own self-driving cars, too.

Also:

1. Software is all about automation and increasing efficiency!

2. Let's hire thousands of programmers!!1!12!

Empire building much?

Without self-driving cars, that strategy isn't sustainable, and so eventually Uber will find itself unable to maintain its advantage over Lyft.

I think someone should pause to note that, if true, this is one of the dumbest long term business strategies in the history of high finance.

This idea, apparently, is a bet on a technology that not only doesn't exist, but is extremely highly regulated, that the company has literally no demonstrated core competencies in, hasn't been even successfully prototyped, that represents the hardest most complex use case of the technology, and is obviously years away at best, but yet it justifies a policy of losing billions of dollars in the present just to get market share when the costs of switching brands are literally so non-existant that a typical customer often does it several times in a single evening out.

Maybe it's my old age and having lived through the first dotcom crash, but it seems to me that even when you feel like the only person who sees that the underlying business logic is nonsensical magical thinking, it's still quite possible you're correct.

The leaked data from Naked Capitalism is really the only data outsiders have at their disposal: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver... The use of EBITAR (vs EBITDA) makes it difficult to draw real conclusions, though the fact that they use EBITAR at all is suggestive on its own.

So, for that reason alone, I think firms are willing to bet a sliver of their portfolio. If I was a family office I certainly would do so.

Sure the more cars you have the better the service can be, but it's trivially easy for a competitor to come along at any time and attack your most profitable market segment in a given city, and trivially easy for any customer to switch as easily as clicking on a different app and glancing at the estimated time and price. That's going to be true forever, this isn't a market that will ever have a defensible monopoly position.

Investing some amount to hedge in self-driving cars could conceivably be defensible, but looking at what's going on it feels like that's more of an rationalization for their present behavior.

They've been lighting money on fire subsidizing rides for a few years, and have hunted around for a plausible excuse. One is the "pool" functions, as that has a slightly more plausible network effect story, and the other is self-driving cars.

Both appear to be post-hoc rationalizations designed to provide some plausible story for why they need to borrow another couple billion dollars.

The Uber app is still best-in-class, and all my friends now say "Get an uber" instead of "Get a cab" because the UX is so much smoother.

Generally it's extremely difficult to dislodge an incumbent from a market slot. Newcomers can only compete on price, UX, and brand recognition. Ideally all three need to be significantly better than the incumbent to have a hope of taking over. Without all three the best a newcomer can hope for is a small slice of the pie.

So market share definitely has value in the abstract. Unfortunately in Uber's case it has negative economic value because of the costs/subsidies.

Then again I suppose it's possible Uber has always been a cunning plot to take VC money and spend it on subsidised transport. If so, it's definitely been a success - for now, at least.

The infrastructure costs of deploying a fleet of cars to compete with Uber if they gain market share will be massive, all but assuring they will hold a monopoly position for years unless a decentralized competitor could actually become reliable quickly (I doubt it).

Why?

Are drivers who make $10-15 an hour so ludicrously expensive that saving that money fundamentally changes the business?

Are the carrying costs and maintenance costs and depreciation costs of self-driving cars likely to be lower or higher than the cost of a 2017 Toyota Camry? How about the regulatory and insurance costs?

Is there likely to be some magic secret that allows one company to dominate self-driving cars, or will it resemble the historical markets for transportation devices, whereby there are dozens of companies who make different offerings of similar technology, and a network of component suppliers and hardware and software companies that contribute?

I guess it captures a unique place in our imaginations, but this topic has an unusually severe infestation of magical thinking for some reason.

I actually agree with you that this is not a given, but it wasn't clear from my phrasing. I should have started my comment with "Even assuming you will print money with a self-driving fleet, etc".

That said, whoever deploys a self-driving fleet first should enjoy a significant cost advantage against human-driven taxis, at least for the initial period before competitors finalize their own transition. Insurance costs should get lower if SD cars prove to be safer (if not, they wouldn't pass regulation), and taxi customers are very price sensitive, so the $10-15 per hour cost advantage will certainly matter. Taxi drivers hate the price competition from upstarts already. If anybody figures out how to make those prices economical, they win, at least until the market commoditizes itself at a lower price level.

Since drivers can't work 24 hours per day, you are paying depreciation on ~three 2017 Toyota Camry's, not one.

You speak of the first dot-com crash, but there was a lot of stupidness back then. One of my favorites is furniture.com http://www.ecommerce-digest.com/early-dot-com-failure-case-s...

Research into "autonomous driving" began 1987 with the Prometheus programme consortium, then came C2C and C2X.

We have "autonomous driving" the day an automotive CEO is happily blindfolded on the back seat, alone, chauffeured a random journey through Seoul on a morning commute in monsoon season or a scooter-mania evening on Friday in Milan.

I see the "Uber is a bet on self-driving cars" coming up in every discussion about their business plan. But even if that's true, why is there an assumption that Uber would have a monopoly on self-driving cars?

Google, every car manufacturer, and a whole series of startups and universities are working on self-driving technology. If for example Google perfects it first, they will sell licenses to car manufacturers, who in turn will sell cars to Uber, Lyft, and every taxi company in every city of the world. Even if Uber develops the technology first and keeps it to themselves - then others cannot be too far behind, the potential payoff is just too great.

In the end the situation is just the same as now.

[1]: https://techcrunch.com/2017/03/16/uber-recode-leaked-autonom...

I don't believe this is true in all markets. IIRC the heavy subsidizing behavior causing severe losses is in new markets like China.

From your source:

> Net revenue—the amount of money Uber generates after it pays its drivers—was $1.7 billion in the third quarter,

That's what it takes to be a real business. If you are a grocery store that buys bread for $1 and sells it for $2, you potentially have a real business even if you only move 20K loaves a month and need 30K to cover all expenses.

People keep on alleging that Uber is somehow buying bread for $1 and selling it for less than $1. There was stupidness like this in the first dot-com bubble. You aren't a business if you are doing this.

This distinction really matters. Since Uber is making money on each ride, there is a real business here.

Hey - brb!

The work Uber needs to do to onboard a driver in Alberta, Canada is completely different from Ontario, Canada (e.g. drivers needing a commercial class 4 vs consumer class 5 license).

As a result, they are facing unique regulations that is making it difficult to automate the work that is being done in each local market.

MOST companies fail. 75% of venture backed companies fail quickly. Only about 50% of all businesses are capable of lasting 5 years, and only about 35% are able to last 10 years.

We have all seen companies that were offering products you wanted, but that closed for one reason or another, and it is not in every case that you can attribute it to bad management.

But this is still attributable to "bad management". Good management would not even try to sell a low-volume product where they cannot price it high enough to make up for the limited demand and volume, and would instead come up with a better business plan in the first place.

Your assessment of "replaces a whole layer of management and overhead" isn't entirely true as far as I know. If anything, they have more overhead.

1) Economies of scale. Airbnb has management and overhead but it's spread across thousands of cities. Cab co.s need a full structure for each city in which they operate. 2) Automation. Many of the manual jobs in local cab companies like dispatch and scheduling are automated. You don't call a human when you need a ride, you push a button on an app. So that's also less overhead.

They are also very clever in how they treat their drivers, so labor cost is also low, and of course there is no maintenance on cars (drivers change their own oil, buy their own tires, etc).

So I believe Uber could probably make money just by replacing cabs, but like others have said, they have to compete with other VC money receiving ventures that are wiling to burn money to come out on top.

For now, we the customers are benefiting greatly from the situation.

Unlike Amazon, Uber faces massive variable costs in driver recruitment/onboarding, legal regulations and local advertising.

Seriously. The rules needed to onboard a driver in Alberta, Canada are completely different from New South Wales, Australia. You can't automate driver recruitment/onboarding in either of these cities because these markets have passed actual legal regulations to allow ridesharing that require unique, but idfferent things (e.g. like market-specific commercial drivers licenses, background checks... or filling out registration forms made by the jurisdiction).

As I see it, Uber employs drivers, whereas AirBnB facilitates BnB owners.

1. Recruiting drivers and passengers

2. Legal issues

3. Marketing and branding

4. Support