The (buzzword warning) hyper-growth startup model is in essence 2X revenue, 1.5X costs. Repeat until inevitably profitable - and I say inevitably because with enough time, 2X revenue, 1.5X costs gets to profitable. The only variable there is having a long enough runway.
Uber seem, from the financial data I have seen, to be sticking to that playbook down to the 3rd decimal place (exaggeration for effect). When Uber does turn the profitability corner, it will be at a level well over a billion a quarter.
Sure it's a risk, but if any company was setup to be huge, had followed almost all the meta-rules on growth and looked to be hitting those growth targets, it is certainly Uber.
Except, if you check the linked article, you'll find that bookings grew 11%, revenue grew 21%, and losses grew 38%.
it is like gambling with doubling (or even tripling) down each time - with enough time you will inevitably win and as result will reap a huge profit in total. Now if just somebody write me a blank check backed by an unlimited bank account... On practice though, even if got that check - what if the casino can't match my next 3x bet?
The same thing with Uber - the important thing isn't just the Uber's money runway. The other side's "runway" (i.e. total size of the market) is also extremely important - are there enough people on Earth needing enough rides so that that amount of rides would allow for that "2x revenue 1.5x costs" model to reach profitability?
Now if just somebody write me a blank check backed by an unlimited bank account... On practice though, even if got that check - what if the casino can't match my next 3x bet?
It's called a table limit. At one point you just can't raise your bet anymore.
Will revenue double forever? No. Will revenue double for 100 years? No. Will revenue double for 10 years? Hmmm. Will it double for a year? Lets just say yes. Solve for between 1 and 10, and place your bets accordingly.
Can you elaborate on this? What is the relationship between those figures? I am guessing there is a third component that those are multiples of?
Are they planning to raise prices? Cut employees? What are they planning on doing here?
This is the nature of "predatory" pricing.
There is something to be said for volume and if a couple competitors die in the process then Uber's volume can only go up. Unfortunately their competitors have found a variety of ways to keep from being dragged down (eg: regulatory support of municipal taxi orgs) or ways to keep oxygen expenditure stable (eg: controlled expenditures through higher pricing and "friendlier" demeanor).
I am almost positive the point of subsidizing the price of the rides is to get you addicted/ build up a habit or get you comfortable using the service.
I think they are aware of the competition and are comfortable owning 60+% versus trying to get 80%+.
Their revenue is growing which is still wild despite bad press.
>Unfortunately their competitors have found a variety of ways to keep from being dragged down
Not a bad point but it is highly dependent on the market. In the US, Uber is 4x Lyft in market share.
A common problem drivers cite is that Lyft pays better, but the volume of Uber riders is much much larger.
I am not a fan of Uber, just extremely bitter at poor journalism, hence , I stopped reading at the first paragraph.
Not really. The revenue for a company selling dollar bills for 80c each will keep increasing until all the cash is gone as well.
The rides that I have taken are not subsidized. Maybe it's not statistically significant but I have yet to see the subsidy in the major cities that I have traveled in.
SoftBank obviously sees something in them.
Who knows. I don't disagree with what you said.
How do you know that?
How do you know they are subsidized?
While in reality, their overall share of the ride-hailing + taxi market in the US is ~25% as of August 2017, and far less in Europe and Asia.
You don't know what you are talking about.
https://www.google.com/amp/s/www.recode.net/platform/amp/201...
>That week, Uber’s market share dropped 5 percentage points compared with the previous week, from 81 percent to 76 percent, according to Second Measure data. Lyft’s market share gained about the same amount that week. Other ride-sharing companies, including Gett and Juno, saw a nominal increase that week.
And once autonomous cars become part of the picture, I think they're in an even worse position. Suddenly they're not competing just against would-be moguls. Now they're up against the car companies, who have strong brands, deep pockets, and the ability to make cars at cost. Imagine, for example, BMW extending their leasing business to on-demand car use. We also have existing car rental companies that will be eager to get in on the action. And that's not counting the zillion other outfits with strong brands and a taste for expansion. Apple, for example. Virgin. Amazon.
I just don't see how this ends well for them. At best, I think 10 years from now they'll be the next Groupon: the hot startup everybody everybody loved but now nobody talks much about and is trading at a fraction of their peak valuation.
Edit:
There are two possible stories here about Uber and Lyft's losses, and we can't tell which is right from the outside.
1. Uber and Lyft are in a price war death spiral, heavily subsidizing all rides to compete. Their only hope is for all competitors to die, so they can take over the whole market and raise prices. Then vague hopes of lowering costs with self-driving tech and take the surplus as profit. The plan doesn't seem viable, since they have no moat and they can't outspend GM and other self-driving players.
2. Uber and Lyft can actually make a profit in mature markets, but choose to subsidize rides in growing markets, on the theory that growing the market size increases the long term profit opportunity. The data we need to evaluate this idea isn't public, however Uber did a "prove it" quarter in 2016 where they turned the spigots to be profitable in the US. They are now pursuing growth in the US again, expanding to a larger territory and expanding Pool and other offerings like flat-rate passes in mature cities. Under this model, Uber could at any time decide to become profitable, but the revenue growth would stop, placing a cap on the valuation. Notably, there is no "predatory pricing" here.
With internal finances, we could easily tell whether option 2 is valid. You can bet Uber is constantly doing experiments on price elasticity of demand and knows exactly where the truth is. You can bet Softbank has seen numbers we have not. If Uber wants to IPO, I would expect them to provide additional public info, possibly pivoting to profitability again in the US. But doing a pivot like that permanently reduces the size of the opportunity, allowing Lyft to capture that new market instead, so they may be reluctant to do it large scale.
To start a rideshare company, you only need to do reasonably well in one segment in one geographic market. Then you have a basis for expansion into other areas, other segments. Contrast this with a search engine, where people really expect you to be good for everything and covering the entire internet.
You have the give your drivers a reason to use your app instead of uber.
You have to give riders a reason to use your app instead of uber.
The two reasons have to be good enough to build a large enough network for the rideshare system to work.
I'd say there is a network effect for ride-sharing in aggregate, neither Lyft nor Ueber has been good at locking drivers and riders in with loyalty programs to try to keep people solely on their platform.
The truth is that all the viable competitors are likely already out there and it's going to be very very difficult to replicate what these incumbents have without burning ridiculous amounts of capital.
If the Softbank deal closes, we'll likely see a wave of consolidation with Softbank orchestrating acquisitions by Uber. It's very common for relatively young markets to consolidate over time.
No one in their right mind would start a new company to compete with the existing TNCs in 2017.
Ride sharing is essentially a local business with very low barriers to entry. You don't need to replicate what the incumbents have right away. You just need a modest number of drivers (who can also be driving for the incumbents) and a modest number of customers.
That seems sufficient to me. It's hard to name any company started in the last few years that is a major market player when then have a bunch of competitors. New businesses take time to grow.
The discussion here is about whether Uber has a moat. The point being made is that it's pretty easy to start a rideshare company. Which it is. That one hasn't become major yet isn't proof that one can't become so. As long as there's room for new companies to start and be sustainable at modest scale, then Uber can't extract monopoly rents.
Did the journalist who wrote that story cite any figures to support that assertion?
However, you are right to bring up autonomous cars. I always thought it amusing that Kalanick et al were so anxious to bet the house on autonomous cars, when in fact, they are the company's greatest existential threat long-term. Once those cars are readily available and street-legal, there's nothing stopping Enterprise or Avis or the automakers themselves from becoming overnight competitors.
And once drivers are taken out of the picture, ride prices will plummet. Margins will also thin because of the likely extreme competitiveness of this market. I would not want to be an Uber investor that's for sure. In theory, the "winner" will be whoever scales the most (i.e. has the most capital to put into their fleet) and has the most effective marketing. In practice, prices may be close enough that people will rent car X because they like brand/model Y better.
If I were on Uber's board, I would advise against trying to win that war which they will lose once/if the automakers get in on it, and instead get creative about how to conquer the market in a more niche way.
Someone is going to have to program self-driving ambulances :)
1. This is probably further out than a lot of people assume. Reliable door to door fully autonomous in dense cities is one of the hardest use cases to solve but it's more or less what you need for self-driving taxis.
2. The pricing probably also won't "plummet." The IRS mileage rate (about 53 cents/mile) is probably a reasonable floor to use. That's still about half current Uber rates.
https://www.irs.gov/newsroom/2017-standard-mileage-rates-for...
"The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs."
1. Maintenance. Electric vehicles require far less maintenance than ICE vehicles. (First thing I found on Google: https://insideevs.com/ev-vs-ice-maintenance-the-first-100000...)
2. Vehicle size. Once these systems are up and running, do you think Waymo & Uber, once their systems reach any level of maturity, are going to send you a 4 person vehicle to pick up 1 person? This reduces:
a- the capital cost of the vehicle
b- its cost of maintenance (less parts, etc)
c- the amount of energy required to get from point A to point B
Which brings me to...
3. Price of electricity. Waymo, Uber, et al will get their electricity at wholesale rates.
4. Low cost of capital. The cost to access the capital to buy these vehicles will be lower than anything a peon like you or me could ever access.
5. Bulk-buying 1,000,000 vehicles. No dealers, no dealer commissions, zero customizations, less parts, smaller vehicles, no car manufacturer marketing budget...
6. Maintenance scaling. The need to scale maintenance operations country-wide is going to lead to its own interesting effects. With a hard limit on the types of vehicles in a network, most cleaning and general maintenance will, in time, be doable by human-monitored robots.
7. Ride subsidization will effectively crush any margins any of these companies could ever hope to have.
8. Shared depreciation. Depreciation will be significant per vehicle but overall, cheaper, as each vehicle will have more utilization.
I'd hesitate to guess at the effects of all of the above, but it's not much of a stretch to anticipate an additional 50% reduction here, barring any unforeseen taxes, of course.
You might pay more for the network with great coverage and lux vehicles.
You might pay less for the crappy network with dirty cars and plastic seat buckets.
Etc.
And regarding (8), many taxis are rented by drivers for their shift, with multiple shifts per car per day. Uber could be doing the same right now, but they'd rather rely on drivers not realizing the full value of their car and giving the difference to Uber.
I totally envision the points mentioned. I put the $$ figures for on-demand hail service subscription a month ago, on a HN thread as follow .
https://news.ycombinator.com/item?id=15644680
2021 : Electric Self-driving on-demand FLEET Car 1000 miles/month SUBSCRIPTION from Google, DiDi, Uber, Renault/Nissan,Tesla, VW,Toyota,GM for $400/month
2024 :same 1000 miles/month SUBSCRIPTION $200/month
------
> Literally none of the old assumptions will apply. Let's go through some of them.
> 1. Maintenance. Electric vehicles require far less maintenance than ICE vehicles. (First thing I found on Google: https://insideevs.com/ev-vs-ice-maintenance-the-first-100000...)
> 2. Vehicle size. Once these systems are up and running, do you think Waymo & Uber, once their systems reach any level of maturity, are going to send you a 4 person vehicle to pick up 1 person? This reduces:
a- the capital cost of the vehicle b- its cost of maintenance (less parts, etc) c- the amount of energy required to get from point A to point B
Which brings me to...
> 3. Price of electricity. Waymo, Uber, et al will get their electricity at wholesale rates.
> 5. Bulk-buying 1,000,000 vehicles. No dealers, no dealer commissions, zero customizations, less parts, smaller vehicles, no car manufacturer marketing budget...
> 6. Maintenance scaling. The need to scale maintenance operations country-wide is going to lead to its own interesting effects. With a hard limit on the types of vehicles in a network, most cleaning and general maintenance will, in time, be doable by human-monitored robots.
> I'd hesitate to guess at the effects of all of the above, but it's not much of a stretch to anticipate an additional 50% reduction here, barring any unforeseen taxes, of course.
> You might pay more for the network with great coverage and lux vehicles.
> You might pay less for the crappy network with dirty cars and plastic seat buckets. Etc.
I also suspect that ride pricing and scale will not be the determining factors. Look at the variety that still exists among car manufaturers after a century of competition:
http://www.thetruthaboutcars.com/2017/08/usa-auto-sales-bran...
There's such a wide variety in terms of both cost and experience that I'd be very surprised to see that drop off to one or two players.
The car brands know it, which is why they're panicking.
(Why ALL car brands? Because you're going to have companies like Bosch and Foxconn competing. I'd like to see Ford beat Foxconn at a challenge like this.)
This would be especially true if people continue to own or lease private cars, which I'm sure will continue at some level for decades at least. Look at how much stuff families keep in their minivans, for example. Or all the tradespeople who keep working materials in their trunk.
Or look at commuters. Taxi-ish providers like Uber and Lyft will have a hard time dealing with commutes because they'll have to buy a lot of vehicles to cover the peak that just won't get used much during the off hours. If people treat it like a minibus, where they share, then the providers might do well. But I suspect a lot of people will be willing to pay up for a private commute, at which point they might as well just have a dedicated car. In which case, the market will look a lot more like it does now.
BMW has no choice but to do this, as do all the strong brands. They can't compete in a world that you don't care about the brand because you're riding journey-by-journey with no personal investment.
There is a lot of work that goes into the infrastructure behind companies like Uber and Lyft. You need good engineers that build products that are reliable and well tested, to work 24/7.
It is a hard problem. A lot of the smaller city taxi companies that have apps contract to larger vendors as well.
So did newspapers - the very definition of mission-critical computing is the the paper HAS to hit the stands the next morning. Didn't save them from half-arsed competitors running glorified blogs...
- Assuming this refers to Lyft, Lyft's expenses compared dollar to dollar are on-par if not worse than Ubers - https://techcrunch.com/2017/11/14/unpacking-lyfts-projected-...
As long as Uber can keep the cost per ride lower than other competitors, it just needs to wait for the burn to end faster on the competitors side before turning break-even.
Uber have joined loss leading with scale, a combination that works if one has access to an endless spigot of money. The scandals have impacted Uber's fundraising. Time for eyes to match stomach.
I predict, in addition to lay-offs, we'll soon see more Didi-style hand-offs of offshore ride-sharing markets. Southeast Asia to Grab et al seems reasonable.
Disclaimer: this is not investment advice. Do not buy or sell anything based on this Internet comment.
Also Disclaimer: this is not investment advice. Do not buy or sell anything based on this Internet comment.
some interested parties (waymo/alphabet) might be happy to foot that bill.
Commodore 64 was a profitable bestseller.
Tramiel left Commodore while it was still very successful, founded new company, bought Atari and tried to replicate Commodore 64 success with Atari ST.
Commodore failed because they failed to transition from Commodore 64 to a better specced machines, despite having a technological marvel at their hands (Commodore Amiga).
Both! Just don't tell anyone.
It's like having Stripe getting a 25% cut from all card transactions.
When they flip the switch they become more expensive that a regular mini-cab. Customers will leave in droves, drivers will leave in droves. There s no loyalty to a middleman.
Uber may or may not be subsidizing fares, but they’re also spending tons of money on engineering and product development, both on their existing product and in an attempt to develop self-driving cars. That’s growth.
With Uber, I think there is some degree of loyalty just because of the ubiquity and convenience. Plus, I imagine their prices will be more or less the same as a taxi since they don't have the expense of dealing with the regulatory overhead (since they just blatantly ignore the law instead)
This is not true for all markets in which Uber operates - in NYC for example, uber cars are all registered with the TLC.
I have no idea why (maybe less drivers?) but I already stopped using Uber because of that. If their prices when even higher then I'd simply never use them again instead of the occasional time that I do now.
I have a feeling this isn't as easy as you think. There are some great talks on Uber's microservice architecture and it's pretty insane. They could create new services, but I have a feeling their existing infrastructure is very custom. They've got over 1,000 microservices and it's actually difficult to get an exact number.
Symptomatic of too many engineers and too little leadership
The talk is invariably about some really impressive bit of software that appears to have required equally heaping measures of smarts and money to build, and also appears to be a $10 solution to a 10¢ problem.
But yeah, extraordinarily few internal projects can be turned into an external project without enormous rework. It's only the myth of middle managers who perceive software as a growing asset who think otherwise.
It's quite tricky to package an internally used system into something that can be sold and used by others. It most likely takes years to get to any significant amount of sales.
* Thinks they have a logistics problem in the first place.
* Thinks that software can solve that problem.
* Are in the market for software to solve that problem.
* Think that Uber's software is the software that would solve that problem the best.
That's a hell of a lot of assumptions, each of which is fairly easy to pick apart.
And this is just the taxi industry, there are plenty of industries that would love to use a logistics software to help their business. The only real magic Uber has is this software, the rest is easily replaceable or overhead.
[1] https://daymondjohnssuccessformula.com/launch-pad/cab-compan...
[2]https://www.watchdog.org/california/the-uber-effect-why-cab-...
[3] https://www.quora.com/Why-do-taxi-drivers-hate-Uber-if-its-c...
[4] https://therideshareguy.com/what-taxis-need-to-do-to-survive...
The subsidizing is what made them a household name, along with the ease of use.
And the taxi firms usually won't and often legally can't use Uber's pricing algorithms which is pretty much the only secret sauce to the app, they don't want to ignore bylaws that Uber has cheerfully skirted around and they don't want their expensively-licensed drivers competing for leads on an equal footing with new Uber drivers.
I worked for a very big "Old Media" company in Australia when we rebuilt one of their key properties. Their "definition of success" was to _not accelerate the rate of decline_ of page views. Since then I've realised that these types of businesses are ran by people who are motivated differently than 'us'.
Plus any other startup or company can build such app to compete.
Any start up could build this, but most companies don't want to deal with an MVP and the bugs that come with it, or a startup that may or may not exist in 6 months, etc... Companies will over pay for enterprise grade software if it has a history of just working. This is why Uber has an advantage, software that has a track record of doing what it says it does.
I think that companies like taxis are cheap and while they are willing to pay, they are not willing to pay much.
Every taxi company on Earth (well, at least in the UK) has an app of their own now, even if it's just a white-label with their branding applied. They all let you book a journey and tell you the name of the driver and the reg plate of the car, and have a nice animated map of how far away the car is. No-one will buy it.
But as I mentioned above the taxi industry is only the first immediate one I'd tackle, there are plenty others.
But that aside, yes a pivot would require them to do things differently, just as in your example learn selling to businesses However every taxi company in the world would jump at this opportunity immediately. The same industry that refused change for decades and had their parade rained on when Uber came around would greet this change with open arms. Especially if Uber were to 'go away' as a result.
There are going to be down rounds for Uber in the future no matter what, valuation means nothing if your business won't survive.
Not sure if the unit economics can ever work out.
TO my understanding (probably not a full understanding), Uber's business model to date has always been predicated on subsidizing cheap fares and wages that at least keep lots of drivers around. The idea was at some point this would be sustainable and the subsidies would go away. It is unclear now whether such a point exists
Uber could cut costs, ie massive layoffs, but imagine what that would do to its talent base. Who would stay at uber amid massive layoffs when the hiring market is so strong?
THey could try to improve unit economics by charging higher fares or squeezing drivers further, but it is unclear how much more they could squeeze drivers, and if fares rise materially, a lot of their business goes to lyft or goes away entirely.
i rarely used uber when i was in NYC or non-SF places in CA. in SF uber might still be viable because public transportation is so terrible, but in many other cities uber could disappear and people wouldnt miss it all that much
If so, they then probably think they can go public with all of that baggage.
After reading the Times article (currently #7 on HN list) it would look like a fine is probably the least of their worries in the Waymo case.
Just curious, but does it actually mean this? I thought some of their $1.5B losses could be in the form of debt that has to be repaid in the future?
That is exact time 2019 January google Waymo will be having driver less full autonomous Ride hailing service at least in 10 US Cities in limited routes of each city to begin with ( as Phonix driver less service is LIVE at this time).
Unless Uber driver less technology is ready for deployment for real world Ride hailing service by 2019 January (even in small limited routes in those 10 cities), Uber is in big trouble !!!!!
I think this Uber 30% lowered valuation is result of this two factors of perceived RISK that is
a) running out of money in one year
b) driver less technology readiness by 2019 for real world use
What a loss to Waymo might do is make an Uber IPO much less attractive. It might even be the difference between an IPO happening and not happening. And that might be the difference between Uber getting another year or two of runway and them dying in 2018.
So? They'd almost certainly be forced to put up a very large bond to do that, assuming they can get it.
In some jurisdictions, this can be 100% of judgement + interest. IIRC, in the 9th circuit, it's at the discretion of district courts, but given the financial situation, if they did have a multi-billion judgement against them, and not a lot of runway, what makes you think a judge won't make them put up a full bond to appeal?
These cases actually often do bankrupt businesses, and the predatory lawsuit creditors take over (though usually that happens more in patent cases) :)
Absent cost-cutting, that implies a 9 to 12 month runway. Even if SoftBank injects $1bn, that could only mean a few months’ runway. A large fine in the Waymo case [2] could literally bankrupt them.
[1] https://venturebeat.com/2017/08/23/uber-is-still-burning-cas...
[2] https://mobile.nytimes.com/2017/11/29/business/waymo-uber-tr...