They spent ~$3,200,000,000 ($3.2 billion) on sales & marketing in 2018 of which ~$1,800,000,000 is direct media / HR cost to drive customer acquisition.
In 2019 this number, as of the first quarter, has gone up substantially to a >$4b run rate.
With a burdened cost of $150k/yr for every single member of the 1,200 marketing team that makes up $180m of the total.
Uber operates in 600+ international major markets.
1200 employees (5% of organization total) covering and executing nuanced marketplace approaches for a budget of that scale is not out of range.
(1) https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spend...
>Coca-Cola has made a yearly commitment to large ad spends. In 2017, the beverage manufacturer spent $3.96 billion, in 2016, $4 billion, and in 2015 $3.96 billion on global advertising.
But I'm not sure if that's a comparable figure, as "advertising" is only a subset of "marketing". Still, if the latter is basically just the former plus salaries, it still suggests Uber is overpaying and/or has some inefficiencies in how they operate here.
[1] https://www.investopedia.com/articles/markets/081315/look-co...
EG they put ~$300,000,000 of the "Driver Incentive" cost into "Cost of Revenue" line item that represents:
- "Any amount paid to a driver that exceeds the revenue earned by that driver (for instance, if a driver’s earnings from a trip exceed the fare for that trip). Excess driver incentives jumped by about $300 million in 2018 from the previous year, largely due to Uber Eats."
And then they stick $1,800,000,000 into "Sales & Marketing" representing:
- "Discounts, promotions, refunds, and credits for customers,"
- - - -
A popular criticism of UBER is that their unit economics are not sound - eg they can't make money at scale on a per ride basis.
So this giant $2.1b glut of Driver Incentives and Customer Incentives is one of the areas to deeply study and build a position around if you'd like to be an UBER stock holder :)
Where the unit economics get completely messed up is Uber Eats. In my local market (Wellington NZ) the eaters are paying a flat delivery fee of $5.99 to $7.99, while the drivers are being paid $5 per pickup and $1.35 per km. This results in drivers earning anywhere from $5 to $20 for each delivery -- and that's without even taking into account any driver promotions. No wonder Uber had to come up with an "excess driver incentives" line item!
Sometimes Eats will have the driver pick up two orders at the same time. This lets Uber collect two delivery fees from the customers while only paying the driver a single pickup fee plus the kms from restaurant to customer A to customer B. In theory this should work in Uber's favour. But their system all-too-frequently will make insane assignments, such as batching together two orders for customers that live in completely opposite directions. There will be situations where the customers have each paid, say, $7.99 for delivery... and the driver ends up earning $30 from the trip!
So this is cutting very deeply into the 35% commission that Uber charges restaurants on the total order value. They're trying to hide the insane unit economics of Eats by spreading the various revenues and costs around different line items...
Turned out that avoiding empty trips in transportation is hugely dependant on volume by time and region. It is also a very hard problem to solve as you need to match availability data from busses (which needs to be collected in a scaleable way), trips (which need to be in the correct regions and times) and then simply come up with an optimization algorithm to sort it all out. Peace of cake... Not. Especially if you want to link that to your pricing already during customer booking instead of after-the-fact discounts.
One might suspect that the transportation industry which has the volumes and the cost pain of empty trips might already have solved it if it woupd have been that easy.
Hiding $1800m of ride discounts under Sales and Marketing feels deceptive. If a store advertises "summer sale, 30% off!" for a month, you can reasonably call that marketing spend.
Uber is different. If my flight's leaving in 1h30m, I pull out my phone, open Uber, type in LAX, open Lyft, type in LAX.
Say Uber is $17. Lyft is $20. I pick Uber. If there's a "promotion" going on under the hood to produce that $17 number, is that marketing? It's really just price competition in a cutthroat, negative-unit-economic market.
Given that, Uber laying off 400 people has a dual effect. It's cutting sales spend. It's also creating news to distract from the fact that >50% of the sales spend is really per-ride losses.
So some developers with VC money can develop an app, launch in a city, and force Uber to cut prices, because people will be happy to install a FastRyde app and get rides for $3 less than Lyft/Uber.
These retention numbers, for any business that needs returning customers or service providers pretty much make or break all the customer/provider acquisition economics.
In Australia we've got drivers advertising other services directly to riders. Most of these are probably subsidizing rides to enter the market, but how long can uber continue losing money as competitors try and enter the market?
Creating a monopoly then jacking up the price. Not doubt shafting drivers and their customers.
As others mentioned, its not hard to clone Uber. They don't even have the network effect of Facebook or Twitter. No one cares if their friend uses Lyft and they use Uber, they just care about the one time they make a journey, and how much it costs (along with safety I suppose, but that is an extra cost Uber try very hard to avoid).
The drivers are free to run whatever apps they want simultaneously, because Uber only works when exploiting them as "contractors" free to choose when and how they work.
I think Travis Kalanick was right, they need self driving cars, now...
>Driver incentives. Driver incentives refer to payments that we make to Drivers, which are separate from and in addition to the Driver’s portion of the fare paid by the consumer. For example, Driver incentives could include payments we make to Drivers should they choose to take advantage of an incentive offer and complete a consecutive number of trips or a cumulative number of trips on the platform over a defined period of time. Driver incentives are recorded as a reduction of revenue to the extent they are not excess Driver incentives (as defined below).
>Driver referrals. Driver referrals refer to payments that we make to existing Drivers to refer new Drivers onto our platform. Driver referrals are recorded in sales and marketing expenses, as they represent the receipt of a distinct service of customer acquisition for which there is evidence of fair value.
https://www.sec.gov/Archives/edgar/data/1543151/000119312519... (pp. iii)
Maybe it’s because I’m from a small country, but can a single country have more than one “major international market”?
A "major market" is basically a city/metro.
In 2019 that number as of Q1 has shot up to a $4b+ run rate:
https://investor.uber.com/news-events/news/press-release-det...
- -
Even more interesting in that number.
The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts".
This is the line item for costs where they pay a driver more than they collect from a customer.
So they put the "customer discounts" number, which represented $1,400,000,000 in total expense, into the marketing budget.
Leaving ~$1,800,000,000 spread for all other sales & marketing activities.
I am very in the weeds in the 2-sided logistics marketplace customer acquisition data if you have other questions :).
The gigantic and unsustainable CAC numbers experienced by Uber, Lyft, and others is due to the present level of competition for these drivers & customers. This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach.
This cost has now been handed off (in the USA anyways) to Lyft & Uber stock holders. Somebody is going to run out of capital or experience a precipitous drop in stock valuation that will force the market's hand here and reduce demand and re-normalize.
It is financially unsustainable for this # to keep climbing as a percentage of revenue barring a massive change to the cost structures.
The only massive change imaginable in the structure was when Travis got away for a few years claiming autonomous would cure all, this is obviously not going to happen in the timeline he was pitching.
I think that the CEO taking a hard position and firing 400 people in his marketing department is a good indicator that when they next report earnings CAC is going to be a huge mess and maybe shed some light on how UBER plans to navigate that downshift.
(2) Will drivers still drive if this incentive is taken away? -=> Yes, following my comment above I think that the current CAC and retention numbers will normalize (for one or other other of the major players) and that the delta savings will be pushed back into increased driver wages.
(3) What are some of your favorite interesting insights from that data? -=> Outta steam sorry :)
Do you think it is even possible to have a winner takes all in the global hire car market? The barrier to entry is exceedingly low.
Marketing has large budgets to spend (multiple of their salaries) on marketing campaigns. They're usually incentivized to spend as much as possible on whichever marketing campaign they can come up with, with little accountability on whether it brings any ROI.
It's the equivalent of software engineers wanting to use the latest tools for resume building, no matter the situation. The difference is that marketing lives on spending money, hence cutting headcount there has a big multiplier on cost savings.
By the way, a lot of marketing is still not quite metrics driven. Unlike the internet, when spending money on national TV, sports teams, tube station ads, there is little feedback that can be captured.
And even on the internet, how do the new junior marketer learns that google/facebook ads don't have a positive ROI for his use case, assuming he's measuring at all? That's by spending a few million dollars in vain.
Anyway, that is not to say that marketing is useless, it's an important aspect of some businesses. The capital costs involved are fairly high though and can quickly spiral out of control. A big part of the marketing/advertising industry is a scam operating at a loss, an elaborate conduit to transfer money from the client to the advertiser.
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
It was ridiculous. There was no real money, just app developers paying each other for installs.
https://danluu.com/sounds-easy/
> I can't think of a single large software company that doesn't regularly draw internet comments of the form “What do all the employees do?"
Granted he's mostly talking about engineers, but I'm sure someone more knowledgable about marketing could write an almost identical essay.
The promise of software at scale is that the marginal costs of selling one single additional unit are basically $0.00
As a result if your product sells for $500 you can spend $495 and still make money.
This leads to all sorts of adventures in driving that additional marginal unit sale such as:
- Localization - eg Microsoft Office is available in 102 languages! So now we need a local market product manager, sales team, distribution team, translator, QA, etc, etc.
- Enterprise - Huge swaths of money spent on conferences, thought leadership, any bullshit you can think of to potentially get a decision maker CTO to befriend somebody on your sales team.
- Government! - Selling to the gov't is extremely profitable but extremely long and complex sales cycle. Now we're hiring lobbyists, contract specialists, etc, etc.
- Support - Happy users are your mostly likely next buyers
etc etc
I also can't think of a single large software company that doesn't, in the long run, survive by either endlessly buying and extracting all the value out of smaller software companies, or creating a moat that makes it almost impossible for new competitors to emerge.
Having worked for a small software company that got acquired by a large one that used the former survival strategy, and therefore witnessed firsthand the subsequent doubling of headcount and simultaneous halving of overall productivity, I can offer one of what I assume are several possible answers: Paperwork. And lots of it.
To take the example of support, pre-acquisition, the support team had a reputation for being one of the best and most knowledgeable in the industry. That reputation went up in smoke rather quickly when the acquiring company decided to merge support into their existing support vertical and adopt its existing policies, including things like requiring the support and the product development teams to communicate through JIRA instead of using informal channels like instant messages or (in exceptional cases) pulling a developer into the call.
The end result was that the mean time to find a resolution for the non-routine issues went from hours to days. Ironically, while management claimed this would reduce disruption for the development team, it actually increased the time that developers had to spend on supporting the support team, since it made communication so much more difficult. Which, in turn, means that it slowed down both customer support and product development by bogging them both down with paperwork.
Of course all these employees are doing something. People will always invent more unnecessary work if the budget is there.
If the budget isn't there, the unnecessary work just isn't done and nobody notices.
They've most likely (wisely) decided to centralize those decisions, so not a huge surprise.
FWIW, the operations teams (small, local, non-technical teams stationed random cities around the world) built Uber into what it is today. Scaling/automating those jobs was always an inevitable.
For a company that's about the gig economy, they make some strange staffing choices.
Because of differing cultures, we respond very differently to color palettes, design aesthetics, safety concerns, cool factors, etc. And since the entire point of marketing is to sell, then the the brand's visuals, branding strategy, responses to concerns, etc, all have to be completely customized for the local market in order to engage customers.
For example one common difficulty tech companies often encounter while trying to enter Japan was how difficult it was to acquire and retain users compared to anywhere else. Some gave up, some would keep trying, and surprise—it would magically work out when you hire a local ad team, local designers, art directors, etc. Western companies' sleek, advanced designs are easy to use and navigate, but the locals understand that culturally, the Japanese society resists change. They are used to early day yahoo/geocities level of banner ads and flashing gifs on a page so that they can feel certain that what they are using can be authentically catered to the Japanese people and supported. Overly simple designs like a Bootstrap framework was simply too frightening, new and confusing.
Same can be applied to pretty much anything from fashion, beauty, food, retail of any kind, to things like Uber, which specifically has its own complexities to solve while trying to enter a taxi-efficient market like that; a completely different marketing problem to solve than say Australia's safety concern as you mentioned.
TL;DR: Can't easily centralize marketing because local cultures and needs are always different; and you need locals to know what locals will want/engage with.
Ever notice there isn't marketing for potatoes, bread, rice, etc. ? People buy those things anyway. The latest smartphone? gotta convince everyone to buy it.
At my last company engineering spent $10m installing fiber into some remote community. The marketing for that project was $15m.
So the marketing around "doing something" costs more than actually doing it.
That's why films are often known as flops even when they make their "budgets" back. You're not in the money until you double the budget.
edit: Also, considering the vast majority of that marketing money is spent before the film comes out these days, and all the sales are made within a month - as much is spent on convincing people that a film that nobody has seen is going to be good as is spent on the film.
If your numbers are correct it sounds like some kickback scam.
How are normal people supposed to know fiber to the home is actually fiber?
According to this survey[0], only 25% of people even know what "fiber-to-the-home" means. Not a perfect proxy for "fiber" itself, but I imagine most non-technical people are not aware of it.
[0]: http://www.bbpmag.com/Features/0714feature-ConsumerSurvey.ph...
Gotta pay all those salaries somehow.
It’s so hard to not get into this state during rapid growth, and to get out of it, and return to being a focused, lean, efficient (and eventually profitable) company, layoffs are basically the only answer. Often LOTS of layoffs. In a few years, I’ll bet many other departments at Uber are hit the way marketing just was.
The driver aren't employees. The cars in the fleet aren't their assets. The insurance is handled by someone else and there is no licensing.
Uber, itself, is just an app with a giant marketing department. The app itself isn't even that different than it was in 2011. 99% of the functionality that people actually use is exactly the same as it was when they started.
I fully admit that I'm not in marketing, so there are surely nuances I don't know. But that scale of marketing department is orders of magnitude above any other place I have worked, with the possible exception of IBM in the 90s. Just maybe... this was a reasonable move.