They are burning through VC money by subsidizing the cost of each ride, thus artificially deflating its actual cost. Once the gravy train runs out, these ride sharing companies will have no choice but to jack up the prices to their actual value. You'll then have normal cab prices, but without the headache of hailing one.

> They are burning through VC money by subsidizing the cost of each ride, thus artificially deflating its actual cost.

They're not losing money on rides.

Uber is two things. A moderately profitable ride sharing company, and a loss-making VC-backed R&D enterprise working on things like self-driving cars. If they shut down or spin off their R&D they could continue on as a ride sharing company indefinitely -- they could probably lower prices because they're not using that money to supplement the VC money they're spending on R&D.

But you only separate the R&D if you think it won't ultimately lead anywhere. If they eventually actually get self-driving cars working then it's obviously to their advantage to be the same company that people are already using for car service.

Did they not just spin off their R&D?

You won't have normal cab prices, you'll have cab prices plus the cost of Uber's 20,000 engineers as well as whatever ROI that that VC money is expecting.

As I understand it, they are able to streamline or bypass some of the regulation of traditional taxies use and offer a cheaper product this way. So it would be a cheaper cab ride plus the 20,000 engineers and profit.

> They are burning through VC money by subsidizing the cost of each ride

I've never understood that. How are they subsidizing it? They take over 25% of what the customer pays and all they have to do is run the app. Whether they charge $10 or $15 for the same ride the cost to them is the same. It doesn't make sense, they don't have any extra cost by making a ride cheaper.

Because the cost of a cab ride is not $6 to drive entirely cross town. It just isn't. Uber is popular because it's cheap as shit. If SuperRide came out, and it was half the price of Uber, no one would ever use Uber again.

But that doesn't mean Uber is losing money by offering it less. It costs the driver more to drive farther for less, Uber doesn't have a higher expense for a longer ride.

"Investor reports reveal riders only pay 41 percent of the full cost of each ride, with investors footing the remaining 59 percent."

I hope this explains it more clearly.

https://www.vice.com/en_us/article/9a3vye/uber-true-cost-uh-...

Still doesn't really explain it. A taxi ride is not 59% more expensive than an Uber, yet a taxi driver is getting paid a better wage. So Uber is definitely burning more money in other areas not related to the ride itself. In Canada now the cost of an Uber when they tack on their safety fee and booking fee is pretty much on pare with what a taxi company charges for the same ride. And now taxi companies where I am from have their own apps just like Uber to request a taxi and get an upfront fee. So now I can easily compare the two costs and see that a taxi is usually the same fee or a $1 or $2 more.

Taxi companies are better at scaling than Uber. They can do bulk vehicle procurements and sign service deals. It is no wonder they can pay wages and not be that much more expensive.

Sorry maybe I am failing to understand a concept here but Uber does not even have to worry about vehicle costs at all, not to mention no expensive overpriced taxi medallion.

December 2016. Are you really going to base your position on data that out of date when things were far more opaque?

How about using the S-1 or quarterly filings instead.

Is it really cheap as shit? I've taken cabs and Ubers around Seattle and never found that one is particularly more expensive.

For some rides (especially Pool rides, in aggregate) Uber charges the passengers less than what they pay to the drivers.

Uber also pays driver incentives beyond fares (e.g. for completing a certain number of rides).

I am aware they pay the drivers incentives, but I am not sure I agree about the Pool rides, do you have a source for that? There are plenty of sources out there which speak about how drivers dislike Pool rides and often turn them off or reject them because they make less money off them versus a normal fare. So I am not sure I believe that Uber gives the rider more, in fact I feel like Uber makes more because now they are collecting a percentage off every rider in the pool whereas the driver is paid a set amount

Buying market share via heavy discounts. They used to subsidy fares a lot, now it's ubereats that is subsidized most.

>Buying market share via heavy discounts.

Then leveraging their new-found monopoly by raising rates and becoming profitable....right?

Except that articles like this (and the multitude of others) demonstrate that this simply will not happen. Riders and drivers do the work, pay the costs and will revolt.

Could you ELI5 for this?

Think on how much cheaper rides are with Uber, Lyft, or any similar service, compared with an ordinary taxi cab. The reason for that is that you're splitting the fare with a venture capitalist.

The reason why VCs were willing to do that was that they anticipated that Uber (in particular) would monopolize ride-sharing. After that, they intended to replace the drivers (who are still the most expensive part of the ride) with self-driving cars. I spoke with a Google employee, about two years ago, who told me that everyone in the self-driving business hoped to have some big advances ready by 2021.

Turns out that autonomous vehicles are a lot harder than anticipated, so the ride-share companies have had to pivot. That explains Uber Eats.

As sketchy as Uber has been, I have no sympathy for the traditional taxi cab companies. They refused to adapt in the face of a new situation staring them in the face. The New York City medallion-owners just expected to continue farming from the cab drivers with zero effort. Parasites.

I spoke with a guy who had recently come to America and needed a ride. His friends couldn't drive him, for some reason, so they tried to arrange a cab. While they bickered, trying to find a cab company phone number, this guy downloaded the Uber app, punched in his credit card info, and his ride showed up before his friends had finished finding a cab company.

Nevertheless, Uber is a sketchy company and desperately needs regulation.

The article says they take 30% of each fare, but we are splitting it with a VC? This does not add up to me.

You get an Uber. The overall cost of your trip should be $15 once you figure in all the various costs and overhead.

But you get charged only $10. Uber has already eaten $5 of the fare for you. That money has to come from somewhere. The 30% they take on the $10 isn't covering what they've already knocked off the price.

That money has to come from somewhere. That somewhere is the VC.

The 30% they take is really only stemming the bleeding.

That's what I don't understand. What are the various cost and overhead? If a trip cost $10, the driver gets $7. You are telling me $3 to uber doesn't cover overhead? Overhead to me seems extremely small, what is the marginal cost on an uber ride to uber?

There is a huge amount of Uber right now that needs paid for but is out of sight, though. Developers for the app and infrastructure, but also entire offices of engineers dedicated to R&D for driverless cars. Eats into that $3 quick.

> If a trip cost $10, the driver gets $7. You are telling me $3 to uber doesn't cover overhead?

Your mistake (I think) is that you are connecting the costs to the prices on a per-trip basis.

In the hyper-growth phase where the objective is to gain mindshare and market share, their VC and IPO cash can be used instead of charging reasonable prices.

For your scenario it’s entirely possible that the price of the ride is $10 but the cost of the ride to the driver is $12.

Other costs include vehicle depreciation, insurance, maintenance, gas, etc.

Hubert Horan is an analyst who goes into these costs into detail. http://horanaviation.com/Uber.html

Isn't all this offloaded to the driver though? e.g. not Uber's $3 cut

That's a different discussion.

I'm not the one telling you that the $3 doesn't cover overhead. Uber is. Taxis that cost more are.

Uber is charging less than fair market rates for the services it provides. It's using money from other sources to prop up parts of the business that can't support themselves.

But their cost to run servers/app should not be costing them 30% of each ride. They should be making good profit. They are blowing a lot of money in other areas if you look at charts that outline this.

The cost of the servers, no. But there are processing fees, employee salaries, etc. If you have a link to those charts outlining where they're spending their cash, I'd actually like to look at them.

> They don't have to ... have an HR department for their employees

Uber has something like 22,000 actual employees. They definitely have to maintain HR departments.

not in the context of giving millions of rides a day. They don't have an HR department to handle the vast majority of their employees(the drivers) is the point.

>How is it that Uber is losing money?

Because driving individual people around in expensive cars burning expensive fuel is not a profitable business (in the economic sense). Where are all the billion dollar taxi empires? It's a tough racket. It's equally laughable that Uber's "killer app" is going to be food delivery.

But uber isn't paying for the car, the insurance, or the fuel.

Because America is not the only market they are operating in. Because ridehailing is not the only industry they are operting in.

A transfer of wealth from the rich and the poor to the middle class