> Taxis are mostly only profitable with extremely low overhead and only servicing high traffic areas like Manhattan or other major metropolitan areas. Uber's thousands of engineers and SF HQ disqualifies them from being low overhead anything.
If I'm understanding correctly, the argument is that taxis are basically a shit business—bad enough to break the "software is eating the world" rule because they have such low margins that you can't pay a software team (or at least, not operate a marquee SV software company) and compete. Better tech isn't enough.
If that's true, that answers my question. I'm surprised if it's true, though. I didn't think the taxi business was that miserable, and I'm not sure how it squares with taxi medallions being the highest-performing investment of the 20th century (or some factoid like that which I read years ago).
Is that worth $80B? I don't know, but I'd guess probably not. But it'd easily pay for a SF HQ and several thousand engineers.
Uber, for all its flaws, provided a service that was better than the taxi companies simply because they didn't require their contractors cut corners, cheat, or provide poor service to make money. People flocked to Uber because it was genuinely a better experience than the local taxi companies. I think in the long run, Uber will compete by becoming as expensive as (or more expensive than) local cab companies, and having a much smaller customer base.
Do you have evidence of this claim, at least insofar as U.S. taxis are concerned?
They'll sell you a new taxi cab meter "preprogrammed with your rates". You swap the legit one out yourself. Install this bad boy. Charge whatever you feel like. When it's time for the annual inspection you swap it out for the regular taximeter and you're good to go. Taxi cab drivers share other tips like replacing the tires for k-value tests, swapping out the vss, or installing a "pulse divider" (Google taxi pulse divider / multiplier). Then there's good old-fashioned charging the wrong fare. Many cities have special fares depending on time, pickup / drop-off location, and cabbies will try to "accidentally" charge someone the wrong fare. I've even had taxi drivers show me their "special fares" programmed into their taximeters.
I present no evidence. I have been charged the wrong fare entirely too often in the days back before Uber. It's a real event that happens a significant proportion of the time, and that's not even to touch on the subject of pirate cabs.
Besides, "significant" is a classic weasel word - it could mean one, for all we know.
My google-foo skills haven't found the relevant story tho.
So that means the addressable market shrinks. Think premium black-car-only service; Uber’s roots). Why can’t such a service find demand/price equilibrium? I think it can, but not in a manner that can justify Uber’s “unicorn” valuation. And I think that’s at the core of Uber’s conundrum/identity crisis: it provides value, but with tech-company cost structures. However, it doesn’t deserve tech-company valuations because it’s just not as scalable — it’s tied to operating in the physical world, with physical constraints.
If the strategy is to burn cash, continue entrenchment, and eventually leapfrog to self-driving Ubers (mitigating the scaling/cost problem to an extent), then that’s a war of attrition. Fingers crossed.
As others have also mentioned below:
- Uber is global, and has a standard interface. I don’t have to fiddle with credit cards and the payment dance. It’s the de-facto global “taxi”. Kind of like the warm homey fuzz one feels at a Starbucks in a foreign land after enduring burnt coffee served in a styrofoam cup on a long flight. (Granted, a bourgeois American-centric view, but I hope it’s illustrative.)
- If you pay a premium (Uber Comfort and higher), the cars are better, the drivers are better (higher rated too), and one can communicate preferences such as temperature and conversation (no, thanks).
- Other long-tail uses: 7 passenger SUVs for large groups, lots of luggage, etc.
- I’ve tried using the taxi apps (Flywheel, etc.), and they’re atrocious/geographically limited. In some places the Uber app can now call taxis. Even then, I’ve never voluntarily wanted to call a taxi for the last decade or so. I especially like the Black Mirror vibe of drivers and passengers having a “rating”. ;)
Uber is a hassle-free experience and saves you from dealing with the one miserable human being you'll encounter that day. Stress has a price.
Drivers are rated and you can cancel if you're handed a bad one.
A large part of Uber is also the rating model. I don't know if taxis have that, but at least for LGBTQ passengers it makes a huge difference. You can't harass your passenger and keep a good rating.
Unfortunately, it traded one kind of monopoly for another.
Ideally, Uber would have been an app and a network that taxi companies plug into.
This product existed, and was profitable until Uber drove them out of business with rides subsidised by VC money.
My complaint would be the exact opposite of yours: taxi drivers often have a few tricks up their sleeve while Uber drivers will follow Google Maps straight into a traffic jam.
They managed to drag our cab companies into the 21st century without even being active almost anywhere, so thanks for that ;)
But in South Africa? Taxis are extremely expensive cars that often look as if they’d fall apart any moment. Uber was/is cheaper, but I’d have taken them even otherwise. Most certainly a premium service.
[0]https://www.nytimes.com/2019/05/19/nyregion/nyc-taxis-medall...
So how did the eg NYC medallions become so valuable? The taxi cartel bought into the (mostly unspoken) notion that the medallions represented a government guaranteed blockade on competition. For a city like NYC with rather epic taxi demand, a license to print even just 8% margins perpetually can be an enticing prospect (especially in an age of forever low interest rates). Then, instead, the city governments mostly allowed Uber and Lyft to continue to operate (after their initial move to operate first and seek forgiveness second), rather than shielding the taxi cartel from competition.
Taxi medallions are an artifact of how NYC regulated its taxi fleet; other places may have had them but the investment factoid probably comes from NYC. Joe’s Cab in Peoria, IL probably doesn’t have a medallion worth $1 million to borrow against. And, of course, note: not all cabbies owned (or currently own) the medallions they drive under: many lease them or drive for a company that owns them, and has sat on them as a speculative asset for decades.
Source: went to school in NYC with plenty of cabbies’ kids. It’s not a job many people eagerly take.
Have I characterized your argument correctly, more or less? If not, I'd like to know what I missed.
In efficient market ANY business must be a shit business. If you have high profits -- competitors should squeeze into your profits.
Same logic works for other low-margin businesses, e.g. restaurants, they just saturated their supply.
https://marketurbanism.com/2010/12/22/japanese-transit-and-w...
My understanding of how Japan transit is profitable (I live there and I'm interested on it quite a bit) is multi-sided, but the main difference is that train companies own (or are leased for free/cheap) the station areas. So they setup big malls and stores around the stations, that for the fact of being on a station are probably the most transited and profitable ones in the nation.
Some smaller but meaningful differences might be that Japan urban density is very high (small country, lots of mountains/forests), that there's a lot of public transportation traffic, that the train rides for employees are normally subsidized by the companies, etc.
Why does Uber need a thousand engineers?
The first time I used Uber was 4 years ago. It felt like a complete product. I understand the constant need for expansion around the world requires engineering to scale up servers in multiple regions, but does that really take a thousand engineers? Do they really need thousands of people to handle the feature creep?
I'm just finding it hard to believe that there's enough work to do on a ride hailing app to keep thousands of engineers busy.
Taxi medallions are required to operate in a city. The supply is artificially constrained, creating a taxi cartel. But medallions are rarely owned by the drivers themselves, rather they're owned by the taxi company or an investor, and leased back.
Limited supply + lease -> rents
Plus the medallions can serve as collateral (as with any asset), or be bought and sold. If one entity controls enough of them, they can then influence taxi availability (and hence prices) within a region.
This hits the bigtime only in a few major cities, but is probably enough of a factor in taxi finances to warrant a mention.
(I'm not nearly as knowledgable about this as it may seem. Mostly some discussions in econ courses at uni and the stray article since. Uber did crash medallion prices though.)
(Stock exchange seats are another somewhat similar asset, and also staple of econ course discussions.)
"Dispatching" a message to a phone based on its location. Why would that need special software engineering? That's all open source stuff that's readily available. Certainly everything else Uber does (collecting money, ratings, etc) is all off-the-shelf stuff.
But as usual the software isn't the biggest challenge. Building a driver and rider network at the same time is.
Non-governmental subsidized transportation infrastructure is and always has been a race to the bottom. Taxis are mostly only profitable with extremely low overhead and only servicing high traffic areas like Manhattan or other major metropolitan areas.
Uber's thousands of engineers and SF HQ disqualifies them from being low overhead anything.
In the 1890s in Chicago when massive subway and interurban train networks were built out by private business, they either failed financially or succeeded only by real estate speculation around where they built their lines. Eventually all of those lines were acquired by local governments or shut down. Mass transit lines in LA, NYC and around the country followed similar trajectories. Look up the Interborough Rapid Transit Company in NY, or Charles Yerkes and Sam Insull in Chicago.
These days modern suburban subdivision companies don't bother with creating mass transit, they just fund street construction and install public works lines like gas/sewer/water/electric, and let the city deal with the traffic and the inevitable deferred maintenance that clashes with their low tax philosophies.