In my mind, the situation is a little more suspect if they are subsidizing standard rides in the market. However, at this point, there are two major competitors in almost every US market, Lyft and Uber, so they are making the market between them. Whether or not either of them is losing money, if they raised their prices at this point, they would suffer a precipitous drop in market share. Sooner or later, they'll find an equilibrium. Taxi companies can choose to ante up and participate in the market, or fold and get out -- that's how it goes. From a competitive standpoint, it takes two to tango, it doesn't take three.
This is false. The 'exceptions' are the norm.
It's all but tautological that monopolies can only be established in markets in which there are meaningful barriers to entry.
Those barriers are seldom legal, and legal barriers are of arguably limited value.
The only way for a 'start up' to 'disrupt' is if they are extremely well funded relative to the monopoly holder's investment in the market.
As noted elsewhere today, that is precisely the business model of Uber/Lyft/AirBnB: use vast amounts of capital to attempt to break into locked markets, while unprofitable for years and years.
Absent funding at that level, monopolies that level are largely unassailable once established.
The pace of breaking them and evolving the market in the interest of consumers is thus measured on a very very long timescale, during which consumers take it in the shorts.
(Witness taxi service in SF pre-Uber/Lyft)
I'm not sure how relevant it is to ride-sharing, because the industry is not particularly vital to the economy, and the barrier to entry is low.
Where it becomes a concern is in crucial industrial infrastructure. Over the long term, China, for example, can dump cheap, government subsidized steel in the US, obliterating the domestic steel industry. 40 years down the road there's nowhere else to buy steel, which is bad both economically and militarily.
>the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole
Heck, if you buy Uber's logic, they don't actually compete with Taxi companies. Lyft is their only serious competitor, and both of them are losing a ton of money (arguably, but I'd like to see a court weigh in) because of Uber's irresponsible behavior.
Destroy all competitors by dumping. This is financed through investment and disregarding all regulation (who needs background checks for taxi drivers anyway?)
AirBnB put about $10M in SF fighting regulation in the last election. Smart money.
Their problem today is that despite their success in that round, the fiction that their business is about a 'share economy' is unraveling as details emerge from third parties on their actual revenue stream:
https://fivethirtyeight.com/features/airbnb-probably-isnt-dr...
I look forward to regulation catching them.
The whole car sharing is marketing bull, so that they can justify dodging regulation and dumping prices.
For Webvan, it was yes.
The answer for Uber is no, at least in the short term.
a) Uber would stop subsidizing drivers, and then would overnight be cash flow positive
b) The driver subsidies probably wouldn't matter anymore, because if Uber's funding ran out, so would that of their competitors. Lyft is already on the brink (source: http://www.nytimes.com/2016/08/20/technology/lyft-is-said-to...)
c) they'd exit markets where they were burning cash (e.g. China, which already happened)
Long term, no idea.
If they pulled out of a bunch of markets (why is Uber wasting its time in places like Japan where taxis are basically fine?), then they could no longer justify their valuation.
Their prices are going to go pretty high up, meaning they'll only survive in places where taxis are super awful (so, basically the US).
All that stock they've handed out would start dropping like a rock in the private valuations of the institutional holders, I bet some loan conditions will trigger, and they're going to suffer quite a bit. Not to mention the talent exodus.
It's like austerity. If your company is suffering due to a lack of growth to meet ambitions, is cutting costs going to make growth go faster or slower?
That said, I think Uber will figure something out, even if it ends up not hitting its goals.
Clearly that's the profitable long term strategy. A lot of people are flabbergasted that Uber seems to be burning cash for a no-expense, non-capital intensive operation. But if you look at it as them using the funding to:
1) own the market, mindshare -- driver subsidies
2) technology investment on logistics infrastructure to support a fleet of driverless cars
3) driverless car tech
4) lobbying for policy change ( on current taxi model, as well as future self driving model )
well then... the amount of funding and cash burning can somewhat be reasonable.
NOW, having said all of that. each one of those can are HUGE impediments to deal with for any new company, and yet they're trying to fight them almost simultaneously with huge question marks for policy and technology.
They might have a good strategy, but I feel like they might have been 5(10?) years too early. Time will tell...
That would take a few decades at the current pace. They are currently burning $2.4 billion/year. Lets say it takes 20 years for self driving cars to take over.
In that case it would take $40.8 billion in losses. All the best finding an investor who can give $40 billion and expect nothing in return for 20 years and have hope of recovering any of that even after 20 years.
The article says net revenue was $1.1 billion in Q2. Losses were "significantly" more than $750m. So we're talking a scenario where either they lose a lot of drivers or raise prices drastically. I'd expect a fair bit of damage either way, meaning still-lower revenues.
And they have very large fixed costs. Because they've already shifted most of their operating expenses to drivers, they have relatively little room to cut costs. They have a lot of expensive staff. They have a whole robot car research operation, which can't be cheap; Toyota has committed a billion dollars to figuring that out. So it's not clear to me that they'd be able to get to break-even.
I also think C is risky for them. Their valuation is "astronomical" by Bloomberg's standards; they're supposedly worth well more than, say, Ford. That's been based on a hard charge for global dominance, not just getting by in a few markets. And getting into the black might require big cuts in their marketing budget. If their growth numbers tank, their stock will lose the "dominate the market" premium.
So even if they could somehow get into the black, I'm not sure they would still be Uber at the end of it. They might not be the next Webvan, but they certainly could be the next Groupon.
Raising prices also means loosing costumers though. It seems like 25% is the targeted commission for uber. Probably even traditional taxis can stay under that.
But would the drivers still drive for Uber? If not, ruh roh.
and those drivers would walk to lyft.
It turns out that Amazon's bottom-line loss of $1.4 billion in 2000 included a host of non-cash items, all of which are conveniently being left out of Uber's EBITDA summation. These include: - $304 million of write-downs on other dot-com equity investments that weren't working out (Webvan, etc.) - $321 million amortization of goodwill (for full-fledged acquisitions that weren't looking so hot) - $25 million of stock-option expense - $200 million of impairment-related and other. (Jeff? Jeff ... what was that all about?)
Anyway, on an operating basis comparable to what Uber is reporting, Amazon's basic business probably ran a more modest deficit of about $400 million in 2000. In fact, Amazon made a point of saying that its book/music/video business was cash flow positive in 2000, though obviously not much else was.
This link (see p. 35) provides Amazon's full 2000 financials: http://media.corporate-ir.net/media_files/irol/97/97664/repo...
Uber may still bring everything into profitability, and its commitment to build market share no matter what is quite gutsy. But there's still a lot of work to be done.
Right now Uber is the "taxi service" but is building a world class transportation logistics platform. Noting the Otto acquisition and the self driving car investments you can track their path forward. If Uber can become for transportation what Amazon became for online sales then they have a pretty clear path to success. That being said I think Uber has savvier competition (Google, Apple even GM) who recognize them as a real threat where I think brick and mortar didn't realize Amazon's potential until it was too late.
On the other hand, losing money by handing out free stuff (cheap rides in this case) only makes sense if you want to either bankrupt your competitors or increase the awareness of your brand. Since Uber is at least not a complete unknown anymore at this point, all signs point towards the "driving out competitors" strategy. This might still be a viable business plan for Uber (though I don't see how to be honest), but certainly not one that should be cheered.
(To be fair, airlines pay humans... as employees... unionized.)
I understand the rationale for spending $2 of marketing/whatever to buy $1 of sales. Grab market share. Step 3, profit like it's 1999. We'll see.
Q: How do you make a small fortune in farming?
A: You start out with a large one.
How do you restore a <classic car of your choice> so it is worth $100,000?
Buy one with good bones for $20K and spend $200,000 fixing it up.
>In the second quarter the losses significantly exceeded $750 million, including a roughly $100 million shortfall in the U.S., those people said.
Guess that didn't last long.
[1] http://uk.businessinsider.com/uber-says-its-profitable-in-th...
[2] http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-ga...
Depending on who you're talking to, however, that can mean things like "it costs less to acquire a new customer than they're likely to spend", or that excluding things like salaries, rent, taxes and such, they're profitable.
In this case I'd guess it means that Uber pays less to drivers than the user pays them, and ignore everything else (marketing, salaries to employees, taxes, etc).
Uber did not start with plans to use autonomous vehicles and so far their plans amount to little more than "well, yeah, we'll shift to autonomous cars when they come." Well, yeah, so will everyone else on the planet. I don't think it's a coincidence that all of this came up around the time Uber started to lose money... when they were in the black all the talk was about the "rise of the freelancer economy."
It's likely that they're actually building up a war chest at this point, getting ready for extra spending on self-driving cars.
Their real risk is a company treating ride hailing as a million dollar company vs. a billion dollar company and running with ultra thin margins.
Wait until others (taxis, Lyft) are out of the market and raise prices?
Uber is similar, but anyone can set up a taxi service. Their own taxi drivers can even do it. Existing competitors can take over when the discounts disappear. It just doesn't make sense, it's like a pyramid with no foundation.
This almost feels like the Blu Ray and HD DVD war - yeah, Blu Ray beat HD DVD, but digital beat out both. At what point do self driving cars mean that Uber no longer has a competitive advantage in transportation? Aka if you remove the need to sign up drivers, then you're just competing on cost of a vehicle + overhead as the cost to a customer to switch from Uber to say 'FordNow!' is so low - I just download another app.
Uber is competing with all forms of transportation and to beat everyone there is a long time to try to wait and stay solvent for.
And it will be a few decades before we see anything decent.
Name one physical consumer product that has garnered them loyal customers? Apple on the other hand...
Facebook as one example also lost a lot of money (not $1.2b in six months mind you) for years before finally turning profitable. What was there for them to lose money on, social networks are just a couple servers, right? No, they were building out a massive foundation for the future. And now they're a money printing machine.
Because later when the subsidies are dropped and the product price rises, the demand will increase?
That's the idea at least.
If I take a $20 uber ride, uber gets $4 at a marginal cost of close to zero.
They are selling other people's time, it seems like a flawless business model if you're winning the game..
They're essentially loss-leading until a few things happen:
- fuel prices drop away
- self-driving cars are available
- their competitors die outIt's a shell game. Uber may not call it's drivers employees, it may not claim ownership of the vehicles, but those drivers and vehicles represent overhead all the same. At the end of the day, the cars must be maintained. High quality drivers must be recruited and paid. If they aren't, Uber goes out of business.
At this point Uber is looking suspiciously like a large traditional company that provides a taxi service, with a nice app. Maybe a potentially profitable one. But worth $60 billion? Nope.
- SMS (read, send, receive)
- Photos/media/files (read, modify, delete SD card contents)
- WiFi connection information
- Full network access
- View network connections
- Read Google service configuration
- Modify system settings
Who else is threatening Uber in the US for example? Nobody. Who is going to spend billions to take the market away from Uber? Nobody.
Taxis? Car manufacturers?
>Who is going to spend billions to take the market away from Uber?
Doesn't look like it's a very profitable market Uber is operating in, so why should anyone spend billions to do so?
Yes, and that reason is anti-competitive supercharged intellectual property laws, plus anti-competitive obsolete computer access laws that can't tell the difference between a parcel of land on someone's farm and a network-attached server. Together, these laws make it virtually impossible to break the grip of ingrained players.
Instead of competing on the merit of their offering, big internet companies only need to take the basic steps that qualify them for those legal protections, like a non-sensical Terms of Use that, if read literally, would ban any access at all. These companies thus conspire to use the law to prevent the use of technical solutions to make switching costs reasonable for consumers.
(PayPal deals with an extra type of regulation, and even its founders have said it would be impossible to start a new PayPal today given the current state of financial regulation.)
We should consider how much money is being monopolized by copyright and ask ourselves, as a society, if that's really proportional to the value provided by granting said monopoly. I would say that copyright's constitutional purpose of "promoting progress in Science and the Arts" is actually being impeded by the massive, virtually unlimited (effectively "forever minus one day") monopoly that copyright now represents.
Move along.
Also looks like the large losses are coming from subsidizing drivers, not R&D.
They are already doing that: http://qz.com/656104/a-fleet-of-trucks-just-drove-themselves...
Uber is just a service provider. They don't build anything. Anyone can be a service provider with enough funding.