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The Wheels Come Off Uber

nakedcapitalism.com

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Re: The Wheels Come Off Uber

#71

Post by curun1r »

Animats wrote: post #46
cs702 wrote: post #25

Earlier quoted context omitted.

FYI, the OP links to a 10-part series of posts about Uber's economics by someone with decades of experience in the transportation industry. Here's a link to part one: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...

From that series: Uber’s real problem is that it is a staggeringly unprofitable company with fundamentally uncompetitive economics. It lost $2 billion in 2015, $3 billion in 2016, and another billion in China. It is a higher cost, less efficient producer of taxi service than traditional operators; all of its growth is explained by these multi-billion dollar subsidies as it has flooded markets with additional capacity…

The response to that has always been that if they can stay afloat until autonomous vehicles arrive, they can cut costs to the point where they're profitable. Beyond that, with the driver costs out of the picture, the cost of an autonomous ride would actually be below the per-mile cost of driving your own vehicle to the point where Uber would ride a wave of decreased individual ownership and reliance on car-hailing services.

The WayMo lawsuit, in which Google appears to have a pretty airtight case, has destroyed that hope. It's the Carpathia radioing that they're 4 hours away. There's no help coming and the Titanic is going down.

Now all these shifts are likely still going to happen. A seemingly cogent analysis I came across recently [1] breaks down the costs and strongly argues for a future where individual vehicle ownership is the departure from the norm rather than the default that it is today. But it just won't be Uber that cashes in on it. Or, more accurately, it won't be the current Uber. If Uber goes down in flames, their carcass will be plucked and someone, perhaps Google in the lawsuit settlement, will come away with Uber's brand and logistics platform that can be paired with self-driving technology to achieve Uber's vision.

[1] https://shift.newco.co/this-is-how-big-oil-will-die-38b843bd...

Re: The Wheels Come Off Uber

#72

Post by emodendroket »

gknoy wrote: post #67
emodendroket wrote: post #63

Earlier quoted context omitted.

How do you figure? How can somebody replicate Google's services without a tremendous investment in both hardware and software?

I think that's the point, though. To compete (as a new entrant) with Uber+Lyft, wouldn't you need to build infrastructure, win mindshare with drivers + passengers, and all the other things that Lyft and Uber have been spending years doing?

The argument of the 10-part series they put out on Uber is that main expense is the actual transportation, and you can't achieve meaningful economies of scale, which is the reason that livery services never expanded beyond regional monopolies previously. Relatively speaking the software is a commodity (and traditional taxi services remain competitors to Uber anyway -- likely more attractive in many cases if you take away the subsidized price difference).

Re: The Wheels Come Off Uber

#73

Post by carleverett »

yokaze wrote: post #28
Noxchi wrote: post #16

It's a question if uber can race to self driving cars fast enough. That's really the only way their financial model can make sense. They should really be seeing this as essential to their survival, like nuclear bombs in WWII. Nazi Germany had maybe 1000 people working on their version. USA had 180,000(!). I suspect in this analogy, uber is not USA. Someone else will get this rolled out first. But I'm not 100% sure.

But contrary to the atom bomb, it doesn't terribly matter, who rolls it out first. You will find yourself hard pressed to find a company, which is the first to bring something market and being in the dominant market position. Self driving cars will be a commodity. Whatever advantage it gives, any company will have it, so there is no way it will increase the margin.

I disagree with the idea that self-driving cars will have the same commodity issue as today's car ride services. How could a significant decrease in operating expenses not increase the profit margin?

Let's put it this way - if you had the choice between paying 1/5th of what you pay now for the cheapest ride available, or half what you pay now for a ride in a nicer, cleaner car that picks you up within seconds, which would you pick? My guess is that with those choices, more people won't pick the cheapest option available.

Re: The Wheels Come Off Uber

#74

Post by malandrew »

sidlls wrote: post #45
malandrew wrote: post #42

Earlier quoted context omitted.

You can also hold political bias and fake a "strong" analysis, especially if your audience already agrees with or desires the outcome in your conclusion.

True. Do you have reason to suspect that's the case in this instance?

Many reasons, but I can't/won't elaborate.

What I will say is that the author's bias has given him/her some major blinders and that s/he's become incapable of seeing ways in which s/he is wrong. My suggestion is that the author engage in a forecasting technique developed at Royal Dutch Shell known as scenario planning. One of the key features of scenario planning is that whenever you finish arriving at a conclusion, you then ask yourself the question, "the future that I predicted turned out to be wildly incorrect and X happened instead of Y. Which of my assumptions or expectations turned out to be incorrect that could lead to X happening instead of Y?" These days, this is actually a hallmark feature I look for in anyone forecasting or making predictions of any sort. If someone making a prediction has not given sufficient thought to being their own devil's advocate, it's a telltale sign of poor analysis. If you don't spend enough time doing this, you quickly get sucked into believing your own bullshit. Given the tone of this blog, do you think this author has spent enough time time poking holes in their own arguments? Have you seen many or any lines like "I believe X will happen leading to A, but it's possible that Y could happen leading to B instead and this is how it would change my predictions...". If someone's predictions don't present any possibilities for branching, they aren't being critical in their analysis, if you can even call it that.

https://en.wikipedia.org/wiki/Scenario_planning

The list of cognitive biases the author falls victim too are numerous. Over several posts I've definitely seen lots of examples of anchoring for example.

https://en.wikipedia.org/wiki/Anchoring

Re: The Wheels Come Off Uber

#75

Post by stickfigure »

cs702 wrote: post #25
clairity wrote: post #24

Earlier quoted context omitted.

the article is frustratingly light on actual reasoning about why uber can't become profitable. the tl;dr is basically "it looks bad so they're going to fail". it does look very bad but that in itself (even with the various details mentioned) doesn't shine a light on the path that uber will take to failure. it only shows that any path they could take is treacherous. it's an opinion piece with a bunch of facts thrown a…

FYI, the OP links to a 10-part series of posts about Uber's economics by someone with decades of experience in the transportation industry. Here's a link to part one: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...

I will read this, but from an intuitive perspective Uber should have dramatically better economics vs taxis in places where the minimum buy-in is a $1m medallion purchase.

Re: The Wheels Come Off Uber

#76

Post by tedsanders »

stoolpigeon wrote: post #34
tedsanders wrote: post #21

Earlier quoted context omitted.

Uber loses money, but it doesn't sell rides at a loss. Up to 2015 at least (the date of the best finance leak I've seen), Uber's cut of fares was ~18%; and furthermore, that 18% cut more than covered Uber's costs of sales. Source: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver... Uber actually makes money on each ride - it's just that the gross profit from those rides is short of covering its operating…

Maybe I don't understand the charts and the article you linked to but it says that: "Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares." To me that sounds like selling rides at a loss.

On an average cost basis that includes fixed costs, yes, Uber was losing money on each ride. But on a variable cost basis, Uber was making money. Each additional ride served was bringing them closer, not further, from profitability.

Gross margins were positive even if overall margins were negative.

Re: The Wheels Come Off Uber

#77

Post by blisterpeanuts »

mikeash wrote: post #10
blisterpeanuts wrote: post #5

By some measures Uber has been fabulously successful, coming from nowhere to the largest privately held company in seven years, and now a $70 billion g/publicly traded/private/ company. Uber has done a stunning job of disrupting a crony-capitalist, monopolistic system. If they are still searching for a way to make a profit, surely they'll figure it out before long. * updated to remove publicly traded

It's easy to disrupt a crony-capitalist, monopolistic system by selling your product at a loss, but you can't make a profit that way.

How are they selling a product at a loss? They're brokering thousands of people to rideshare their cars. Very low overhead. Seems like a brilliant business model, actually.

Re: The Wheels Come Off Uber

#78

Post by concede_pluto »

cs702 wrote: post #7

The most worrisome aspect of this essay is that it questions whether Uber has a viable business model. The OP argues that Uber will never be able to charge prices in excess of the level required by a traditional taxi/limo operator to be profitable for long enough to recoup the billions of dollars the company has burned by subsidizing the price of rides. Put another way, even if Uber drives every competing taxi/limo o…

Cities that limit the number of taxi drivers allowed to work are demonstrating that there's a viable market-clearing price lower than current taxi rates.

Re: The Wheels Come Off Uber

#79

Post by Kurtz79 »

gknoy wrote: post #67
emodendroket wrote: post #63

Earlier quoted context omitted.

How do you figure? How can somebody replicate Google's services without a tremendous investment in both hardware and software?

I think that's the point, though. To compete (as a new entrant) with Uber+Lyft, wouldn't you need to build infrastructure, win mindshare with drivers + passengers, and all the other things that Lyft and Uber have been spending years doing?

Yes, that was more or less my point.

And also Uber (more than Lyft) it's by far the major player, it's entrenched in people's imagination as the representative of the very service it provides, and it just works.

"Call an Uber" is as idiomatic today as "Google something".

Re: The Wheels Come Off Uber

#80

Post by majani »

Kurtz79 wrote: post #61
emodendroket wrote: post #51

Earlier quoted context omitted.

Well, yeah, exactly, that's what the guys on Naked Capitalism have been saying for a while. Even if they establish their monopoly there is no barrier to entry for new competitors.

The same could be said for Google.

The moat for Google is the complexity and expensive nature of doing accurate search at scale
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