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On-Demand Startups Are Hemorrhaging Tens of Billions a Year

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Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#21

Post by tomnipotent »

dawhizkid wrote: post #19
tomnipotent wrote: post #17

Earlier quoted context omitted.

This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.

Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.

Which would mean eliminating upwards of 90% of their workforce. Thus not sustainable, and the jobs disappear.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#22

Post by awalton »

Johnny555 wrote: post #4

Where does the money go for Lyft/Uber? The software platform can't be that expensive amortized across a million+ drivers. It's not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs) What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?

You should look at the S-1 filed by Lyft - their marketing budget losses was huge - $800M last year, compared to the operating deficit of $977M for that year.

Doesn't seem like it would take a business magician to get this company into the black, albeit at the cost of running red for a year or two more to the tune of a couple more billion dollars burned.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#23

Post by dawhizkid »

tomnipotent wrote: post #21
dawhizkid wrote: post #19

Earlier quoted context omitted.

Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.

Which would mean eliminating upwards of 90% of their workforce. Thus not sustainable, and the jobs disappear.

You’re conflating profitability, growth, sustainability etc. you’re also conflating what is bad for Uber vs what is bad for drivers

It is sustainable to do that if by sustainable you mean have a profitable long term business that is cash flow positive

It would likely massively hurt share prices because you’re trading growth for profitability

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#24

Post by warent »

b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

I've never heard the expression "for a shallow moat around an ugly castle" before but it's a wonderful picture to paint for just this kind of situation. I'm excited to start incorporating it into my conversations.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#25

Post by 12298765 »

dawhizkid wrote: post #19
tomnipotent wrote: post #17

Earlier quoted context omitted.

This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.

Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.

The whole point was that the jobs would disappear -- if Uber and Lyft back out of smaller cities to be profitable, all of those jobs are gone, which is exactly the point of the person you replied to.

Most of those gig jobs would start disappearing

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#26

Post by mlinsey »

Johnny555 wrote: post #4

Where does the money go for Lyft/Uber? The software platform can't be that expensive amortized across a million+ drivers. It's not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs) What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?

From what I've seen at other on-demand co's, the three most likely culprits are:

1- User acquisition costs (discounts, marketing, etc - for both sides of the platform). this gets more expensive in the face of competition, and there's some hope that if you can "win" the market then eventually these costs will be reduced sharply.

2- Money as a band-aid for reliability/support issues. Frequently, an Uber driver refuses to take me on a long trip (SF to Mountain View, for example), makes me get out of the car, then marks me as a no-show or that I canceled the ride. Fortunately, my rider score is high enough that I just fill out the form describing what happened, and Uber (usually almost instantly) refunds the fee and sometimes also gives me a make-up $5 credit to apologize. With food delivery options, a non-trivial fraction of the time, the wrong order arrives, and similarly any complaint to support usually results in an immediate refund + credit. Without an easy, scalable way for the support team to audit what really happened on the ground, chances are they are not penalizing the driver / restaurant for these incidents unless there is a clear pattern in the data with a particular provider. So this is just loss for the platform. With very small margins it takes a surprisingly low percentage of such cases to really eat away your unit model.

3- Subsidizing low-utilization markets. Markets with a much higher density of supply/demand will be more efficient and profitable; newer markets will often need subsidies to get over the cold start problem (eg when uber launches a new city, you're gonna need to pay some drivers to sit idling on the road, or else someone opening the app won't see a driver; you might also discount rides even more heavily to get past this phase quicker). Compared to the other two factors, this is probably the best-case scenario for why a company might be bleeding money, and why you sometimes hear people say "Uber is profitable in XYZ cities", but it's hard to say from the outside if this is actually what's happening or if there's something more fundamentally wrong.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#27

Post by gjs278 »

dawhizkid wrote: post #14
b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from…

lyft is not supply constrained. I can get picked up right now in two minutes. they will pay the new drivers less.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#28

Post by vijaybhargava »

thorwasdfasdf wrote: post #3

i would've appreciated a bit more breakdown on where all the spending was going. i mean, the user acquisition cost, will eventually go away for the most part once they reach a certain size. After that it's all about operations. the question is how do the scalability of providing service fundamentals look like, long term cost vs revenue.

User acquisition cost doesn't fully go away, just becomes user engagement cost. Uber does a ton of promotions to keep customers tied in. Amazon Prime user enagement cost is all of the video streaming business and a bunch of other benefits just focused on delivering value to Prime.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#29

Post by JMTQp8lwXL »

b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding.

That's essentially the bet with these companies. You're betting that paying the price to (1) establish and (2) maintain market dominance (by accepting the billions in hemorrhaging today), is worth it once these businesses make a very remarkable turnaround when their operating expenses drop off a cliff, thus yielding massive profits.

Like anything, it's a bet. It could pan out, and early investors will be rewarded very well. Or it won't. I don't think it's a done deal either way, or you wouldn't have two camps of thought. Tons of people decreeing ride hailing companies, many others cheering them on. There's valid reasons to both sides.

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