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They’re trading cash to build their moat (keeping out competitors, investing in self-driving). From what I can tell, at least.
That's the theory, but I have no idea what this "moat" is supposed to be. Apps to hail a cab are interchangeable commodities as far as I can tell.
Upstarts will lose a lot if they offer shared prices without matched riders.
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Have you got the right number of zeroes there? Three billion per year?
Yep - $3.2b is the headline cost of sales and marketing in 2018. In 2019 that number as of Q1 has shot up to a $4b+ run rate: https://investor.uber.com/news-events/news/press-release-det... - - Even more interesting in that number. The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts". This is the line item for costs where they pay a driver more than t…
Earlier quoted context omitted.
Yep - $3.2b is the headline cost of sales and marketing in 2018. In 2019 that number as of Q1 has shot up to a $4b+ run rate: https://investor.uber.com/news-events/news/press-release-det... - - Even more interesting in that number. The accounting department came up with a nice way to mask their "unprofitable rides" and call them "customer discounts". This is the line item for costs where they pay a driver more than t…
What’s your take on the sustainability of these subsidized rides? Will drivers still drive if this incentive is taken away? What are some of your favorite interesting insights from that data?
The gigantic and unsustainable CAC numbers experienced by Uber, Lyft, and others is due to the present level of competition for these drivers & customers. This demand has been inflated for years fueled by Vision Fund and other late stage VC money with their winner takes all approach.
This cost has now been handed off (in the USA anyways) to Lyft & Uber stock holders. Somebody is going to run out of capital or experience a precipitous drop in stock valuation that will force the market's hand here and reduce demand and re-normalize.
It is financially unsustainable for this # to keep climbing as a percentage of revenue barring a massive change to the cost structures.
The only massive change imaginable in the structure was when Travis got away for a few years claiming autonomous would cure all, this is obviously not going to happen in the timeline he was pitching.
I think that the CEO taking a hard position and firing 400 people in his marketing department is a good indicator that when they next report earnings CAC is going to be a huge mess and maybe shed some light on how UBER plans to navigate that downshift.
(2) Will drivers still drive if this incentive is taken away? -=> Yes, following my comment above I think that the current CAC and retention numbers will normalize (for one or other other of the major players) and that the delta savings will be pushed back into increased driver wages.
(3) What are some of your favorite interesting insights from that data? -=> Outta steam sorry :)
Hot take: This seems like it's directly related to the IPO itself. I'm imagining this cause and effect: Need more users pre IPO to juice the growth story -> Hire more marketers -> Cut costs post IPO I'm not arguing it's effective, but it's certainly a reasonable outgrowth of the various goals they've had over the last year or two.
Love to revisit this piece every few years. Why food delivery will never be profitable: "The Food Delivery Death Star" https://medium.com/@review/the-food-delivery-death-star-85f9...
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I can understand why every new market requires an operations team on the ground, but marketing ought to be centralized.
I could see there being localization challenges, especially when you start talking about multiple countries. Not just languages; cultural nuance, idioms, and political awareness all matter.
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Uber's business model has the same problem as Groupon's, which is that they don't really have economies of scale. Every market requires a new team of people to run promotions to attract drivers and customers and match supply with demand.
I can understand why every new market requires an operations team on the ground, but marketing ought to be centralized.
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That's the theory, but I have no idea what this "moat" is supposed to be. Apps to hail a cab are interchangeable commodities as far as I can tell.
There's a network effect component for shared/pooled rides. Upstarts will lose a lot if they offer shared prices without matched riders.
> The marketing team had more than 1,200... I fully admit that I'm not in marketing, so there are surely nuances I don't know. But that scale of marketing department is orders of magnitude above any other place I have worked, with the possible exception of IBM in the 90s. Just maybe... this was a reasonable move.
Your comment reminds me of something Dan Luu had written about. https://danluu.com/sounds-easy/ > I can't think of a single large software company that doesn't regularly draw internet comments of the form “What do all the employees do?" Granted he's mostly talking about engineers, but I'm sure someone more knowledgable about marketing could write an almost identical essay.
I also can't think of a single large software company that doesn't, in the long run, survive by either endlessly buying and extracting all the value out of smaller software companies, or creating a moat that makes it almost impossible for new competitors to emerge.
Having worked for a small software company that got acquired by a large one that used the former survival strategy, and therefore witnessed firsthand the subsequent doubling of headcount and simultaneous halving of overall productivity, I can offer one of what I assume are several possible answers: Paperwork. And lots of it.
Earlier quoted context omitted.
Uber's business model has the same problem as Groupon's, which is that they don't really have economies of scale. Every market requires a new team of people to run promotions to attract drivers and customers and match supply with demand.
I can understand why every new market requires an operations team on the ground, but marketing ought to be centralized.