So, Uber is essentially the largest test-case for the gig economy. They appear to be kind of arrogant dicks but they’ve certainly got some market penetration.
They also have an extreme valuation - estimates range from $28B to $62N - but that number is entirely speculative. Based on income and outflow the companies value is effectively zero.
Now word comes that the company posted an operating loss of $3B last year. I believe that to be the single largest operating cost - costs not associated with one-time or other write-downs - in American corporate history.
So the question becomes, can Uber turn the corner? With losses that large, coming back and becoming profitable is not a quick process. And Uber’s in a market space that wouldn’t be that hard to enter. It’s not like Amazon where duplicating the infrastructure - warehouses, vendor deals and so forth - would take time and effort. Essentially, an investor would have to have an app built and start signing up drivers. It certainly wouldn’t be hard to beat them at the public relations game; Uber has been terrible at that.
Which leads to the larger question: Can the new ‘gig’ economy - about which I’m doubtful without wholesale changes in the American economic system - survive scaling up from one-to-one craftwork to the industrial level? I think that’s a question yet to be answered.
Uber will succeed because it’s providing a useful service, better than any previously existing taxi model.
I believe they are losing money because they are expanding so rapidly. It’s not anywhere near as simple as creating an app and signing up drivers. It’s a very complex operation with a large staff.
Moving into a new city, and especially a new country, takes a big investment. Legal, safety, administrative, taxation issues have to be sorted out. Countries and cities all have their own laws and regulations. The Uber system has to be tailored for each unique environment. Paris is different from London. Cape Town has different issues from Los Angeles. Moscow is not the same as New Delhi, Bankok is not the same as Rio De Janeiro. Each place has to have local staff who speak the language, who know and can deal with the unique issues.
Once an operation in a certain area has been set up and is going smoothly, it starts making a profit for Uber.
Uber is also pouring huge amounts of money into developing self-driving cars, which is costing them a fortune, but will really pay off if it works out.
They’ve also put a lot of money into improving maps of cities and finding the best pick-up and drop-off points. They’ve also been experimenting with all kinds of other services from helicopter rides to food delivery.
They also have to deal with hostile reactions by local taxi companies in many cities, hostile bureaucracies, court cases and legal challenges, restrictive local regulations about special licensing for cars and drivers operating as taxis, financing of cars in countries where not enough people own their own cars to provide drivers, bad internet access, etc., etc.
That’s my thinking as well. The current ‘gig’ model is temporary and not very efficient, IMO. If Uber invests effectively in driverless fleet technology, they may very well come out as a major player. But they have stiff competition from Google, I believe, on the technology side. I’m not sure how a current ‘gig’ fleet presence translates well to a driverless fleet presence. So I would not rush out and invest a lot of money in Uber stock just yet.
There is a good chance that many of the companies developing self-driving cars will enter the self-driving ride sharing market, so there could well be very substantial competition.
The corporate-ized gig model is a flash in the pan. If Uber survives, it will be by moving to a far more ordinary and regulated model - still using “amateur” drivers but as fully acknowledged employees, with all that means, and without all the attempts to get around modernized livery rules.
“Modernized” is the key here. No question that the city-taxi model is decades out of date and jealously self-protecting its own crappiness. There is vast room for improvement, and we’re seeing it happen from both sides.
In ten years, either Uber will be a memory and “Yellow Taxi” will be the height of modern people-moving, or vice-versa, but the only thing distinguishing the victor will be the name. That is, there’s a centerpoint of cost, efficiency, usefulness, safety and making TPTB happy, and the winner will have to hit that point even if they are instrumental in moving it.
That’s all well and good, but how many billions can they lose before all this pays off? And as PastTense says, once driverless cars are online Uber might not be the only game in town. It wouldn’t be surprising at all if Google beats them on both mapping and self driving cars.
Are their customers going to stay with them when a $10 cab ride becomes a $24 cab ride? I don’t see it.
And who knows when self-driving cars will become a reality. Computer recognition of so many situations we know how to deal with by virtue of growing up in a world of roads is an extremely difficult problem, and I’m starting to wonder if all the money going into autonomous vehicles isn’t mostly about too much money at the top, chasing too few decent investment opportunities.
Let me know when someone builds a robot that can handle the far less complex task of playing centerfield. (Plug me in, coach, I’m ready to play today.) If robots can’t handle that, then they can’t handle driving.
Which they often tend to deal with by saying “those regulations apply to taxis/limos, not to us” and going ahead and entering the market regardless.
In my town we have had a mess with the entry of Uber since we have a tangled legacy system of overlapping transport-for-hire turfs and territories per class of taxi or limo or shuttle with overlapping regulatory agencies that most often ignore one another, and the tourist-zone cabbies have felt it’s easier to employ more, um, direct methods of turf-protection.
Which is what gives Uber their advantage for now: the average consumer finds that the traditional taxi model does not satisfy their needs, and the bureaucracies don’t make it change, so the riders and potential riders tend to rally to the ride-sharing providers’ side, regardless of Uber’s own faults.
The analysis of the Financial Times (in a series of the articles in depth on the economic model) and others shows this is not the case, it is an operational that is structurally loss making even before the fact that it is shifting the operational cost of the car fleet maitenance to the supposed free lance. It is really a model of using large amounts of capital to achieve monopoly.
To the extent that Uber is giving more value to its customers, to a large extent it is doing so by pushing costs and liabilities to its employees (which it denies are employees). That’s not sustainable in the long run.
See, this begins to remind me of the go-go 90s. Low interest rates are chasing money out of bonds and riskier investors are looking for someplace to place investment dollars. Uber is merely the latest hot commodity. But regardless of monopoly, a $3B per year operating loss is simply unsustainable. Yes, Amazon lost money for a long time but never that much.
You don’t pay up front. Your card is only charged after the completion of the trip.
Advantages:
[ul]
[li]No cash payment[/li][li]No tip[/li][li]You get an exact quote for how much the trip is going to be, before you call a car[/li][li]Before the car arrives, you can see exactly where it is on the map, its estimated arrival time, license plates, driver’s name, photo, and rating[/li][li]You can contact and speak to the driver directly before he arrives, if you need to[/li][li]If the route has to be changed for some reason, e.g. to go round a traffic jam, or the driver takes a wrong turn, you still pay the same amount[/li][li]You can afterwards see the exact route you drove on the map and the pick-up and drop-off times[/li][li]Easy online procedure to file a dispute or complaint, or request a refund[/li][li]Rate the driver and give feedback[/li][li]It’s usually cheaper than any other taxi service, and arrives faster[/li][/ul]
I’m desperate to see a socially conscious rival emerge to counter these ‘new Victorian’ exploiters.
Once you re-shape this model, transferring investor return to employee rights - like minimum wage, sick pay, holiday pay, it becomes useful. Right now it’s just shameful exploitation enabled by silicon valley getting ahead of the legal framework.
The only way to achieve this is by government regulations. Corporations will always try to get away with as much as they can.
Employers will always try to exploit workers, pollute the environment, use unsafe chemicals in products, fix prices, etc.
Only governments can control this. That’s why the extreme free-marketers are wrong. Experience shows that it doesn’t work. There has to be a balance of free-market and government control.
See Uber loses right to classify UK drivers as self-employed
*Landmark employment tribunal ruling states firm must also pay drivers national living wage and holiday pay with huge implications for gig economy
*
Uber have appealed this decision, and the legal process is still ongoing But it may have far-reaching effects, and not only in the UK.
If Uber loses, it won’t be because of the reasons commonly cited by laypeople. Any purported analysis of Uber’s finances is fueled largely by guesswork and large amounts of assgrabbing of numbers since the only people who know how well Uber is doing financially is Uber itself.
Even if you knew nothing about Uber itself, any business that is in a capital intensive industry in which it’s clearly a land grab, winner take all scenario, you would expect a pattern of absolutely horrendous losses, to the absolute limit of what capital markets can stomach, which then immediately switch to a large and dependable profit over time as you reach saturation and switch from growth to profit. Railroads in the 18th century, for example, followed exactly this pattern and I’m sure there was a ton of financial analysis by learned people talking about how it was going to be a disaster but the railroads created some of the richest men in the world back then.
As for the whole “Uber is super easy to copy” thing, people who keep on believing that seem to entirely ignore China as the perfect case study in their reasoning. Uber burnt $3Bn of cash in a giant money pit trying to take on China and couldn’t ever crack 20% market share and had to suffer a humiliating second. Contrary to some people’s opinion, the Chinese government had very little to do with this battle and it really was just a battle of the wills between giant corporate titans. Given that we have an empirical example of exactly just how hard it is to displace an incumbent in the ridesharing market with an essentially identical competitor, anybody who claims it’s “just” a matter of rounding up some drivers and scaring up enough money to build a MVP needs to have a damn good argument why they think it’s the case or they’re just blowing smoke out of their ass.
Uber has a ton of strategic weaknesses which they need to address but they aren’t the ones typically brought up by armchair experts.
Absolutely. The Business and Financial media are full of clickbait. What isn’t clickbait is usually wrongheadedness. I can almost guarantee in any edition of the WSJ or FT both contain a fair number of absolutely garbage articles. The market *and *the Business media both missed the upcoming financial crash in the 2000’s. However, everything else being equal I would rather trust the market than some 2nd rate business writer or analyst in the WSJ.