It seems to me what they’ve created is a private transportation service where they don’t have to own or maintain any vehicles or actually employ any drivers.
Are they trying to make taxis obsolete? Do they want to eliminate public transportation? Do they want everyone on the roads to either be an Uber driver or an Uber passenger? What exactly does their ideal “vision” of the future look like?
I think they want everyone on the roads to be an Uber passenger. I think they view the drivers as a temporary inconvenience until driverless cars become a thing. They want to be dominant when that happens. I don’t think they will make it because, as you say, they only exist now because of massive investment. I think driverless cars will happen, just not as soon as they think and they will run into a wall of debt before it happens.
I don’t see how driverless cars save Uber’s ass. Right now, they’re losing money even though they don’t have to employ drivers or own and maintain vehicles. If driverless cars become a reality, they still wouldn’t have to employ drivers, but they’d have to own and maintain a driverless vehicle fleet. How’s that a step in the direction of profitability for them?
They have no infrastructure for maintaining fleets of cars in a whole bunch of different places. Other companies do - Zipcar, the existing rental car companies, even networks of car dealerships. When driverless cars come along, who’s going to be in a better position to take advantage of them to run taxi-type service?
They can only “win” if a very large number of people currently with cars give them up. While car ownership is down among young people, it will be quite a while before there’s enough of them to really make Uber work.
In short, the goal is to survive until that happens. And to be so big that there are the MS of ride services.
The goal of Lyft is to make sure Uber goes broke before that happens but they don’t.
I suppose that’s at the heart of what I don’t understand. They’ve been hemorrhaging cash since the git, yet they don’t have to own and maintain vehicles or pay drivers as employees; they’re basically just a software middle man and yet they still lose money.
Seems to me the only way to become profitable is to charge more, but that destroys one of their biggest supposed advantages over traditional taxis.
What am I missing that all of these [del]uber[/del] super-rich investors see?
The goal is to move transportation from a product to a service. It used to be, if you wanted electricity, you had to run your own power plant. Companies used to (supposedly) have VPs of Electricity just to manage the complexity. Nowadays, you just plug a thing into the wall and all the abstraction is taken care of for you and you’re just charged by the KWh.
It’s the same with cars today. Buying a car means you’re in charge of taking care of an incredibly complex piece of machinery just to move you places. If it breaks, you’re in charge of taking it to the mechanics, if it is out of gas, you gotta go fill it up, every time you exit it, you have to make sure its parked in a safe space. Uber’s vision of the world is all of that complexity gets handled for you and instead, whenever you need to go somewhere, you just tell a transportation company and they’ll handle it all for you, not necessarily by individual cars driven by human drivers (which was Uber 1.0), but by whatever combination of means that fits the time/price/comfort continuum (hence their investment in Jump bikes).
Right now, if you own a private car in the US, this vision can seem rather dubious because a) you’ve accumulated all the knowledge already and are already used to all the hassles and b) the entire society has conformed itself towards maximum convenience for individual car owners. But if you look on a far enough time horizon, neither of those things are going to be true for much longer and its inevitable that the service model is going to win over the product model for large swaths of society.
Damned if I know - I’m just as confused as you are.
My best guess is that it’s a symptom of a widespread shortage of good investment opportunities. If you’re rich, and there aren’t any reasonably safe but reasonably profitable places to invest your money, you’ll invest it in either safe but low-payoff places, or unsafe but potentially high-payoff places, because that’s what’s left.
The reason (at least AFAICT) for the shortage of good investment opportunities is that employers are doing a bang-up job of holding wages down, even here in the tenth year of the current economic expansion. Ultimately, investment opportunities depend on consumers who’ll buy goods and services. The less money they have, the fewer investment opportunities will pan out. But all that money in the hands of the uber-rich has to go somewhere. Some of it goes to boosting stock prices to new highs, and some of it winds up in places like Uber. They can only buy so many yachts, after all.
So he idea is to run at a loss to undercut the market on not just taxis but also the entire existing privately owned ‘fleet’, and then after they’ve become a monopoly in transportation jack up the prices?
I’d bet they could lease driverless cars. If they don’t want to employ drivers, I can’t imagine they’d want to own cars.
As the driverless car concept continues forward, I think leasing to Uber/Lyft would be a great partnership for them. This driverless car company would be getting paid each month and be able to get tons of miles put on their cars which would give them a lot of data to be able to find any bugs (hardware or software).
I guess I’m over-simplifying it, but if credit card companies can make a living taking ~3% of a transaction plus whatever interest their cardholders accrue on unpaid balances, why can’t Uber survive on their cut of the app revenues?
It’s still a big expense that they don’t have now. That’s the problem, not owning v. leasing.
‘Them,’ who? The builder of driverless cars? A rental/leasing company?
Consider the latter: if there’s money to be made by owning cars and leasing them to Uber/Lyft, then it would make more sense for Uber to own the cars themselves and make that money, wouldn’t it?
Here’s what I see. I own a car. My wife owns a car. Pretty soon, my teenager will also have a car. I need to pay for insurance and gas and maintenance and loans on all those vehicles.
A reliable, on-demand transportation company would remove all those costs. If their costs are below mine and the service was excellent, me and my family will never own cars again and would instead spend that money on a car service.
A car service that had millions of customers like me would be worth a huge amount of money.
I agree that the future business model of Uber makes no sense.
Their position right now makes sense. Connect people with cars with passengers who want rides, and Uber gets a cut every time.
But the only thing they have to offer is the software infrastructure that connects drivers with customers. And that service is going to get less and less valuable, because it’s a commodity service. So eventually they’re going to be Craigslist for taxis.
Driverless cars make no sense for Uber, because the whole business model for Uber is that they don’t have to maintain a fleet of cars and drivers and mechanics and garages. The drivers do all that for them. Yes, rental of driverless cars is going to be the future, but Uber’s job will just be the service that connects customers to fleets of driverless cars owned by various people. Again, Uber’s contribution here is going to be a commodity service with no margins.
If Uber can’t make a profit today with their current business model, how is the future going to work for them? Rideshare services will exist in the future, driverless rideshares will exist in the future, but Uber doesn’t seem well positioned to make money from these services in the future.
Step 1. Roll out a popular, low-cost service, operating at a loss.
Step 2. ???
Step 3. Profit!
Their endgame is clear enough. It’s the mid-game that’s mystifying.
In the late 90s, the “New Economy” was supposed to be all about web presence, but a lot of companies never figured out Step 2., and we got debacles like Pets.com, and the dot com crash.
Today, in the “New Economy 3.0 (or whatever iteration we’re on)”, the big thing is apparently high-volume services purchased through apps. It’s in improvement from NEv1.0, in that there’s actually something be sold, but in a lot of ways seems to be a step for step replay.
MoviePass, the most prominent current exemplar, seems to be on the brink of running out of venture capital. It’s pretty clear at this point that they had an aggressive growth strategy, but no real plan for how to actually ever make a profit, other than a vague idea that once they got big enough, they could work out marketing deals and tie-ins of some sort that would provide enough revenue to make a profit.
I would suspect Uber is working from the same basic playbook.
They want to be the dominant provider of small-scale ground transportation services in the world. They are starting with passengers but they would also like to move small bits of freight at some point.
Basically, yes, plus they want to capture food delivery, flower delivery, grocery deliver, and local package delivery. They were investigating self-driving trucks for a while, so maybe they also want to capture road-going heavy freight but, in truth, I think this was mostly a ruse to continue development of self-driving cars, which is what they really want. Uber’s biggest expense is paying drivers. They pay drivers close to 100% of their revenue which doesn’t leave a lot to cover all of their other operating expenses.
They don’t really have a lot of assets to sell off. They have software code to run the system that many other companies could duplicate in a few months. They have an installed user base of hundreds of millions of people, which is a pretty tremendous brand that they can best exploit by continuing to sell transportation services. They have the past records of movements of those millions of people and credit card data but, if they stop operations, that data quickly becomes stale and less valuable. Their best bet is to keep operating and selling services to their customers.
I think this is a pretty good answer.
Uber does employ many drivers; they just call them contractors instead of employees. Even still, drivers are probably something like 70% of their costs. Eliminating drivers would make these ride-sharing businesses viable at their current prices and scale. Unfortunately for them, driverless cars will make it really easy for new companies to buy a fleet of self-driving cars and compete with Uber directly.
Absolutely right.
Right. All those companies need to do is set up a similar app and attract customers. Uber and its investors are betting Uber will have the customer pool locked up and that Uber can then keep the lion’s share of the fees customers are willing to be paid for transportation. As you note, Uber won’t really have a monopoly and it will probably be fairly easy for customers to use another app rather than Uber if Uber acts too monopolistically.
The drivers aren’t working for free; Uber is paying them. From an economic perspective, Uber also pays drivers’ vehicle maintenance expenses because if drivers aren’t payed enough to cover their maintenance expenses, they will stop driving for Uber. As a result of having to pay drivers enough to cover driver pay and car maintenance, Uber loses money providing its services. It’s really easy in a competitive industry to gain customers when you provide a superior service at a lower price but it’s hard to make profits doing so. This is Uber’s current position.
They hope to eliminate their biggest expense, driver pay, with driverless cars. This would make their current prices completely sustainable.
Unfortunately, driverless cars also eliminate one of their current competitive advantages - they have a pool of millions of drivers which few of their competitors can match. The driver pool allows them to offer reliable, prompt service in hundreds of cities. If any company that can order driverless cars can do the same thing, Uber becomes nothing special.
If employers are doing a bang-up job holding wages far below the level of worker productivity, the profitable companies are those that can use the labor of lots of cheap employees profitably. Based on recent returns to the stock market, we can infer that there are lots of companies benefiting from cheap labor, which have provided stellar returns to investors. But it also means that there are many profitable investments; not none. Uber investors believe that Uber will profit even more when they aren’t in today’s position of paying drivers very little but instead stop paying them altogether. It’s not a stupid idea but I don’t think it will work out that way for them.
[QUOTE=Joey P]
I’d bet they could lease driverless cars. If they don’t want to employ drivers, I can’t imagine they’d want to own cars.
As the driverless car concept continues forward, I think leasing to Uber/Lyft would be a great partnership for them. This driverless car company would be getting paid each month and be able to get tons of miles put on their cars which would give them a lot of data to be able to find any bugs (hardware or software).
[/QUOTE]
Right. There is no reason Uber has to own the cars operating in their networks. They will have to pay car owners enough to cover the capital and maintenance costs of operating “Uber’s” fleet but that same cost is embedded into the payments they currently make to drivers. Self-driving cars just mean that Uber won’t have to manage or pay the drivers any more. That’s a huge win for them if it works.
Uber might be able to if they can continue building their customer base, exploit self-driving cars to lower their costs, and fend off competitors. I’m not convinced this plan will be as easy as Uber investors believe.
I wonder if Uber really understood, when they started their business, how regulation in large cities via medallions (and constrained supply) artificially props up profits for taxi companies. It’s a shitty service model for customers, but it does make meaningful profit available for drivers.
There are, however, no medallions for Uber drivers, and no constrained supply. In theory this model could still work if Uber drives out those taxi companies and then begins hiking rates, but now Lyft has come in and screwed with that.
I also don’t understand what Uber can be saying to their drivers about autonomous vehicles. “Hey, good news: we’re giving you access to our app, and as many riders as you can take on. But, um, bad news: over time we’re going to put you in competition, in larger markets, with our own driverless cars.”
