Entering Uber’s space has low barriers, but competing effectively in Uber’s space has one really big hurdle: getting mindshare. “Uber” is becoming a verb, in the same way that “xerox” used to be (and in some places still is), with the main difference being that there is far less compulsion to pick a specific brand of photocopier based on who else is using it.
With a ride-sharing app, there’s not a lot of incentive to sign up as a driver (or car vendor) if there aren’t a lot of riders already using the service, but there’s not a lot of incentive to download/install the app unless there’s a high likelihood that cars will be available. It’s a classic chicken/egg problem, and the first company to gain substantial mindshare and user/driver signups has erected a formidable barrier to new entrants in that market.
For another example, see Google; they’ve got something like 90% of the world’s search-engine market share, and they’ll probably hold onto that crown for a long time: people google for what they’re looking for because Google has a huge database of information. Meanwhile, Google hasn’t been able to penetrate the social media market dominated by Facebook, because who wants to be on a social media network that nobody else uses?
Why? Nobody has EVER managed to answer why this pay-for-service model that Uber/Lyft are championing is:
A) Significantly different than taking taxis/buses/renting a car.
B) Why whatever that difference is in (A) is going to make people want to give up owning their own cars?
I mean, from my own perspective, I can already call an Uber already to take me to the train station or work. How is a self-driving car going to change that?
I can think of ways that owning a self-driving car could be convenient for me/my family, but I’m not sure how the pay-for-service model differs significantly from what I already have.
The future utopia view is that self driving taxi services are very cheap to use, and incredibly efficient to operate. The car that drives you into work in the morning can zoom off to deliver packages, lunch, pick kids up from school, or just park in a satellite lot until you call it (or a different one, they’re fungible) to take you home in the evening.
I don’t believe we’re close to that happening. Of course, 15 years ago voice recognition was an incredibly difficult problem, and now it works remarkably well. Maybe another 15 years for true self driving cars? More, less? There’s another thread to debate that. Anyway, lets just pretend that it is a near-term solvable problem.
I can see the economics of personal car ownership changing very quickly. The average car payment is about $400/month, with lets say another $50 for insurance, $50 for gas, plus taxes and stuff. So say $500/month to spend on this scifi AI ride service to break even from a personal finance perspective. What if it’s only $3-4 per trip to/from work? Free on days you don’t use it. All of the square footage tied up in your garage can all of the sudden become living space. On a larger scale, the land tied up in parking lots can be greatly reduced.
A quick search, suggests that $1.2 trillion is spent on household transportation each year. I suppose Uber’s play is that if they can capture some of that in this post transportation-singularity world, they’ll be huge.
So, how is this new utopia different than just taking a bus or taxi now? It shows up where you are (unlike a bus), is really cheap (unlike a taxi), and you can play on your phone while using it (unlike renting a car). I’m looking forward to it, and hope it arrives before I’m forced to stop driving in 30 years, or so. Actually, I’d really like it to happen before my kid starts driving in 10 years, but I’m not counting on it.
Sure, but Uber spent $10 billion getting there. Is that mindshare going to result in $10 billion excess profits in the future? I am very skeptical.
Yes, but even Uber is planning for a world where there aren’t drivers. It seems very likely that self-driving fleet vehicles are the future of transport currently served by Uber/taxis (and probably a lot more). There’s no particular reason to think that Uber will win that market. Mindshare is not going to matter if someone else can actually figure out how not to have to pay drivers.
Right, but Google and Facebook got to the top of their respective markets by being legitimately better than all their competitors, and continue to innovate to stay there while earning profits. They both benefit from network effects more than Uber does. But they also benefit massively from economies of scale because they have big fixed costs. The amount of effort and cost to index the entire internet for search is mostly independent of how many users you have. Google was profitable in year 3. Facebook took a bit longer, but because they chose to not run ads until they were dominant.
How long can Uber afford to buy its top spot? People switched to Uber pretty quickly as they offered superior service for a lower price. But it was all a facade. They did so by subsidizing every use of the service with investor money. Again: Uber is not per-unit profitable. Every additional user just loses them more money.
And unlike Facebook, which could just choose to start showing ads, or Amazon, which could increase prices slightly and stop building out as much infrastructure, Uber can not flip a switch and become profitable. They’re selling their services for like 30% below costs to a group of cost-sensitive customers.
Their only serious hope is that they figure out the self-driving problem and every other company working on it totally drops the ball. That’s a hell of a longshot.
I think it has two things working against it- one, people aren’t naturally cost accountants and won’t really intuitively roll up the bills and compare them like an accountant would, so they’re not going to have any idea what their actual per-trip cost is, and the ride-sharing per-ride cost is going to seem higher, even if it’s not.
Second, the whole per-trip thing breaks down vs. owning a car when you start getting into multiple trips per day- someone who has a busy Saturday is going to perceive that as more expensive than using the car he owns, partially because his insurance and car note don’t vary by the number of trips, so his cost per trip goes down the more trips he has, and partially because he won’t likely perceive the savings on days he doesn’t use his car.
Getting the ride-share thing to work is going to require pretty persuasive marketing to convince people that it’s actually cheaper, and that’s going to require going past what’s considered “intuitive”.
Somebody else needing to spend another $10 billion to acquire that mindshare for themselves is a pretty big barrier to entry, giving Uber a leg up towards whatever profits emerge from the coming realignment of transportation.
It doesn’t particularly matter whether Uber is trying to capture the mindshare of the drivers or of the people/companies who own self-driving autos that can be leased–Uber still has to obtain the vehicles somehow, and their choices are to become a fleet management company themselves or convince others to hire out vehicles to Uber.
What can they switch away from Uber to? Taxi service isn’t likely going to get better, public transit in most of the country ranges from lousy to nonexistent, and the cost of buying/maintaining your own vehicle keeps going up. Sure, a competitor could come along, but getting people to stop uberring and start ______ instead isn’t a simple or cheap endeavor. (Moreover, that Uber-killer faces the same hurdle of how to make money while not alienating the users.)
Now Uber’s investors may well run out of patience before Uber figures out how to make money, whether it is from self-driving cars or from accelerating the decline in private vehicle ownership or something else. However, that’s a different question from the one I was addressing.
Not necessarily, because the company (companies?) that get the technology part of self-driving figured out or may not be the ones who figure out how to commodify usage of those vehicles. That means the long goal might be to set themselves up to purchase the technology as it matures, or alternatively to sell their customer base to somebody who has the technology and needs the users.
Little drips of money, such as daily costs to hire a ride, appear much smaller than the one big car payment and the one big insurance payment. How many people, for example, don’t realize how much money they spend on fast food or Starbucks each month, since each individual visit is relatively inexpensive?
If we move away from an “I own at least one car” model to a “hire a car for the job at hand” model, though, then other alternatives become possible. Consider what would happen if Uber’s app not only allowed you to book a trip from point A to point B, but also allowed you to book a vehicle from X time to Y time (the Zipcar model). This Saturday you can book a little Smart Car to get around downtown, next weekend you book a pickup truck to visit the garden center and the lumberyard, and one day that next week you book a sedan to haul the in-laws around.
Isn’t this overlooking the issue of maintenance? As in, the constant maintenance that these things are going to require? When people are riding in a car that they’re never going to see again they’re not going to worry about their kid spilling their drink and cheerios. They’re not going to worry about vomiting. They’re not going to worry about generally wrecking the thing.
The current model for dealing with this is to charge an extra ‘vomit’ fee for messing up the car, but this requires two things: 1) somebody has to notice it happened, and 2) somebody has to clean the car up before sending it out again. The second point in particular means that these things are going to have to have a ‘home office’ to return to when things get messed up - perhaps after every trip. This means that Uber is going to have to install and operate a taxi garage in every city in the country. At the very least this is something they’re not positioned to do - but which others are.
Plus of course the “vomit fee” will end up being part of the standard fee - something which is already sort of happening with drivers claiming that vomits occurred when they didn’t. This challenges the idea that this is going to be cheap for the consumer - the consumer is paying for the car to go home and get checked over regardless of how little a mess they made.
The garage issue will also arise when businesses start noticing that entire fleets of these things are squatting in their parking lots overnight. A lot of these things are going to get towed and a lot of them are going to get booted, unless they have a proper, privately owned garage to go home to. Which, again, Uber doesn’t have.
Honestly the ‘utopia view’ of cars you describe, where cars are bouncing from point to point out in the field without ever coming home, is only possible if one of two conditions obtains: people become perfect clean and polite angels, or people become accustomed to sitting in a puddle of somebody’s else’s piss. I’m pretty sure the first condition will never obtain, so that means it’s that the utopian vision is a squalid nightmare of filth.
So yeah - I’ll keep owning my own personal car, thanks.
Google and Facebook are each worth the better part of a trillion bucks because of advertisements and the value of their information. Uber is acquiring data on who goes where when (and why?). Sally and Joe rendezvous at the Hideaway Inn? Better not both take Uber, or be prepared for blackmail. And when will Uber drivers be required to play audios plugging toothpaste or cruises or whatever ads a particular customer needs.
The NSA and Chinese and Russian intelligence are probably paying big sums to social media companies to keep track of a billion humans. Surely Uber’s data has value too.
I find it somehow refreshing when I come across someone even more cynical than I am.
You seem to have a pretty low opinion of people. While I appreciate that people can be useless scumbags, they are not ALL useless scumbags. There’s no reason a self drive taxi has to be a greater nightmare of filth than the average commuter train.
Cameras can record the condition of a passenger compartment pre and post ride. Cars will absolutely need something like a home base where they can be cleaned and maintained, but it wouldn’t be after every ride. The system could also track passengers who dirtied up the ride, and could put them on “probation” or otherwise refuse them service if they don’t clean up their act.
It’s a market that will reach an equilibrium of cost and convenience for both parties, and there’s no inherent reason that it will fail to level off at a price point where it will be very popular.
There’s an easy solution to this: an independent company will write an app that works for both Uber and any other car companies, and gives you the best match.
Like all the travel sites, which first ask you for your route, and then search all the airlines for you.
That works because the airlines make the information available; if the airlines didn’t cooperate and provide an application programming interface, that app would have to be a lot more complex. What’s Uber’s incentive to cooperate, given their dominating position right now?
The whole thing centers around the idea that the ride-sharing cars are going to be cheaper and more convenient than owning and driving yourself. That’s the catch- we have ride-sharing RIGHT NOW; it’s just not cheaper/more convenient than owning/driving yourself in most places. In some it is- you see more urbanites going that route because the parking fees are very high, and they can walk/ride public transit to most of their stuff. Most of the population doesn’t fall into that particular category though.
That’s why I think they have a pretty solid marketing battle to fight- they’re going to have to convince people that it’s definitively cheaper than owning a car over the lifetime of the car, and that it’s not significantly less convenient (when it is inconvenient), or that it’s significantly more convenient when it is convenient.
And most importantly, they’re going to have to show that it’s cheaper/more convenient to ride-share vs. downsizing to one car per family.
For myself, the idea that I could have the car take me to work, go back and pick up my children and take them to school, and then go schlep my wife around, go pick the kids up and bring them home, and then go get me would be a VERY powerful incentive to move to one car for cost savings with few situations of contention (where we both needed to be somewhere at the same time).
And I’m with begbert2 re: public usage of cars. I ride public transit to and from work, and while the vast majority of people are normal, clean and well behaved, there’s a significant minority that behave badly- I’ve seen an elevator where someone took a massive dump on the floor, I’ve seen puke in train cars, I’ve seen spilled food and drinks, I’ve seen homeless people sleeping in them, acting like a crazy person, etc… What’s to prevent one of these guys from ordering a robo-Uber when it’s cold and giving it a case of bedbugs? Or just taking a dump on the seat? Or barfing in the armrest? Or leaving tons of garbage everywhere?
NOTHING. So they’re going to have to have some kind of mechanism to identify when the robo-cars have been defiled, and hie them off to get cleaned. And they’re going to have to have a mechanism to recoup those costs- I half doubt they’re going to require real credit cards, so they’ll have people using pre-paid cards, and robo-Uber gift cards, etc… without being able to charge the cleaning fee to them. So you’ll either have a standing fee assessed, or you’ll have some kind of deposit assessed against the card before you can ride. Both of which will drive up the price per ride.
The fact that Uber spent $10 billion and just got the mindshare does not imply that someone else will have to spend $10 billion to get it back from them.
You think that Uber can make back all that money if someone else makes self-driving cars on the strength of brand alone? That seems crazy to me. Can you think of another company that just rents out capital assets manufactured by others and makes outsize profits of the sort that Uber would need to get in the black? I can’t.
I think you vastly overestimate how hard it is to get people to install an app on their phone.
According to this article, Uber has 75 million users worldwide. $10 billion in losses split across those 75 million means they’ve spent $130 per user on average to gain that loyalty. That’s an extremely high user acquisition cost.
That might be true, but I think it’s unlikely to unfold in a way that favors Uber. For one, if you look at the other players in the space, they don’t seem super interested in just manufacturing stuff and letting some service sit on top and capture the massive profits. Certainly Google isn’t going to give Uber the time of day, and I’d say that the smart money is on them being the ones to figure it out. Everyone wants to control the platform. Even the car companies, which traditionally have been focused on manufacturing and letting other companies deal with retail or rental services can see the writing on the wall.
If Ford cracks the self-driving problem, I would be extremely surprised if they partner with Uber in a way that lets Uber grab a bunch of profits.
The central claim you’re relying on here is that Uber’s user base is worth a lot of money because it will be really hard for other companies to peel them away, so Uber will be able to use its customer base as leverage over other companies. I think that claim is very misguided. Uber has vastly overspent on their user base and has no effective competitive moat and little valuable proprietary technology.
I don’t think this problem is nearly as big as you do.
If a car shows up dirty, you just note on the app that it was dirty and it goes off and the next closest one comes. It’s trivial for the service to note who the previous user was and not serve them until they pay the cleaning fee.
People are not equally likely to take a dump in a car or leave trash everywhere. People who will pay fees will quickly realize that it’s not economical to vomit all over their cars. People who don’t pay fees will quickly not get rides any more.
This will be an occasional very minor inconvenience. Far less impactful than the gains from not having to drive around for 10 minutes to find a parking space every time you go somewhere high density.
Somebody else will have to develop a better/faster/cheaper/more convenient option, AND convince enough people that it really is superior and worth downloading the app. That will require more than pocket change.
Take a look at commercial aviation: back in the 1970s, operating leases of commercial aircraft were a tiny proportion of the market, but today 40-50% of all commercial jetliners are owned by a company specializing in leases rather than operations, and the largest commercial fleet is owned by AerCap rather than an airline.
How would Ford work a ride-share use case? They’ve been developing automotive technology for more than a century, but Ford itself hasn’t done retail sales; will they be able to transition their dealer network into self-driving car maintenance stations, or what are you envisioning as the business model for them?
Right, someone’s going to make a self-driving one, and while the costs to develop that are vast, convincing people
That is interesting. Can you tell me more about it? I assume that they didn’t get there by leasing their planes for lower than their cost of ownership? Is this actually a good analog for what Uber could be? (tone is hard to note in text, so I’ll just say: these are sincere questions).
Sure, but all those people who installed the Uber app will be fine installing some other taxi app that can undercut Uber with an actual lower cost structure. Just like they were happy to install the Uber app when Uber sold them better-than-taxi services at cheaper-than-taxi prices. The difference is that the competitor won’t have to subsidize those lower prices.
I’m saying that the hard part of a cheap self-driving tax service is the self-driving part. I’m not saying that Ford will actually run their own taxi service (although it’s not totally crazy), I’m saying that if Ford figures out the hard part, they are not going to cut Uber in for the lion’s share of the profits just because they have an app that’s on a lot of people’s phones.
I’m no expert on airline leasing; it’s just something I’ve read about and considered in relation to the ride-share issue. The companies that build the planes (Boeing, Airbus, et al.), the companies that operate the planes (Air France, Emirates, etc.), and the companies that actually own the planes (e.g., AerCap or Aegis) need not be the same companies, and all three sets can make a profit.
No, they’re not leasing for less than their TCO (at least if they did the math correctly–many leases run for five to ten years or even longer). AerCap is an example of “a company that just rents out capital assets manufactured by others and makes outsize profits”; their net profit margins have been in the 20% range over the last decade. (Commercial aviation is of course an extremely cyclical industry, and the majority of their leases are “dry,” meaning they’re supplying the plane and the airline is responsible for all maintenance and operations, so I’m not sure it’s an exact analogy to an Uber business model, but it’s an example of what you asked for. Commercial truck and ship leasing provide other examples.)
Sure they can be convinced to install another app. Basically it cost Uber $10 billion to convince existing users to install the Uber app, so how much will it cost a competitor to convince them to install a different one?
Why not? Ford already cuts their dealers in for profits, for example; although new car sales aren’t the cash cows they once were, new car sales fuel the service departments and finance offices and other dealership units that make the real money. Possibly Ford Motor Credit might get in on the leasing game if Uber starts leasing autonomous vehicles, but “the hard part” of building a self-driving car isn’t the same “hard part” as figuring out how to run a profitable taxi service or ride share. Boeing, for example, has figured out the hard part about building aircraft (well, we won’t mention the 737 Max for the moment ), but they don’t run airlines. Those are separate businesses, with entirely different business models and customer bases. I can certainly see Google trying to capture the entire vertical market, but most companies work within their core competencies, maybe stretching the margins a bit, but not jumping into entirely different fields.
How much did Lyft spend? Because the first time I decided I’d try out ridesharing, I just went ahead and installed both apps, so I could price shop, and take advantage of both companies first time user deals.
), but they don’t run airlines. Those are separate businesses, with entirely different business models and customer bases. I can certainly see Google trying to capture the entire vertical market, but most companies work within their core competencies, maybe stretching the margins a bit, but not jumping into entirely different fields.