The Financial Times: Uber is doomed

On FT's Alphaville, Izabella Kaminska takes note of the excellent, deep series on Uber's Ponzi-economics that Hubert Horan published last year on Naked Capitalism and calls out some juicy highlights.

"Costs are costs, even if you're a monopoly" -- so the fact that Uber loses (a lot) of money on every single ride won't magically go away if the company manages to kill its competition by subsidizing riders with its investors' money. Uber will need to find better economics somehow, and right now, that seems to involve two sleazy and improbable tactics:

1. Tricking customers into carpools rather than solo rides, nudging them with dark patterns in Uber's UI that irrevocably commits riders to carpools if they absentmindedly tap the default button, rather than the increasingly obscured solo ride options; carpools make Uber a lot more money, but drivers and riders hate them.

2. Bullying legislatures into killing public transit, so that when Uber kills all the other taxi services and then turns its own service into a carpool-only, riders won't be able to opt out by switching back to riding the bus.

Meanwhile, Uber is continuing to squeeze its drivers for a bigger share of every ride, while drivers push back, forming unions and then running co-op/nonprofit dispatch services that fill the void when Uber storms out of town in a huff.

Eventually, Uber will run out of investor money to spend. It's hard to imagine how the company will manage any kind of "exit" that will repay the insane valuations it has used to raise all that money to subsidize our cheap rides -- even the mumble-mumble-something-self-driving-cars hand-waving won't protect it from upstarts that can also do self-driving fleet vehicles without the encumbrance of investors who expect a giant payout for the billions they've sunk into its schemes.

If the population’s top political priority really was a cheap private car service rather than a new public transport infrastructure, political parties would be putting this issue at the top of their political manifestos. The fact they don’t suggests society as a whole would never endorse policy which campaigned for cheap taxi services to be funded with lower worker living standards.

It’s hardly surprising that consumers will endorse political calls for cheaper taxi services if a pre-drafted email to that effect lands in their inbox without a fair explanation of who funds those cheap services really. They’d call for cheaper medical services, education, housing, utilities, basically everything as well. The question is not whether they want cheaper taxi services, it’s whether they would prioritise this need over all their other social and political needs as a whole. Hence why getting customers to dispatch thousands of pre-drafted emails to politicians isn’t indicative of the power of democracy. It’s indicative of an Uber-organised DDoS attack upon the state.

The taxi unicorn’s new clothes [Izabella Kaminska/FT Alphaville]

(Image: Elliot Brown, CC-BY-SA)

(via Naked Capitalism)

Notable Replies

  1. An Uber future where they could go autonomous was effectively killed when they got caught stealing Google's autonomous driving IP:

    Uber's toast.

  2. Just Uber, because it's setting prices. not drivers. The whole thing is an economic mirage that falls apart if they run out of capital before they change it.

    AirBNB and the rest of the sharing economy are fine because there's a real marketplace: you set the price, they just take a cut.

    Uber really does have infinite money, though. They might have a very specific survival scenario to aim for: Saudi Arabian personal transport, that sort of thing.

  3. hecep says:

    Uber ist Unter.

  4. If I have it right, Amazon still runs some of their major components at a loss. There are big differences between it and Uber, however, that help to explain why a similar tactic- broadly read as 'buying market share' (tho really far more complex,) doesn't translate directly across industries.

    For starters, Uber only has one thing to sell! Amazon can make up for losses in their emerging markets with gains elsewhere, while simultaneously cross-platforming, i.e. Prime. This should not be understated! Amazon's market positions also allow them to extract favorable contracts from suppliers, so even while they're spending heavily they are also lowering costs- very important for their investors because Amazon can better predict their future. Uber is not in a good position to do the same- they just don't have pull to negotiate a favorable contract from GM, for example. That's not too say that a contract with GM isn't good for Uber, just that it's most favorable to GM. Amazon, on the other hand, is an outright bully in some markets like book sales.

    Another key difference is capital assets- nuts and bolts stuff like land and physical goods. Even If Amazon were to go south, investors could mount a hostile takeover and recoup some of their money via fire sale. Uber has comparatively little in physical capital (a classic concern for internet business,) so if they collapse investors are left standing with their pants down.

    So that's just scratching the surface, but I'll make a final note- Amazon has already long paid off their initial investors- most of them became billionaires in the process. Uber can't and likely never will make the same claim.

  5. Amazon lost money early on because they were investing a lot in mostly fixed costs, which meant they could build economies of scale as they increased market share and volume by leveraging those fixed-cost assets. Uber is investing in essentially nothing permanent, basically just their brand. Their app isn't really patentable tech, and they don't really have any other assets aside from name recognition and market share. There are no economies of scale to realize as market share grows because Uber doesn't actually own much of anything, so they have to pay the same costs for each new sale rather than constantly paying a fractionally lower cost with every sale. The only real play they can make is to establish a monopoly or cartel position, then raise prices while dropping the driver's share of each fare. Even that might not work though, as this will no doubt cause even more drivers to drop out, creating the need to spend yet more money on driver incentives.

    Uber likes to do a lot of handwaving about self-driving cars as the answer to their problems, but I think that's also a pipe dream. To make that work they would have to have 100% functional technology NOW, so they could pour basically all of their remaining money into vehicles and fleet management facilities to get the economy of scale train moving before they run out of cash. They currently appear to have the same semi-experimental half-assed technology that Google has been puttering around with for the last decade, and even that has bought them a big fat lawsuit from Google.

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