Back in the 80's when all the Semiconductor companies were losing money, Andy Grove of Intel stated that because Intel was losing less money than everyone else, it must be the largest semiconductor company. If Lyft can become profitable while Uber isn't that will change the market dynamics tremendously.
I don't think it's fair to compare Lyft with Intel in terms of innovation.
Ride-sharing is not an area that can be monopolized. As soon as companies like Uber and Lyft stop subsidising rides, competitors will spawn up like mushrooms.
Unless Uber/Lyft manage to create fully automated self-driving cars AND find a way to OWN all those cars, they will never have a monopoly.
The people who own the cars will have the freedom to switch to any ride-sharing network they like (or even multiple networks).
Then there will be new kinds of ride-finder apps which will allow people to select between multiple providers/networks - A bit like how Expedia lets you select between multiple airlines.
The Airline business is very competitive and low-margin these days, I think it will be the same for companies like Lyft and Uber.
> Ride-sharing is not an area that can be monopolized
It is very close. There are massive network effects and it will be hard to unseat an incumbent.
The more riders there are, the more revenue is available for the service provider (eg drivers). More riders means average waiting time is lower because more vehicles will be around. More riders means less downtime between riders since the next rider will be closer. More time in revenue service lets you spread fixed costs over more riders, reducing the fixed costs per ride (economies of scale).
This all means an incumbent will provide better service especially as reduced waiting times, and will be able to provide that service more cheaply due to greater utilisation. Their drivers/owners will also make more money due to greater utilisation. Newcomers will end up providing worse service (longer waiting times etc) and cost more!
Many drivers will work for multiple companies in parallel, e.g. Lyft and Uber at the same time. Even if they only get 10% of their rides from Lyft, it isn't a huge cost to the driver. As a result, from the driver perspective, the network effect protection is relatively poor.
This battle will play out city by city, which just reduces the barrier to entry for smaller operators. All in all, I think Uber's defensibility is fairly poor.
> ... from the driver perspective, the network effect protection is relatively poor
I disagree. A driver will prefer as little time between the end of one ride and the beginning of the next, since they don't get paid for down time. Whichever service has the most riders is most likely to have the next closest rider.
You are right that at the end of the first ride, the driver could examine all services to see who has the closest next rider, giving a new service a shot, although the new service riders are far less likely to be the closest one. Uber (incumbent) for example already counteracts this by giving drivers bonuses for picking up more riders in certain timeframes, so the driver picking the less popular service will also be giving up on those.
>A driver will prefer as little time between the end of one ride and the beginning of the next, since they don't get paid for down time.
There are also penalties it seems for not picking up the next ride that requests you as soon as possible. I'm not sure how hard it is time-wise for the drivers to switch between the apps and add up to consistent time and money but I would think you would try and batch your time for each. An hour or an hour there.
"In one offer, Uber is now guaranteeing $2,000 a week in gross earnings for new drivers who work 60 hours a week. Another, more-extensive program for existing drivers promises bonuses based on how many trips they complete. For 100 trips in a week, they get an extra $350, for instance."
If a driver can already easily meet those then great. But it wouldn't be that great to spread yourself amongst the services and avoid the incentives. And remember the larger incumbents have more wiggle room in terms of incentives and changing them based on real world driver behaviour.
We'll see. This business is becoming massively commoditized, which will eventually minimize network effects in the face of competition and price (for drivers and riders). We lost Uber/Lyft in Austin less than a year ago, and there are now several new services (Fare, Fasten, etc) that do exactly the same thing here, with a little less of that moneyed polish. Drivers and riders alike are using them just like before. One hardly even notices a difference except the name of the app.
How mismatched are the new services in terms of size? If they are all roughly similar then network effects won't make much of a difference. But for example if one is ten times the size of the others, then I stand by my claim that network effects will result in
* shorter wait times for riders (better customer experience)
* more money for drivers (shorter waits between riders, so more paid time)
* cheaper fares (fixed costs spread over more riders, reducing per rider cost)
* more effective loyalty programs (improved ways to earn and spend on them)
A larger incumbent can be attacked, with the simplest way of doing it to go more niche - eg serving a smaller area better. Even then the incumbent should have greater ability to react.
The Austin services are not comparable when it comes to wait times. I've found it very hard to get a Ride or Fasten on several occasions even in high density areas, and you can't really count on being able to get a Ride at all times in all parts of the city. I'm definitely eagerly awaiting the return of Uber/Lyft.
>> "...freedom to switch to any ride-sharing network they like (or even multiple networks)."
The hardware manufacturer/owner will fight tooth and nail to prevent this. They'll probably write a clause into the user's contract that says "If you use an unauthorized ride share network, we will delete your account with us and remotely disable your hardware."
It's the same school of thought as Google deleting your gmail for reselling a Pixel phone at launch.
If I'm not mistaken Tesla might have already written this clause into their contracts.
>> Google deleting your gmail for reselling a Pixel phone at launch.
Any reference for this? I think you are referring to [1], but that was not because somebody sold their Pixel phone, but because a company was reselling a large number of Pixel phones from New Hampshire to avoid sales tax (which is against the ToS, and probably borderline illegal).
Also:
"Many of the accounts suspended were created for the sole purpose of this scheme. After investigating the situation, we are restoring access to genuine accounts for customers who are locked out of many Google services they rely on."
>> "The people who own the cars…will have the freedom to switch to
>> any ride-sharing network they like (or even multiple networks)."
> "The hardware manufacturer/owner will fight tooth and nail to prevent this"
At the moment, there's no hardware to speak of. Uber/Lyft don't make the cars. They don't make the handsets that the apps run on. Without a monopoly/control of the hardware, their leverage is just the network effect.
> "It's the same school of thought as Google deleting your
> gmail for reselling a Pixel phone at launch."
An action which they reversed [1]. That's also more of an issue for Google because their services are so diverse - not an issue to consider with Uber/Lyft unless their business model changes significantly.
> "If I'm not mistaken Tesla might have already written this
> clause into their contracts"
The Tesla clause relates to self-driving usage: "using a self-driving Tesla for car sharing and ride hailing for friends and family is fine, but doing so for revenue purposes will only be permissible on the Tesla Network" [2].
That was the central premise behind Karhoo - an idea with a good long term future only to be seriously mismanaged at the senior level leading to failure.
Ride-sharing is not an area that can be monopolized
I bet people said they said thing about silicon chip market in the 80's. But look where Intel is now. They have monopolized the desktop, server, and super computer markets.
There's a lot of cost in designing and making a modern microprocessor - many billion so it's hard to set up as a rival to Intel. Writing a taxi app less so. (https://news.ycombinator.com/item?id=13342415)
You mean their Intel's switch from RAM to CPUs? I have a feeling that something similar might end up happening here too. RAM was too much commoditized and cost-driven. CPUs were more IP driven. Finding a route from A to B with the right driver at a lower cost is cost driven as well. The self-driving car business will most likely have a very different cost structure.
Just the other day I talked to the owner of a taxi company, going through their cost structure. We concluded that, if taxes are included, 90% of their costs can be reduced on a per-trip basis.
It was his opinion that it would make the most sense that the future is some sort of public-private partnership model where the cars are owned by the city, but operated by some SaaS company, in order to get rid of taxes and further reduce costs. Without that tax reduction, he said we would see a similar situation as airplane ticket costs in the EU vs US (3-10x price difference due to taxes). Cities with 5-10x lower individual transport costs would actually have a competitive advantage. In the US this problem should be compounded as cities aren't as much cities as big villages with people thinly spread out. Thos cost reductions become even more important.
It feels like Uber & Lyft are spending money on the wrong problem atm. This is just a transitionary stage in the transportation world.
Yes, and, like you, I think Uber & Lyft are wasting money in the wrong problem while the innovation landscape is quickly changing towards self-driving things.
>Given that Uber bought CMU's self-driving car research department
This is a common misconception. Uber poached several engineers from NREC, which technically belongs to CMU, but for all practical purposes is an independent entity. And of their original ~40 engineers, not many had any real previous experience on self-driving cars. Almost all of the engineers from the DARPA Grand/Urban Challenges had already left (many went to Google). NREC had nothing to do with any of those competitions.
So what happened to CMU's self-driving car research department? Well, initially it was funded by GM. But it spun off into a company called Ottomatika which was later acquired by Delphi.
Uber hired a bunch of great roboticists. They didn't hire a team that had any real experience with self-driving cars.
> Uber might have some idea that "self-driving things" are coming.
Self-driving things are being built everywhere, so I don't see the competitive advantage they have in AI because they built an app to get a car! Two very different things.
except they won't, Lyft is a lot smaller then Uber, Uber is around the world, Lyft is in one country and Lyft is starting global expansion this year which will increase losses
Basic question here, but what happens when the war's over and the subsidies end? Prices jump by several dollars a ride? Or is there some kind of economy of scale or lower overhead that the winner enjoys?
The prices will go up and then, at least in the bay area, some time will pass, then some other ride share company with a slightly different take on things will start with their own VC subsidized business model. We'll all switch to it, bemoaning how Uber/Lyft used to be so much better before they got greedy and raised the prices.
Reminds me of image hosting services and social sites.
Oh I'm sure we can make money with all these users. I mean there are so many of them. We just have to wait until the incumbent starts collapsing, and burn money until we start collapsing, and someone else figures all those users must be worth something, so they start burning money, and...
The problem with this comparison is that image hosting services have a really low social and political impact. Ride sharing on the other hand... can't really be a giant Ponzi scheme.
Regulated taxis are ponzis alright, it's just rigged by governments and investment is forced upon citizens. Absolutely no reason why an extremely commoditized good like transportation should have fixed rates set by a central planner. Uber/Lyft et al may not be perfect, but we will get there. It's tough to deregulate industries.
But, your rant does nothing to invalidate his point. Cabbies are in plus money wise. Chances are zero all taxis in the world will vanish, while Uber+lift can't subsidize forever.
Look, it's not like taxis or Uber/luft are a basic human necessity to be subsidized.
Public transport exist, and for people that actually need a car on a daily basis, cars exist.
Taxis are luxury service and not subsidized ( as that word is defined in the dictionary) by money offsets. We can derail this into whether medallions/insurance regulation should be there, but the hard cold argument here is : Money. Lots and lots of money.
Uber/luft are subsidized by hard cash just to exist.
I drive, so from the outside, this looks as if somebody was subsidizing Android watches, because they'll overtake real watches.
It's a business gamble, but many are mistakenly taking it as a fact.
So, correspondingly, expect either prices to keep rising on Uber/luft/etc, or them to go out of business.
I'm not familiar enough with the US taxi bylaws to answer that.
Is there a particular reason you are restricting scope to only the US? Taxis and "ride sharing" organizations are an international phenomenon: I'd say the majority of jurisdictions do not have medallions. And the upstream point remains - most taxis can now be hailed via mobile apps.
Uber is looking to transform its business to driverless, but any well-funded new entrant that starts with self-driving vehicles will outperform Uber because it won't have billions in losses on the books from its early days using humans to drive.
Where are well-funded new entrant going to get self-driving cars from? Uber/Google don't have to sell self-driving cars to the public, and by the time self-driving cars happen, Uber's already got an app and the infrastructure to run the app, as well as the engineering expertise in running that infrastructure. In addition, they already have the installed base of customers that default to the Uber app for their transportation needs. Self-driving cars aren't going to take over instantly, either, so there will be a slow transition period of phasing out manual-drivers.
Whether Uber's billions in losses can be amortized over that time so those losses aren't on the books so they can be competitive with a new entrant solely using self-driving cars, remains to be seen.
From all the automakers who are also developing autonomous technology?
In any case, the door-to-door 100% driverless tech that Uber/Lyft/etc. require to eliminate drivers is almost certainly many decades away. It seems unlikely they can sustain massive losses for a fraction of that time even if they did have some sort of competitive advantage once that future arrives.
That's indeed one of the reasons I'm sceptical of broad passive investing: you include many companies that are either evil or have a bullshit business model.
> That's indeed one of the reasons I'm sceptical of broad passive investing: you include many companies that are either evil or have a bullshit business model.
If you don't like a company that you're invested in through an index fund, you can always offset that part of your portfolio with a call/put option or a short (depending on your horizon).
Uber and Lyft don't make money until they're able to replace their drivers with autonomous cars. 80% of an Uber fair goes to the driver, so once they are able to replace the driver with an autonomous car, there's no reason why competition between the two companies would not drive fare prices down.
At the current burn rate, they will be bankrupt long before the widespread deployment of autonomous cars is a reality. Even if that takes only a decade, good luck finding the funding to keep covering the losses.
Probably true, but these companies will be among the first to deploy; no need to measure against general "widespread deployment". There are autonomous taxis already, albeit not quite yet in the wild.
There is no autonomous car that has been certified to be without someone who can drive it inside - and it's likely that such certification is still a few years away. I would guess it will take 2-3 years of cars driving on their own with hardly ever any need for a person to intervene before such certification is given.
In my city there are many small streets with bad traffic and environment, that at least once a week I need to verbally negotiate with other drivers who goes first and who goes back. If all cars are autonomous, they may negotiate that; But if only half are, I don't see how this will work.
Most US cities have the benefit of being built for cars; But most European cities do not; and even in the NYC, there are weird small streets that often require negotiation among drivers.
I have not seen autonomous cars drive in snow and ice and road construction on any regular basis. Until that works I can't imagine driverless cars anywhere except in good weather states.
There's a whole spectrum from door-to-door taxi service to fixed-route public transit. I don't see why consumer expectations couldn't be set such that it's not weird to be dropped off a block or two away. Take a (more expensive) manned car if you need to be dropped at your door step. The same tradeoff id already at play with buses vs taxis/Uber.
Plus there's already a precedent in Uber Pool for something that's in between a bus and a taxi. They even will ask you to walk a short distance sometimes.
Wow! Really? My commute from the southern edge of Boston (Jamaica Plain) to the northern part (Allston / HBS) on Friday involved 2 road constructions, a car stopped inside a rotary that made the entire loop gridlocked, and countless pedestrians jay walking because the fine was reduced to $1 in the 1970's so no one cares.[0] I'm not sure people who live in grid cities and calm suburbs can even comprehend the madness here. Self-driving cars will take decades here.
Fortunately for them, every major company that is working on selfdriving cars has been yelling about 2020 as the date of release for level 4 autonomous vehicles.
So they only need to wait 3 years, not 10.
The legal problems that everyone talks about will be (comparatively) minor.
A bunch of pro-innovation, anti gov regulation red states like Arizona will fully legalize it (why do you think Ubers CEO has been meeting with Trump?) , and the rest will follow once these states test drive the cars at scale, and they start to save thousands of lives.
It's phase two (2020+). Once the tech is ready, Uber will have to order at an enormous scale with large discounts from whoever gets the contract. There were rumors that Uber considers Daimler as a car hardware platform partner.
http://www.reuters.com/article/us-daimler-uber-idUSKCN0WK1C8
However, quickly there will be many new local competitors. Who wouldn't start such a business in their own local town anywhere? Buy a few cheaper autonomous cars (10 Model III+upgrades) and have them drive around your neighborhood. Call it 'EcoGreenCar LLC'. There will certainly even be an open source software platform to manage autonomous micro fleets.
It's truly fascinating how everything will become as-a-service.
Truck and car manufacturers will have to disrupt their business models, as their customers will be fewer, but larger - known as Service Providers.
This is exactly what is happening in the IT Hardware business, where small companies can't motivate the cost of having their own internal datacenter (having to pay for staff, infrastructure, real estate, electricity etc). Rather, they outsource to "Local Service Provider LLC" (Managed Private Cloud), or AWS (Public Cloud)...
Both IT Hardware providers and truck manufacturere are experiencing "commoditization". The HW itself becomes less important. Why do I care if my truck has the latest V8 with Bosch 2.34 injection? I just want my fleet to operate smoothly. Many companies can no longer sell "just products", they must evolve and sell the services to create outcomes that a) reduces costs or b) generates extra revenue or c) reduces risk for their end-customers.
It's a major change for any large corp, which I believe many will not be able to achieve in time.
”Uber and Lyft don't make money until they're able to replace their drivers with autonomous cars”
”with an autonomous car, there's no reason why competition between the two companies would not drive fare prices down.”
So, what is it, will they become profitable because they will be able to decrease their costs, or will they have to cut prices because their competitors are able to do so because they will be able to decrease their* costs? Or do you think they will be able to split that between the two?
I think the only benefits that burning money at tremendous rate buys these companies are scale and mindshare. I doubt either will be worth enough in the long term to warrant the current expenses; for scale, I even doubt whether having scale at the level they aim for is worth having at all. If it were advantageous, I think we already would have had international taxi companies.
I see two possible cop-outs, but don’t think they are worth their current expenses.
The first is if either of them managed to effectively become a monopoly. I don’t see that happen, and if it does, I expect quite a few governments across the globe to take action to correct that.
The second is that lower prices that autonomous cars will afford them would grow the market (if their margin per ride halves, but the number of rides quadruples, their revenue will double). That might be possible, but I fear they need unrealistically high market growth to have that make them a winner.
I really don't think this view holds any merit. I can't possibly see how this would be Uber's strategy.
Assume that in year 20XX, when autonomous cars finally become a thing, there are two companies. Uber, which has accumulated $X billion in debt while growing it's driver network, and brand new company NewAutonomousCompany, with no debt.
What possible advantages does Uber have in that situation that makes that debt worthwhile? It will have some software and the fact that users already downloaded an app - but will that really be worth the subsidies?
> It will have some software and the fact that users already downloaded an app - but will that really be worth the subsidies?
Uber has one more thing that they're funneling piles of money into - a self-driving vehicles department. They'll have a significant advantage if they're the first to "market" with fully autonomous self-driving vehicles. Right now it's a huge money sink, but research often is.
I'd disagree on the subject of 'map data': Open Street Map is a good example of free, open map data.
Whatever map data Uber/Lyft started with (and have perhaps since augmented with proprietary GPS data supplied by their apps), is it enough of a competitive advantage?
For myself, and I'm sure others, the apps took off because:
1) Fares were lower when the 'x' versions came out. Original Uber was limo/SUVs to/from LAX and out of my price range. Then UberX came out. I don't use Lyft Line or whatever Uber's version of that is. I only 'share' rides with friends.
2) Convenience. The apps made it convenient to call and get an accurate assessment of when a car will show up. It sucked getting a taxi company to send a car reliably and know when they'll be around.
3) Crap drivers. In LA, every taxi I took I had to direct them step-by-step (unless it was an airport pickup as those folks seemed to know what they were doing) and they weren't that great to interact with, if it was necessary.
For the most part, Lyft drivers have been great (if sometimes weird). Uber drivers the past few years have seemed to basically be former taxi drivers.
Even after years of using the apps (and I mainly use Lyft now) I still think of it like the gypsy cabs I used to get in Russia, only much safer (for me as a guy) and more formalized (no haggling over payment).
It will be really interesting to see how Uber/Lyft and whoever else come along do when autonomous cars come along. I hope it's not a race to the bottom in terms of safety and reliability.
I also wonder what will happen to the drivers. I think right now people mainly use it to make some extra cash. I'm assuming there are some full-time Uber/Lyft drivers? But it will be another victim in this 'gig' economy where low/no-skills are replaced by automation.
My only other concern is who is going to clean up the trash from the cars after each ride? Will there be a vomit alert or tax if you someone gets sick in the back after a wild night out? It would seem you would almost need a car to come in for service after most every ride unless it's somehow being monitored.
It will be interesting to see what happens when autonomous cars are wide spread, we may see a democratisation of the industry. If I own a Tesla I might want it to pay for itself by providing rides while I'm at work or sleep, the amount of vehicles with the capability would drive up availability and drive down costs. Because the cars are all smart the value of an uber or a lyft as a middle man is decreased.
Ironically ride sharing was supposed to democratize the taxi industry. It did and we got two major players instead of thousands of small and medium sized players.
So you'd be willing to rent out your $50,000 car to complete strangers without even being there to act as a social deterrent to them making a huge fucking mess of it.
Public infrastructure experiences a lot of vandalism and abuse. Prepare for your car to be treated like public infrastructure.
> So you'd be willing to rent out your $50,000 car to complete strangers without even being there to act as a social deterrent to them making a huge fucking mess of it.
Totally. I've even allocated investment capital for the sole purpose of putting a few Teslas into service as full time taxis on the Tesla Network.
I let people into my rental properties, why not other investment assets?
Different people have different boundaries and I respect that. I have no problem with renting my room/house out while I'm away, and I'd have no problem with renting my car out without me in it.
> Public infrastructure experiences a lot of vandalism and abuse. Prepare for your car to be treated like public infrastructure.
Prepare for your car to have interior cameras and a load of other sensors (e.g. smoke detector) constantly streaming to "the cloud." Of course, there will be no way to turn them off, because then passengers would do that. Then you just bill the passenger for the damages, and send him a link to the incriminating footage.
Then again, I would hate to use my personal car as a taxi, or my spare bedroom as a hotel, so I'm clearly not a good candidate for the "sharing" economy. Maybe I'm not desperate enough.
It's like air b&b, you build the cost of wear and tear and maintenance into your pricing. As others said, a modern vehicle will have cameras and the ability to lock it's doors and drive someone to a police station. You also have a car like the Tesla Model X which has a separate compartment in the back, so the customers will be isolated from the driving area.
"and the ability to lock it's doors and drive someone to a police station"
That's unlikely, without a change in the law. Some modern cars do allow the doors to be locked remotely, but they don't prevent the doors from being unlocked from inside. Nor could I imagine an autonomous vehicle not stopping (for safety) when a door opened.
I imagine that being able to identify the person renting the car, and cameras to show their actions, would be deterrence for most. For the rest, there's insurance.
If they own their own fleet, they can negotiate all sorts of things. Think of the prices Walmart gets for the exact same good they sell, vs say, Safeway.
Operational efficiency is another. Southwest Airlines iirc was (one of) the first discount airline by virtue of their superior aircraft turnaround times. If a rideshare company can dramatically increase the ratio of time carrying a passenger (or multiple) vs carrying none, they can spread their fixed costs (or even the variable ones, if carrying multiple passengers) over a larger denominator.
If Uber or Lyft have to own their own fleet, they are (pardon me) screwed. It blows their cost model away with how much capital is required, as they currently hoist the extensive depreciation on drivers who own their own vehicles.
Not a lot of VCs jumping into Fedex or UPS type businesses when you actually have to invest in a transportation network. Tesla Network might pull it off with their customers footing the capital costs (instead of Tesla needing to go into the markets to scoop up another few billion dollars in credit lines).
That's not true. Driver's share of a car's annual revenue is necessarily greater, actually significantly greater than annual depreciation on the car. With autonomous cars, the driver's share goes to Uber, as does cost of depreciation. But that cost is only a small fraction of the additional revenue coming to Uber.
In fact, I'd go as far as to say that, at current ride rates, Uber/Lyft would be able to replace/refurbish autonomous cars on an annual basis. Of course, rates will fall with autonomous cars, but not below the cost of depreciation.
This doesn't address the problem at all. Fleets of physical cars do not scale like Uber's business does right now. A fleet would represent a huge capital investment in the cars themselves and in infrastructure like parking and service garages for all these vehicles. This is a vast sum of money that would now be tied up in illiquid, depreciating assets. Not to mention that it would take many years to build out such a fleet.
Expanding the fleet to a new city now means buying land, building facilities, hiring mechanics and admin staff, and buying the cars. At this point Uber would look more like UPS - with UPS-like growth - than a tech company. All the while, unless they raise prices significantly, they're still losing money.
The car companies may finance them, in order to get their models sold. Car companies have always been huge financing operations, and cars are reasonably good in terms of debt finance, as they are relatively easy to repossess and resell.
The one valid cost you've mentioned would be the cost of parking all those cars. A couple of points. Cars in service don't need parking, obviously. They're either ferrying passengers or on their way to the next fare. And, as demand for transportation drops on a given day, parking availability increases and parking costs drop. Finally , a car being removed from service, on a given day, may be sent to low-cost parking, far from expensive urban centers. Many Uber/Lyft drivers do this currently and still make a profit.
The cost of infrastructure and automechanics, etc, is spread across the fleet. That's the benefit of operating at scale - economies of scale. You don't lose money merely because you're operating at scale, that's not how it works. What would it cost you to maintain a Prius? How about 100 identical Priuses? It's not 100x.
Finally, the comparison to FedEx/UPS is flawed. Those guys don't just have a fleet of trucks to maintain, they have to deal with shipping centers, hubs, air transportation, multi-day package tracking, and the logistics nightmare that's involved in doing all that and still getting packages delivered. They'd rightfully tell you managing their fleet is the least of their concerns.
Lyft lends cars to their drivers in LA already; drivers can use them for free while working and then pay per mile when they drive it on their own time.
Uber already bumped its price in South Bay by somewhere as much as 50%(my daily ride from $14 to $17 then to $20) from my experience. Now I only use Uber Pool since Uber X in comparison is like 2-3 times more expensive.
The Uber Pool prices are still obviously fake - it's half the price of UberX for the same long trip even at 4am when nobody else gets in the car. Lyft Line is a discount but a much smaller one.
> The Uber Pool prices are still obviously fake - it's half the price of UberX for the same long trip even at 4am when nobody else gets in the car.
I wish this were the case. Well, at least for me. I'm in the East Bay and Uber X versus Uber Pool is no question because Pool is $2 cheaper AT THE MOST, typically closer to a $1.50 cheaper. That's for a trip that typically costs roughly $15.
Cost will rise, their marketing budgets will balloon as costs to acquire customers spirals out of control. Then as a two horse race they will realise that if they merge their marketing budgets can be slashed and then they become the monster they dreamed of killing.
> their marketing budgets will balloon as costs to acquire customers spirals out of control.
For what it's worth I saw a pitch-add for Uber two days ago during the French League 1 match between Lille and Saint-Etienne. I've never seen an add for an Silicon Valley company during an European football match before, and I've been watching this sport for 30+ years.
And then we will be regretting the fact that they killed off the taxi companies who, in some cities at least, were in a very competitive but sustainable market before uber came along.
Competitive and sustainable? Tell that to the non-owners taxi driver suffering under exploitative commission structures and has to rent their car from an intermediary to even begin to make money.
Can both of you, give an example where classic taxi-drivers are in a particulary bad position and being helped by lyft & uber and an example where it's the other way round?
In quite a few cities the Taxi industry is the only opportunity for immigrants and they're forced to work long hours in rented vehicles for very low wages. That's not good. In other cities the taxi industry requires quite a lot of education and is harder to get into.
Where I live Uber drivers are often taxi drivers, they pull the taxi signs off their cars when they get an Uber pickup, despite the fact that we have a fairly exploitative taxi system they say that they get paid less by Uber.
Ultimately there are dozens of taxi companies and one Uber, those taxi companies range from very large to tiny but none of them can afford to run sustained losses to knock out competitors like Uber.
"The directors of Lyft and Uber are legally required to maximize profit for the respective shareholders."
This is utterly not true, and even companies like Google have (had?) it specifically written into their shareholder prospectus that this wouldn't be the case. Companies which maximize profit at any cost are doing it because they want to not because they have to.
>The company aims to become profitable by 2018, the people said.
This would appear to reflect a difference in philosophy from Uber [1]. "This will be a monopoly market and we must gain market share now at all costs" vs "This will be a market with multiple big players".
[1] Of course, Lyft does not have the warchest to pursue a strategy that aligns with the first philosophy, so you could say that they must adopt this line through necessity.
It seems like in reality such monopolies are limited geographically. Being the leading transportation service in Barcelona doesn't really get you any discounts or brownie points in Beijing or Cleveland.
In theory such economies of scale would result in various supply-side margin improvements for the operators (cheaper gas, cheaper car washes, cheaper tires, cheaper insurance, all due to bulk purchasing power) but so far we have not seen that happening either.
> Being the leading transportation service in Barcelona doesn't really get you any discounts or brownie points in Beijing or Cleveland
It wins you brand loyalty with travellers. I've come to expect Uber just works, everywhere. Sometimes Lyft or Juno or Careem or Hola are marginally better somewhere, but they aren't minimally competent almost everywhere, and that's a big difference.
That said, I agree with you. Few foreign governments will permit an American company to see where their citizens are, where they're going and with whom they are meeting for how long.
> Few foreign governments will permit an American company to see where their citizens are, where they're going and with whom they are meeting for how long.
Of course they will. See Google, Facebook and hundreds of others. The EU –to use an obvious example– also doesn't discriminate non-EU companies but only requires them to implement the same safeguards expected from EU companies.
But I just don't see how "data" even plays any major role in the future of Uber. It's ultimately a commodity dominated by the costs of a driver's time. Cost/risk of switching is low. Barriers to entry are almost nonexistent.
When Uber eventually goes Under, net effect will have been the transfer of a few million passengers from a to b, and a few billion dollars from whoever owns stock when the ride ends to the drivers (and possibly earlier investors who had the good sense to see it as the ponzi scheme it is).
> Few foreign governments will permit an American company to see where their citizens are, where they're going and with whom they are meeting for how long.
Bulk purchasing power does not mean anything when the people you buy from in all your different locations are not the same.
Not even for gasoline, which is the simplest commodity of the bunch, will you find the same companies selling to you in the US as in Europe as in the Middle East as in China as in India.
Can anyone point out a single thing that Uber buys locally that they can get from the same vendor in more than a handful of countries?
Or maybe it's a commodity race to the bottom in each market? Witness how many entrants came into Austin when Uber and Lyft refused to follow new regulations enacted by the city. [1]
You'll argue network effect or mindshare. I'll argue people will hop off a plane and search "<city> rideshare" on the app/play store for the app (you can buy ads for you app in the App Store now, no?).
Synergistic effects will only kick into effect once they own or at least maintain their fleet, which will take another couple of years. Here in Austria, Uber is still a small niche and it's unthinkable that Uber will be more than a cheaper version of MyTaxi (https://de.mytaxi.com/index.html) within the next years. If legislation allows self-driving cars, that will of course change quickly.
This is a very different value proposition for investors. Instead of a high-tech company, they now own a fleet of cars parked in a bunch of (owned, leased) garages with mechanics and car washers on staff.
What intrinsic advantage does such company have over old-school taxi shop? What barriers are there to discourage someone else from also owning a bunch of similar cars parked in similar garages maintained by similar mechanics and washed by similar car washers?
"It seems like in reality such monopolies are limited geographically."
Yes - they will be won 'city by city'.
It's entirely possible that Lyft gets Houston, Uber gets Dallas - i.e. once the critical mass is established, it's hard to push out the incumbent.
The funny thing is, they are all planning on 'self driving cars' and at that point, I see so many shifts in the landscape.
The advantage of Uber was the drivers - willing to put in extra time full/part to pick up the slack from taxis etc..
But with 'self driving' I'm not sure if there is a natural monopoly. So many other massive, massive entities would be interested and could make a play: automotive companies, car rental agencies etc. etc..
There is a natural monopoly. The biggest supplier will most likely have a taxi for you nearby, so will most likely have the shortest wait time. Then, they will have the highest utilisation, and therefore the lowest cost.
This is incidentally precisely why I think they should be regulated like utilities. You could have independent ride-offering firms providing cars (with or without drivers, and possibly at different service/comfort levels), and independent apps providing billing and possibly extra services, but they all have to go through one network regulated as a utility (so that you could e.g. hail a Lyft car through the Uber app).
I think that would avoid monopolies and give maximum benefit to riders and drivers.
That's not a natural monopoly. The capital costs are nowhere near on the order of magnitude required to block new VC-backed companies from entering the market. Your comparison to utilities aptly demonstrates this point: to introduce a new transportation service, you would need to fund software and digital infrastructure, as well as physical vehicles (self-driving, most likely). That is well within the realm of a funded company to achieve. No digging up roads to lay new water pipes, creating new easements and installations for electric power lines, or any of the other substantial barriers to entry that existing markets for public utilities present.
Even setting that aside, your suggested solution to what is, in my view, a non-problem, is to introduce exactly the kind of regulations that have resulted in the abysmal service and high cost of existing taxi firms.
In order for firms to be incentivised to create these new business models - and let's be clear, the Uber/Lyft model is very much a new and revolutionary model in this industry - there needs to be the just reward for their investment. This is the incentive that creates new value. If you regulate that value away, you will be left with a new tier of lacklustre taxi 2.0 offerings.
However, they will earn monopoly rents in those local markets. These rents will be used by Uber to cross-subsidise their 'tougher' markets that they've bypassed for the moment (either due to incumbents with bigger bankrolls or more insistent regulators).
Put less delicately, they'll use monopoly profits in other local markets to prop up their predatory prices until their local competitors go bankrupt. At this point they'll start charging the monopolist profit-maximising price.
do ride sharing companies become airlines or cereals?
Over the years, we've tried to figure out why the competition in some markets gets sort of
rational from the investor's point of view so that the shareholders do well, and in other markets,
there's destructive competition that destroys shareholder wealth.
It's easy to understand why air travel is so unprofitable....
Munger: If it's a pure commodity like airline seats, you can understand why no one makes any
money. As we sit here, just think of what airlines have given to the world - safe travel. greater
experience, time with your loved ones, you name it. Yet, the net amount of money that's been
made by the shareholders of airlines since Kitty Hawk, is now a negative figure - a substantial
negative figure. Competition was so intense that, once it was unleashed by deregulation, it
ravaged shareholder wealth in the airline business.
But why is the cereal business so profitable?
Munger: Yet, in other fields - like cereals, for example - almost all the big boys make out. If
you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if
you're really good. you might make 40%. But why are cereals so profitable - despite the fact that
it looks to me like they're competing like crazy with promotions, coupons and everything else? I
don't fully understand it.
Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the
main factor that accounts for it.
Maybe it boils down to individual psychology....
Munger: And maybe the cereal makers by and large have learned to be less crazy about fighting
for market share - because if you get even one person who's hell-bent on gaining market share....
For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I
could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do
it.
In some businesses, the participants behave like a demented Kellogg. In other businesses, they
don't. Unfortunately, I do not have a perfect model for predicting how that's going to happen.
http://www.valueplays.net/wp-content/uploads/The-Best-of-Cha...
I wonder if the difference was that airlines took "thinking on the margin" to an extreme?
They all know that the cost of filling one more seat is practically zero, so even if that flyer is only paying $50, it's a win. This leads to variable pricing which leads to price shopping which leads to price competition, which has absolutely slaughtered airlines, especially with price aggregators.
For what a profitable airline business looks like, look at Southwest and what they do. They have variable pricing, but its predictable based on only a few factors, and they don't allow listing in aggregators. Filling seats is important, but they keep an eye on the big picture.
Cereal, on the other hand, has some non-zero incremental cost that, while small, can't be ignored. You can still think on the margin, but cannot ignore the overall economics.
Isn't the logic that people are willing to pay a certain amount for cereals, and that amount is well over the cost to produce it? And something like and airline is much more costly and people are less able to pay the amount needed for a cereal-like margin?
Right, and if one cereal decided to significantly discount itself -lose some money for a while - in order to capture more market share, it could lead to a pricing death spiral if the other cereal makers tried to keep up, and people's mental model of what cereal costs went down along the way...
Seems pretty simple to me. Cereals are vastly different from one another. They taste different, and so everyone is going to average to like one more then the others, and it won't be the same one for everyone. Also, when it comes to food, you get bored of the same thing over and over again, so every customer will buy a different one once in a while.
So with Cereals, the thing customers want isn't too feed themselves, but to enjoy the particular flavours of a specific cereal.
With airlines, people just want to go from A to B. It's not about the experience. So obviously all that matter is price and convenience. Same thing for ridesharing.
the obvious counter this argument is that companies could create a competing version that tastes the same as a competitors product, similar to what coke and pepsi do.
Adding further to the comedy of the switch, airlines in the US are now very profitable and doing tremendous thanks to a reduction in competition / consolidation. In the history of US aviation, airlines have never been so profitable as they are right now.
Munger was wrong because he left out critical qualifiers. A 'pure' commodity can be wildly profitable, if you have a restriction on competition - a cartel or otherwise - that prevents a race to the bottom on price. You don't necessarily have to shift the ratio to the extreme either, there's a line where if you lower the competition beneath that, the profitability becomes significant while still retaining a modest amount of competition. Munger should have known better than to say that, oil is the most obvious demonstration, but there are countless others. Airlines today are nicely profitable for exactly the same reason AT&T and Verizon can still print large profits in a commodity wireless business (even with T-Mobile doing a great job chomping at their heels).
The fixed and variable costs are much higher for the airlines than for cereal makers. There's probably less than ten cents worth of corn in a box of cereal that Kellogg sells for three dollars.
if uber/lyft can't differentiate their product in any way it seems a race to the bottom imo unless some cooperation happens. i bet thats why lyfts been running these commercials about how great their drivers are; to create some perceived differentiation.
i guess one of these companies could go the amazon route and make margins so small to make entry into the market less attractive. ride sharing seems less capital intensive though so not sure that'd work.
I only use Lyft unless there's like a ten dollar price difference. The amount of just terrible behavior coming from uber corporate makes me avoid them.
Same here. I consciously choose Lyft and feel good about encouraging competition and voting with my money against all the evil things Uber does recently.
Oh that, and I refuse to give Uber my location 24/7. Uber App went to trash.
Isn't the perfect economy one where all business's have the minimal possible margins? Like if all the business just cut even? I know that's not ideal for someone looking to make a lot of money out of their business or investment, but isn't it ideal for the overall economy?
It's really quite an achievement - Lyft and Uber screw traditionally taxi companies, they screw their drivers, and they screw their investors, too. Sign me up.
Right up to the point at which the traditional taxi companies go out of business, the new ones' VCs stop subsidizing them, and prices go up to higher than the taxi fares would have been if Uber and Lyft had never existed.
Maybe in the short term, but riders may be losers in the long term too.
At the moment the future of "ridesharing" with autonomous cars seems to be becoming a distraction from actually expanding public rapid transit infrastructure that everyone would benefit from.
You now have people and city councillors questioning "well why do we need to spend all this money on this light rail line when autonomous car sharing is going to make this all irrelevant in a few years anyway?" Of course it remains to be seen whether autonomous cars are going to even exist in a few years let alone what positive or negative impacts they'll have on the transportation system.
Is there anyone pursuing the lowest cost per mile ride share strategy? Things like choosing a common car type, low fuel cost, centralized servicing, etc (i.e. Taxi) combined with the improved customer service and security that Uber and Lyft offer? One would think it would be a winner.
Via in Chicago seems to be the Southwest of ride sharing.
Via is like Uber Pool, but more direct. While waiting, you only have less than a minute to hop in the car. Also the car only goes down major thoroughfares and moves only forward while in the car.
This has the effect of lowering cost per mile because the biggest input cost (labor) is reduced.
To me Via is more of a private, optimized bus system and an example of what Uber Pool could have been. Where I am Uber Pool is so hit or miss (really awesome because no one else gets in or awful because we crossed a major traffic intersection and have to back track two busy blocks to pick up a new passenger) that I avoid it.
That would literally be a taxi app, so Flywheel. (Haven't tried it.)
Literal ride sharing like UberPool is the only actual cost advantage of apps over taxis, and if you picked the right vehicles for that you'd have a kind of bus/jitney system. Sounds good to me.
It's long forgotten, but literal ride sharing is how Lyft got started. They were called Zimride at the time, and it connected people genuinely going places (a bit like craigslist ride shares) who wanted others to chip in towards expenses.
Lyft was released as an app to make finding a ride on Zimride easier, and quickly eclipsed Zimride.
Labour costs are much more important here. Utilizing an older car to 90% is cheaper than utilizing a new car with only 60%. That's where the advantage of larger players with good technology and data analysis lies, as they'll know when and where cars are needed.
Still, uber doesn't even pay when drivers don't have a ride, and they still lose a lot. I don't think you can be any cheaper than the subsidized Uber.
And I don't think you can save much regarding servicing. You already get very good prices with a few cars, or just with one if you carefully choose the garage. There is not much discount that you could get. Most costs will be gasoline, where discounts even for huge amounts are very small. So small that I know of several very large fleet operators in Europe which abandoned their own gas stations and instead had a contract with some gas stations to get a minor discount there.
Actually I don't think it's that easy. I guess you could buy goods and sell them at 80% of the price you paid but even that would have a ton of overhead to reach 700 m in revenue.
Speaking only for myself, I'm not surprised at all about this. I use Lyft exclusively, the app is much better than Uber and I've had much better experiences with the drivers (possibly just by chance).
I'm eagerly awaiting the day when we have fully autonomous self-driving electric cars and fares fall through the floor. It seems that this should be much cheaper than the current system of drivers and gasoline powered cars, although time will tell if the savings are passed on to customers.
Talked to a yellow cab driver about this last week. His perspective is that uber's market share and the resulting price power lets them set the market price for rides below what constitutes a living wage for a driver.
Uber is simultaneously lower rates & raising the margin they take from the driver. This means drivers are loaning uber money out of their savings to operate a money-losing business.
Only question is whether drivers will run out of savings before uber can roll out driverless.
To me these losses could be completely justified. It's a simple calculation of two companies (Uber and Lyft) who perceive customer LTV to be huge so they are tripling down on acquiring customers, drivers, etc.
The only way I see this as a disaster scenario is if rides are operating at a negative margin in hopes automation will eventually solve that problem as it's not clear either of these companies will even win the automation race.
Ok, but who owns them? If the investors are some hedge/mutual funds that invested significant (more than, say, 5%) share of their total capital in Uber or Lyft then you probably can short those funds instead.
sure you can, but lyft is very likely already written off. meaning you can short the fund (probably not because those funds are private, as well) but the lyft losses are already priced into their "stock price".
edit: maybe its more obvious in a different industry: assuming a hurricane wrecks florida. now you want to profit from shorting that event, so you short disaster insurance providers because you know they will have to pay for the damages. but the public market was faster. the losses are already priced into the stock, although those losses havent been realized yet. you can short it all you want, but you will be "too late" with your "unique insight".
What you are saying might be right in principle: markets usually factors in risk in current prices. However, it seems to me that technological startups, like Uber, but also Airbnb, Twitter, etc. are market's blind spot.
There is a lot of hype in media, everybody is seeking new unicorn to invest in, so it might be the case that all the funds managers are still in denial about the true worth of technology companies.
It wouldn't be uprecedented, in fact current market situation looks a lot like just before dot-com bubble bust: 8 years of bull market, and a lot of money invested in companies without viable business model, like Uber.
the idea that uber is not viable is a bit of a stretch. it is certainly a good service used by many millions of people.
you seem to lack a solid grasp of economics. the reason uber is "losing money" is because it is competing in an oligopoly and tries to get rid of its competition. the reason it is being funded to "lose" billions of dollars every year is because it is clearly valuable, not because some "hedge fund idiots" dont know what to do with their money.
once uber turns into a quasi monopoly, it will be able to fix its pricing structure. if it goes too far, it will be regulated. uber is already more of a public utility than "just a company".
calling something that millions of people love "not viable" has never worked. and never will. uber and airbnb are solving the major problem of "you have to own a house and a car". thats a major achievement and costs a lot of money to establish. especially due to regulation trying to prevent people from becoming more mobile and less enslaved.
Honest question: Lyft has just started up in my area. Uber appears to be done with the shady nonsense that dogged them at the beginning. Why do I choose Lyft over Uber?
What you get with each company varies from city to city so it is hard to know exactly what your experience will be with Lyft, especially if they are just starting out in your area as drivers might be a little harder to find at first.
On top of this, there isn't really much one company does that the other doesn't. Lyft line in SF is great, but I believe Uber has something similar there so it's not very unique.
That said, the biggest reasons I would support Lyft are:
1. Lyft doesn't appear to be run by immoral people. One of the reasons I would be hesitant to work at Uber and don't want Uber to monopolize the industry is that they have shown that they are willing to do shady things that hurt others to achieve their goals. I would hate to see another Comcast come to power where we are all stuck with them despite hating them. Right now Uber gets away with not being hated mostly because people paint taxi companies as even worse, but if those go away I wouldn't be shocked if Uber suddenly doesn't look like the saviour we thought it was.
2. Having competition and alternatives helps you as a consumer. If drivers find a way to game the Uber surge pricing (I read about this happening but I'm unclear how true it is) to cause fake surges then having other options for a ride means you aren't stuck paying 3x the normal fare because all the drivers shut off their Uber apps to drive up surge pricing.
You may not choose Lyft over Uber every time. You might not even choose Lyft for your next 10 rides as finding drivers in a new city may be tricky, but I would at least suggest you install both apps and give Lyft a try.
Personally I use Lyft because whilst the behaviour uber engaged (engages?) in has clearly worked very well for them, I would like to make it very slightly less profitable behaviour with my dollar vote. I know I know, this is overly idealistic.
From a consumer perspective they are indistinguishable, however talking to the drivers each has a different pay structure (e.g. I think after XX rides lyft drivers keep all of their fares).
Obviously there are various sweeteners from either sides, but many of the drivers who exclusively drive for lyft formally drove for uber and said they felt better treated both by the company and the customers.
My favourite was a guy who bought his car through uber finance with the intention to drive for lyft. I'm guessing there was little love lost there.
Because competition is good for the consumers. Supporting Lyft (since most people support Uber) can only help us by stopping Uber from becoming a monopoly.
The drivers for lyft and uber are literally the same people in my town. Lyft is often several dollars cheaper per ride than uber. There really isnt a difference between them other than cost
