> Uber loses money, at most you could argue that it is law breaking AND VC money.
I don't follow the logic. Many companies have negative cash flow while they invest in growth. What is "it" in your sentence? If you're saying there are only two possible factors for the relatively low ride fares, I think you're forgetting the reduction of transaction costs.
Hailing a cab on the street is frustrating. Hailing a cab by phone call even more frustrating and uncertain. Decreasing the transaction cost increases demand, which encourages supply, which lowers cost, which ... Anyway, there's a new equilibrium price.
> I don't think demand would go down because prices are increased.
I disagree. Of course demand will go down as prices go up. It's quite literally the most basic principle of economics. Uber is not like a life saving pharmaceutical that people will pay any amount for - that is, an inelastic service. Consumers will absolutely avoid a service because it costs too much. Uber is no different. While people may still take Ubers, they'll take them less often. So Uber will still have reduced revenue.
> I couldn't convince the driver to give me a flat rate or quote to my destination
I'm from NYC, so granted our taxi fleet was well established well before Uber. One law established is a fixed cost to and from airports for cabs. Certainly this can be be replicated but yes, it's not something that can be immediately addressed and so Uber wins in this space (an upfront price).
To respond to your general message, yes, Uber is excellent in certain circumstances. This is one of them. Though I've also seen the reverse when traveling. Hoards of people waiting for an Uber, and plenty of taxis around.
As it currently stands, with prices going up, drivers' compensation going down, and Uber burning money, it's not likely sustainable. So Uber's future is at risk regardless of anyone's individual consumption
Please stop repeating this, or at least find a source that supports it. There's a big difference between "losing money in the aggregate" and losing money on each ride; the latter is only true if the marginal costs of providing each ride are greater than the revenues from it, and the source in [1] only reports the former kind of loss. It's very unlikely that each ride is actually costing them the ~$4 they take from it; that would be some pretty inefficient IT.
>I don't see the VC money and avoiding regulation to be essential parts of the business though.
But it is. The entire reason they're cheaper than taxis is that the VC money is subsidising their losses because they have capital to burn, and they pay no tax and have uncertified and unlicensed drivers.
>I very rarely take a cab, and am not price sensitive. I tried Lyft, albeit not Uber, and like people repeatedly say, the good things about it are (a) you get fast response and a direct way to contact the driver, (b) you see how close they are to you on a moving map, (c) you get an up front estimate, and (d) they don't demand cash.
Same is true of all the taxis I can think of. Fast response, can contact driver, see them on a map, get an estimate of price, can pay through app, etc.
>While it might slow them down if they weren't subsidizing drivers, or drivers weren't subsidizing them, it wouldn't change the fact that the things they do are actually worth more than a regular cab, so they could charge more and not less, as far as I'm concerned.
In your area? Perhaps. But Uber could not exist without VC money and breaking the law all over the world.
If their service is supposedly worth more, then why are there prices so much lower?
> It's Uber who loses money on those rides, not the drivers.
If you want to view it that way then it's both drivers and Uber that's losing money.
I do Lyft on the side over summer as a poor grad student. I only have 3 pool ride and those three the passenger didn't have to share any ride with anybody and I made less than if those ride were not pool.
You're also implying that in the long ride Uber will win if it works as if the speculative end will justify the mean.
Which, personally, I think a flaw and weird way of seeing it.
> In this case Uber offered you $x. You agreed to $x.
The value of x was established under different circumstances. What's wrong with bumping that to 1.5x as soon as you have the power to do so?
When the cab industry was "the system", Uber and Lyft beat the system and made money. Now the drivers are beating the Uber/Lyft system and making money.
Viva disruption.
EDIT: Actually Uber/Lyft beat the cab system and lost money, but that's another kettle of fish.
> I recently read an article about the unit economics of Uber. It doesn't work out. Uber, in it's current form is based on leveraging free VC money to subsidize and incentivize somewhat artificial demand.
I don't buy that argument. By that logic no taxi service could ever work out. It might not work out at the current price levels, but once they squashed all competitors they're free to raise their prices (similar to what Amazon does).
> If a trip cost $10, the driver gets $7. You are telling me $3 to uber doesn't cover overhead?
Your mistake (I think) is that you are connecting the costs to the prices on a per-trip basis.
In the hyper-growth phase where the objective is to gain mindshare and market share, their VC and IPO cash can be used instead of charging reasonable prices.
For your scenario it’s entirely possible that the price of the ride is $10 but the cost of the ride to the driver is $12.
> A company that loses money on every unit sale has no breakeven point (Uber)
What? Uber spends an additional ~$0 on every additional ride. They only lose money because of growth and price wars with the competition.
In mature markets with no competition (eg. Toronto) there are no driver incentives or bonuses and they are still cheap and popular with riders and drivers alike.
> Uber could follow the regulations, charge approximately the same as a taxi, and still make a moderate profit.
Really? Because every analysis I've seen has suggested that Uber is basically subsidizing rides with VC money until some new element (the main hope seems to be self-driving vehicles) let's them transform their business into something that could be profitable.
Isn't it actually spending hundreds of millions of VC dollars building a global monopoly?
As the article described, this is a network effects platform that gets better as it grows. This also gives them the ability to offer a better product at a lower price, squeezing out competitors.
The thing that amazes me the most about Uber is the flagrant disregard of local laws, and the lack of repercussions.
> but that booking a ride costs Uber pennies. Their share of the ride revenues is dollars. How is that not going to be super profitable once new market development costs ramp down?
Yes, booking the ride costs pennies, but actually providing the ride costs them dollars. The question is how many dollars do they need to charge customers and pay drivers to maintain them both, and whether that calculation leaves Uber (or any other of these services) any profit. This is where the 'low barrier to entry' argument comes into play; it is so easy to enter this market combined with the fact that both drivers and customers can (and already do) swap to the service with the best financial benefit to themselves. It remains to be seen what the steady state of this equation is.
>> Uber is not a monopoly and the barriers to entry are lower than people think.
That is actually a large part of the problem. Competition from Lyft will force Uber to lower fares. Competition from a driver-union-app would force them to be even lower.
At some point, lowering fares will directly hurt uber. Prior to that point, it's hurting the drivers because uber doesn't care at all about drivers costs, and drivers are either not good at taking that into account, or have been screwed by falling fares.
>Some percentage of riders will forego the benefit of uber trips due to the higher cost.
This is not necessarily true. What you're assuming is that the demand is highly elastic - that a small increase in price will drive a large drop in use. It's possible it is entirely the opposite, a small increase in price causes no practically no drop in use. This would result in higher total pay. Either way, this will likely be balanced by drivers stopping driving for uber, or more drivers starting to drive for Uber. Uber will have to account for this by shedding excess drivers.
In reality if it's true that Uber riders are highly sensitive to price, then uber's entire business model falls apart since the plan the entire time was to gain a monopoly and jack up prices. If it turns out that jacking up prices means a huge drop in ridership then the value of their busienss is actually way smaller than what they claim and they are likely unable to run a viable business while paying minimum wage.
> They lost a lot of business to Uber, because of the lower prices.
I assume this isn't true for everyone, but for me, price is quite a ways down the list of reasons I prefer Uber to traditional Taxi service. If I'm at an airport, big hotel, or somewhere else with a taxi line, I'll take a taxi. Everywhere else, Uber is just vastly more convenient.
I'm only an occasional Uber (or taxi) user, which I suspect makes me less price sensitive than some, but my perspective is that the reason Uber is eating the taxi industry's lunch does not have as much to do with pricing or regulation as people seem to think.
> It's hard to know whether Uber deflates the price of rides to keep demand high (and thereby steals surprlus from the drivers) or whether they inflate the price of rides to take a larger cut (and thereby steal surplus from riders).
Do they do either of these? Their historical approach has been to subsidize the rides, which enriches both passengers and drivers at Uber's expense.
I don't follow the logic. Many companies have negative cash flow while they invest in growth. What is "it" in your sentence? If you're saying there are only two possible factors for the relatively low ride fares, I think you're forgetting the reduction of transaction costs.
Hailing a cab on the street is frustrating. Hailing a cab by phone call even more frustrating and uncertain. Decreasing the transaction cost increases demand, which encourages supply, which lowers cost, which ... Anyway, there's a new equilibrium price.
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