Very good write-up. I know I rant about ridehail never making money, but you point out the picture is complex. I still don't see how ridehail makes (much) money, though maybe delivery will (in which case we tell all the investors who bought the ridehail story "just kidding," I guess). But I think ridehail WILL be profitable: hey, taxis are profitable! I just don't think r/h will be profitable ENOUGH to justify all the losses to date and all the overhead going forward. One path to profit as you point out is to raise prices: but then r/h is abandoning one of the key planks in its value platform: cheaper than taxis! Another path that you point out is through branding: maybe the brand is strong enough to earn a price premium (like Coke versus Aldi's Summit brand cola). It might be... but then one has to wonder why the heck Uber put taxis on its app in NYC (and maybe elsewhere, later?)! No better way to erode your own brand by showing rivals and their pricing on your own app! So I rephrase my rant: leaving aside delivery and other businesses, I think "core" ridehail will eventually make money, but deliver an ROI below these companies' cost of capital, as what profit is made is chewed up by ridiculously bloated overheads, or owed to investors who have poured in the billions over the years.
All that money, all that hype, all these years, and (the core ridehail portion of) Uber is reduced to "another option among several on a free app, priced about the same as its rivals." Meh.
(I promise to stop commenting so frequently here, this is your substack, not mine! Sorry!)
I pointed out that no one had ever laid out an explanation based on actual industry economics as to how (after $31 billion in losses) Uber could suddenly transform itself into a company that could earn sustainable profits.
Harry Campbell didn’t answer the question. He asserted that all Uber had to do was raise prices but failed to explain any of the other parts of the equation (e.g. efficiency, costs, demand, competition) needed to actually produce profits. How much would driver compensation increase if passengers were paying 50-100% higher fares? What portion of Uber’s 2019 customers would accept fares this high? Yet he condescendingly insisted that the solution to all of Uber’s problems was “Really not that hard to understand.”
It would be difficult to understand is why Uber’s investors spent 13 years pursuing a strategy based on using low prices to build massive scale, and pursuing a dominant position in a vastly expanded urban car service industry if there was a simple and easy path to profitability by charging substantially higher prices than anyone had ever thought to charge? Were all the investors that poured billions into Uber and Lyft and steadfastly supported the low price strategy for a decade too stupid to recognize the vast superiority of high prices? Were the armies of highly paid engineers and economists and other senior Uber executives incapable of analyzing pricing alternatives, even in the face of mounting losses, and even after Khosrowshahi replaced Kalanick’s “hyper-growth at any cost” approach with one nominally committed to someday generating positive cash flow and profits? Had everyone in the hundred years of pre-Uber taxi operations also stupidly held prices down because they were totally clueless about the basics of industry supply and demand?
Campbell’s assertion assumes a large percentage of urban car service customers was always willing to substantially higher prices. If so, why had every previous premium priced car service model (e.g limos) been unable to expand outside insignificant niches? If so, why did Uber abandon its original premium approach in favor of a mass market approach? Why did the tens of thousands of people in the industry struggling over many decades to find a profitable formula reject what Harry Campbell sees is the obvious answer and is “Really not that hard to understand.” If this is the obvious answer for Uber wouldn’t “raise prices a whole lot” also be the obvious answer for transit operators, airlines and lots of other transportation services?
Among the things that are difficult to understand is why people like Campbell falsely claim that Uber supplanted traditional taxis because of superior innovative technology and that its superiority created the brand loyalty that could allow it to significantly raise prices. Yes, traditional taxi service was unpopular, and people liked that Uber offer substantially more service in cleaner cars at lower prices. But the long recognized things that made taxis unpopular (e.g. unclean cars, can’t get a car on Saturday night or when it rains, poor service to many neighborhoods) was because better service was much more costly and the market was totally unwilling to for those higher cost services. Rush hour service on urban transit and expressways is also highly unpopular because (just like taxis) better and cheaper service is wildly uneconomic, and no one has come up with a way to dramatically reduce the cost and improve the efficiency of urban transport. Uber’s app didn’t improve cost efficiency and Campbell’s nationwide taxi app wouldn’t either.
Uber was only popular because of those billion-dollar subsidies, and that popularity will eventually disappear as people discover that it now offers less service at much higher prices than Yellow Cab used to. Which is why it works ruthlessly to suppress any public information about its actual prices and service levels. It will be able to get away with high prices for a while since its anti-competitive predatory behavior destroyed all the competitors that actually had lower costs. But a very large portion of traditional car service users will be priced out of the market and cities will only get a fraction of the car service they used to get.
Uber dishonestly claimed it had found a magic formula that could produce bother better/cheaper and strong financial returns on billions in risky investment. This magic formula produced $31 billion in losses. Griswold had no idea what might work going forward and neither does Campbell. Every time I’ve asked over the years if anyone can lay out a plausible path to sustainable Uber profitability, all I get is magical thinking.
You continue to suggest that Uber could become profitable, but you refuse to lay out economic evidence as to why, after $31 billion in losses over more than a decade and never generating a dollar of positive cash flow, they could ever produce sustainable profits. Something that would constitute one of the biggest corporate turnarounds in history.
Nor have you noted that absolutely no other independent analyst has ever laid out a remotely plausible path to honest financial returns based on objective evidence about their actual economics. Nor have you noted that no independent analyst has ever refuted any of the arguments claiming that Uber’s business model was never capable of producing sustainable profits (e.g. their costs are higher than traditional taxis, they have no significant scale or network economies or operating efficiencies, their only material margin improvements have come from suppressing driver compensation below what traditional taxis used to pay)
Nor have you noted that the things Uber is currently doing to reduce its losses completely contradict every claim they made previously as to why its “disruption” would eventually be good for investors and urban transport. They cannot produce car service at a significant lower cost than Yellow Cab used to---fares have skyrocked. They cannot provide vastly better service to neighborhoods (including lower income areas) that Yellow Cab served poorly—having discovered how unprofitable that service was, they’ve eliminated it and focused on the densest, wealthiest bits of the market. Even though they had demonstrated (with the premium product they offered before pivoting to Uber-X in 2014) that you can’t make money that way either.
The “cost to consumers” isn’t the higher prices relative to Uber in 2019. It is that those tens of billions in unsustainable subsidies, pursuing a hopeless business that they didn’t understand, destroyed a previously viable (albeit marginal and not glamorous) taxi industry that was an important part of urban transport infrastructure. A service that can’t possibly be revived.
Increase the cost of rides...is how Uber gets profitable. Really not that hard to understand. There aren't a lot of great alternatives (most taxis still suck) so you have pricing power which Uber has demonstrated during the pandemic. Did you see the chart above?
Obviously they're investing a ton in other bs like food delivery (I'm very bearish on unit economics here), grocery, freight etc so their overall profitability is negative. This is their growth story for Investors, most aren't buying it though.
Taxis still do 100k trips a day in nyc so not sure how the industry was destroyed (compared to rideshare with 500k but 10x the cars) It was a terrible product and refused to innovate, there's literally still no national taxi app lol. They did this to themselves.
Very good write-up. I know I rant about ridehail never making money, but you point out the picture is complex. I still don't see how ridehail makes (much) money, though maybe delivery will (in which case we tell all the investors who bought the ridehail story "just kidding," I guess). But I think ridehail WILL be profitable: hey, taxis are profitable! I just don't think r/h will be profitable ENOUGH to justify all the losses to date and all the overhead going forward. One path to profit as you point out is to raise prices: but then r/h is abandoning one of the key planks in its value platform: cheaper than taxis! Another path that you point out is through branding: maybe the brand is strong enough to earn a price premium (like Coke versus Aldi's Summit brand cola). It might be... but then one has to wonder why the heck Uber put taxis on its app in NYC (and maybe elsewhere, later?)! No better way to erode your own brand by showing rivals and their pricing on your own app! So I rephrase my rant: leaving aside delivery and other businesses, I think "core" ridehail will eventually make money, but deliver an ROI below these companies' cost of capital, as what profit is made is chewed up by ridiculously bloated overheads, or owed to investors who have poured in the billions over the years.
All that money, all that hype, all these years, and (the core ridehail portion of) Uber is reduced to "another option among several on a free app, priced about the same as its rivals." Meh.
(I promise to stop commenting so frequently here, this is your substack, not mine! Sorry!)
I pointed out that no one had ever laid out an explanation based on actual industry economics as to how (after $31 billion in losses) Uber could suddenly transform itself into a company that could earn sustainable profits.
Harry Campbell didn’t answer the question. He asserted that all Uber had to do was raise prices but failed to explain any of the other parts of the equation (e.g. efficiency, costs, demand, competition) needed to actually produce profits. How much would driver compensation increase if passengers were paying 50-100% higher fares? What portion of Uber’s 2019 customers would accept fares this high? Yet he condescendingly insisted that the solution to all of Uber’s problems was “Really not that hard to understand.”
It would be difficult to understand is why Uber’s investors spent 13 years pursuing a strategy based on using low prices to build massive scale, and pursuing a dominant position in a vastly expanded urban car service industry if there was a simple and easy path to profitability by charging substantially higher prices than anyone had ever thought to charge? Were all the investors that poured billions into Uber and Lyft and steadfastly supported the low price strategy for a decade too stupid to recognize the vast superiority of high prices? Were the armies of highly paid engineers and economists and other senior Uber executives incapable of analyzing pricing alternatives, even in the face of mounting losses, and even after Khosrowshahi replaced Kalanick’s “hyper-growth at any cost” approach with one nominally committed to someday generating positive cash flow and profits? Had everyone in the hundred years of pre-Uber taxi operations also stupidly held prices down because they were totally clueless about the basics of industry supply and demand?
Campbell’s assertion assumes a large percentage of urban car service customers was always willing to substantially higher prices. If so, why had every previous premium priced car service model (e.g limos) been unable to expand outside insignificant niches? If so, why did Uber abandon its original premium approach in favor of a mass market approach? Why did the tens of thousands of people in the industry struggling over many decades to find a profitable formula reject what Harry Campbell sees is the obvious answer and is “Really not that hard to understand.” If this is the obvious answer for Uber wouldn’t “raise prices a whole lot” also be the obvious answer for transit operators, airlines and lots of other transportation services?
Among the things that are difficult to understand is why people like Campbell falsely claim that Uber supplanted traditional taxis because of superior innovative technology and that its superiority created the brand loyalty that could allow it to significantly raise prices. Yes, traditional taxi service was unpopular, and people liked that Uber offer substantially more service in cleaner cars at lower prices. But the long recognized things that made taxis unpopular (e.g. unclean cars, can’t get a car on Saturday night or when it rains, poor service to many neighborhoods) was because better service was much more costly and the market was totally unwilling to for those higher cost services. Rush hour service on urban transit and expressways is also highly unpopular because (just like taxis) better and cheaper service is wildly uneconomic, and no one has come up with a way to dramatically reduce the cost and improve the efficiency of urban transport. Uber’s app didn’t improve cost efficiency and Campbell’s nationwide taxi app wouldn’t either.
Uber was only popular because of those billion-dollar subsidies, and that popularity will eventually disappear as people discover that it now offers less service at much higher prices than Yellow Cab used to. Which is why it works ruthlessly to suppress any public information about its actual prices and service levels. It will be able to get away with high prices for a while since its anti-competitive predatory behavior destroyed all the competitors that actually had lower costs. But a very large portion of traditional car service users will be priced out of the market and cities will only get a fraction of the car service they used to get.
Uber dishonestly claimed it had found a magic formula that could produce bother better/cheaper and strong financial returns on billions in risky investment. This magic formula produced $31 billion in losses. Griswold had no idea what might work going forward and neither does Campbell. Every time I’ve asked over the years if anyone can lay out a plausible path to sustainable Uber profitability, all I get is magical thinking.
You continue to suggest that Uber could become profitable, but you refuse to lay out economic evidence as to why, after $31 billion in losses over more than a decade and never generating a dollar of positive cash flow, they could ever produce sustainable profits. Something that would constitute one of the biggest corporate turnarounds in history.
Nor have you noted that absolutely no other independent analyst has ever laid out a remotely plausible path to honest financial returns based on objective evidence about their actual economics. Nor have you noted that no independent analyst has ever refuted any of the arguments claiming that Uber’s business model was never capable of producing sustainable profits (e.g. their costs are higher than traditional taxis, they have no significant scale or network economies or operating efficiencies, their only material margin improvements have come from suppressing driver compensation below what traditional taxis used to pay)
Nor have you noted that the things Uber is currently doing to reduce its losses completely contradict every claim they made previously as to why its “disruption” would eventually be good for investors and urban transport. They cannot produce car service at a significant lower cost than Yellow Cab used to---fares have skyrocked. They cannot provide vastly better service to neighborhoods (including lower income areas) that Yellow Cab served poorly—having discovered how unprofitable that service was, they’ve eliminated it and focused on the densest, wealthiest bits of the market. Even though they had demonstrated (with the premium product they offered before pivoting to Uber-X in 2014) that you can’t make money that way either.
The “cost to consumers” isn’t the higher prices relative to Uber in 2019. It is that those tens of billions in unsustainable subsidies, pursuing a hopeless business that they didn’t understand, destroyed a previously viable (albeit marginal and not glamorous) taxi industry that was an important part of urban transport infrastructure. A service that can’t possibly be revived.
Increase the cost of rides...is how Uber gets profitable. Really not that hard to understand. There aren't a lot of great alternatives (most taxis still suck) so you have pricing power which Uber has demonstrated during the pandemic. Did you see the chart above?
Obviously they're investing a ton in other bs like food delivery (I'm very bearish on unit economics here), grocery, freight etc so their overall profitability is negative. This is their growth story for Investors, most aren't buying it though.
Taxis still do 100k trips a day in nyc so not sure how the industry was destroyed (compared to rideshare with 500k but 10x the cars) It was a terrible product and refused to innovate, there's literally still no national taxi app lol. They did this to themselves.