Yves here. To underscore the point that Hubert Horan is making, you can’t achieve a monopoly if you are a high cost producer who has no prospect of achieving economies of scale or scope in a field with few barriers to entry. As we’ve discussed, Uber’s app is not difficult to replicate, Uber drivers now often work with multiple ride-sharing services, and Uber is particularly vulnerable to local driver consortia where the ownership is mutualized or charges to drivers are set at a level only to defray the cost of operating the enterprise.
By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants
Uber Is Staggeringly Unprofitable, Is the Industry’s High Cost Producer, Cannot “Grow Into Profitability”, and Has no Meaningful Competitive Advantages
Uber is currently the most highly valued private company in the world. Since its start in 2010, Uber has been on a steady path towards domination of an urban car service industry that had been competitively fragmented and structurally stable for over a century.
This series of articles has focused on the question of whether an Uber dominated industry would actually improve the efficiency of the urban car service industry and improve overall economic welfare. Capital markets have invested $13 billion in Uber, producing a venture capital valuation of $69 billion. Have those investors—primarily Silicon Valley billionaires—been making society better off by reallocating resources from less productive to more productive uses?
These articles applied standard financial/competitive analytic approaches used to evaluate the potential impact of major market restructuring caused by new entry or other exogenous forces, and/or major increases in industry concentration on industry efficiency and consumers.
The first article presented the evidence that Uber is a fundamentally unprofitable enterprise, with negative 140% profit margins and incurring larger operating losses than any previous startup. Uber did not achieve any meaningful margin improvement between 2013 and 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber imposed cutbacks to driver compensation. Uber’s ability to capture customers and drivers from incumbent operators is entirely due to predatory competition funded my massive investor subsidies—Uber passengers were only paying 41% of the costs of their trips, while competitors needed to charge passengers 100% of actual costs.
The second article provided a breakdown of the taxi industry’s cost structure, and demonstrated that Uber was the industry’s high cost producer, with a significant cost disadvantage in every cost category except fuel and fees where no operator could achieve any advantage. It also explained that Uber could not “grow into profitability” because there were no significant scale economies related to any of these cost categories.
The third article debunked a range of claims about potential sources of Uber competitive advantage that might explain its ability to drive incumbents out of business; none were based on actual evidence of industry economics, and none of the claimed sources had ever had ever produced major competitive impacts in any other industry.
The findings from the three posts are entirely consistent with one another, and consistent with the conclusion that Uber could never generate sustainable profits in a competitive market. Uber’s lack of cost competitiveness explains its massive losses, its lack of scale and network economies explains the lack of margin improvement, the financial and cost evidence is consistent with the finding that Uber lacks meaningful competitive advantages, and the lack of efficiency and competitive advantage is consistent with the finding that Uber’s growth is primarily explained by the predatory use of investor subsidies.
The critical caveat here is “in a competitive market”. This article documents that Uber’s business model is focused on the pursuit of monopoly power. The elimination of competition is always problematic from an economic welfare standpoint, but there are certainly cases in other industries where dominance could be considered welfare enhancing or at least welfare neutral.
But these cases require overwhelming objective evidence that the dominance was created by legitimate economic factors (huge, unmatchable efficiency advantages, powerful scale/network economies) that clearly offset the risks from reduced competition, and evidence that industry economics would create strong incentives for the newly dominant firm to continue to share efficiency gains with consumers. None of these conditions apply to Uber where growth was not driven by superior efficiency or scale/network economies; there are few benefits that could be shared with consumers, and no incentives to share any that might exist.
Uber’s Investors Always Understood That Financial Returns Required the Ability To Exploit Quasi-Monopolistic Industry Dominance, and Provided the Level of Financing Deemed Necessary
Uber’s investors and managers have always been totally focused on earning strong returns on its $13 billion investment base. Two simple questions (that could be applied to any company): what did Uber see as the source of investor returns, and were its actions (spending, management and competitive priorities) strongly focused on pursuing those sources of financial returns?
The first three articles in this series focused on “traditional” product/efficiency based sources of financial returns that are broadly consistent with improving overall economic welfare. If investors can profit by introducing major product/technological process breakthroughs that vastly improve industry efficiency, or if their returns come from providing slightly better service at slightly lower costs in a competitive market, then both consumers and capital accumulators will be better off in most cases.
There is absolutely no evidence that Uber’s investors put $13 billion into the company because they thought they could achieve Amazon type efficiency advantages over incumbent urban car service operators. There is no evidence that Uber’s managers or spending priorities were ever focused on creating welfare-enhancing efficiency improvements or consumer benefits. Unlike past startups, Uber made no effort to provide outsiders with evidence that its business model generated powerful efficiency advantages, or that it could actually produce urban car services at lower cost than incumbents.
From its earliest days, Uber’s investors and managers have always recognized that investor returns would require global industry dominance, and the elimination (or effective nullification) of longstanding laws and regulations designed to protect competition, and to protect consumers from the risks of anti-competitive market power. This presumes that urban car services can be turned into a “winner-take-all-game”, where the winner can earn sustainable rents once quasi-monopoly industry dominance has been achieved. Dominance would also allow Uber to leverage its platform in order to expand into other markets that it could not otherwise profitably enter.
As will be discussed below, the belief that monopoly power can be a major source of financial returns is widely held among the venture capitalists that funded Uber, and its spending priorities and marketplace behavior have been totally consistent with a company pursuing global industry dominance.
But most critically, the staggering $13 billion in cash its investors provided is consistent with the magnitude of funding required to subsidize the many years of predatory competition required to drive out more efficient incumbents. Uber’s investors did not put $13 billion into the company because they thought they could vanquish those incumbents under “level playing field” market conditions; those billions were designed to replace “level playing field” competition with a hopeless battle between small scale incumbents with no access to capital struggling to cover their bear bone costs and a behemoth company funded by Silicon Valley billionaires willing to subsidize years of multi-billion dollar losses. Given Uber’s growth to date, investor expectations that monopoly rents justifies the current level of subsidies and financial risks appears quite plausible.
The Silicon Valley Venture Capital Community Has Long Been Focused on Exploiting Monopolies and Extracting Rents From “Winner-Take-All” Narkets
The belief that exploiting monopoly power from “winner-take-all” industries is widely held in the Silicon Valley venture capital community that funded Uber and other so-called “ridesharing” companies.
Benedict Evans, a partner at venture capital firm Andreessen Horowitz summarized Uber’s strategy as “Fascinating city-by-city algebra to make the numbers work, plus massive burn in a play to conquer the world.” Sherwin Pishevar, formerly a managing director at Menlo Ventures, became an original investor in Uber because he believed the company’s platform could provide the basis for sustainable rent-extraction and the company’s model could scale globally. “Uber is building a digital mesh–a grid that goes over the cities,” Pushover says. “Once you have that grid running, in everyone’s pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase.” As PayPal founder Peter Thiel (who is a major investor in Uber competitor Lyft) said “Always aim for a monopoly. It’s one big transgressive idea, and you’re not allowed to talk about it… From society’s perspective, it’s complicated. But from the inside, I always want to have a monopoly.” In an article entitled “Competition is for Losers” Thiel argued that “Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away.” 
Under this line of thinking, the type of robust market competition designed to maximize economic welfare and ensure the efficient long-term allocation of resources is not integral to capitalism, and is actually the enemy of capital accumulators like Thiel, and needs to be vanquished.
Many Aspects of Uber’s Business model That Add Little Value in Competitive Markets Can Drive Significant Profit Growth With Industry Dominance
With industry dominance, Uber could readily exploit artificial anti-competitive market power that would not exist if it merely achieved a large share of a competitive market. Anti-competitive market power would likely solve much of Uber’ driver cost disadvantage; once alternatives were gone Uber could not only eliminate the pay premiums they needed to fuel growth but they could actually drive driver take-home pay below the $12-17 per hour level traditional operators had paid.
As discussed in the second article, Uber has already started making major driver compensation cuts, while continuing to mislead drivers about the true costs and capital risks of providing vehicles. With industry dominance, Uber could drive take-home pay (net of vehicle costs) even lower, while imposing strict employee-type scheduling controls on its “independent” drivers while still refusing to provide the pay and benefits employees are legally entitled to. Industry dominance would also give Uber much greater leverage over other suppliers (insurance companies, taxi manufacturers) than it enjoys today.
Aspects of Uber’s business model that create limited value in a competitive market could be key to rent-extraction with industry dominance. Surge pricing could be used much more aggressively without fear of competitive discipline. Dominance would force anyone who might ever want a cab to carry Uber’s app, converting the app from a benign ordering tool to a monopoly controller of all information about demand, capacity and pricing, driver employment and compensation. Uber could improve utilization by unilaterally imposing much higher prices for peak period and low density neighborhood service, although this would effectively eliminate taxi service for a major segment of (mostly lower income) users. This would convert an piece of publically regulated urban transport infrastructure into a privately owned and controlled discretionary consumer product primarily targeted at wealthier customers. The welfare impact would be analogous to the conversion of urban expressways into privately owned toll-roads. Higher fares would improve product quality for those with more discretionary income (shorter taxi waits on Saturday night, faster rush-hour commutes) but total economic welfare would be worse given the major service quality reduction for those prices out of the market.
Much of Uber’s Oft-Criticized Public Behavior Is Fully Consistent With Its Pursuit of Unregulated Monopoly
Uber has been frequently criticized for behavior outside the norms traditionally observed by companies trying to build large consumer businesses. But these critics invariably make the false assumption that Uber’s long-term returns depend on the loyalty of customers and drivers in competitive markets, and fail to recognize that its behavior is fully consistent with its long-term objective of unregulated monopoly. Uber has unilaterally imposed major compensation cuts on drivers, and left customers exposed to unexpectedly high surge pricing surcharges. Neither had material impacts on Uber’s magnitude of losses (although bad press has forced Uber to contain its surge pricing), and its competitors worked to build trust with drivers and passengers with clear policies limiting both practices. These seemingly high-handed practices are perfectly logical if one assumes that Uber did these things to send an unmistakable signal that it will have complete freedom to impose whatever wages and prices it likes once it achieves market dominance.
As far back as 2010, Uber willfully, openly disregarded local taxi regulations, not only pricing and entry rules, but driver screening, licensing and insurance requirements. A former Uber employee explained that “…it’s not just that Uber has adopted the business school maxim “Don’t ask for permission; ask for forgiveness”—it has instituted a policy of asking for neither.” Uber was not trying to “deregulate” taxi service—“deregulation” or regulatory reform assumes that democratically elected local officials have the authority to determine how local taxi service should be structured, and implies that all competitors should be subject to the same “level playing field” set of rules.
Uber wanted the freedom to evade insurance and other costs that its competitors were still obligated to incur, and wanted to establish that it did not respect the right of democratically elected governments to control local taxi service and could disregard any rules it found inconvenient. Problems with passenger safety and accident risks led to major waves of bad publicity, and the savings from this regulatory arbitrage were not huge. But Uber was determined to establish that local regulators and politicians would (or could) do nothing to seriously rein in a company backed up by Silicon Valley billionaires that was heralded in most local newspapers as a cutting-edge technological innovator. By establishing that it could blow off questions about whether it was exposing passengers to increased risk of theft or assault, or whether it carried legal required levels of liability insurance in its early startup years, it made it clear that a vastly larger and more powerful Uber would feel free to exercise artificial market power with impunity.
Uber worked to sabotage both the fundraising and operations of Lyft and other competitors and initiated specific programs to intimidate journalists, including a program designed to spread details of the personal life of a female journalist who has criticized the company.” Despite attempts by company supporters to dismiss these actions as aberrant “Silicon Valley bro” behavior they were fully consistent with its desire to project an image that it was on an unstoppable march towards global industry domination, and prevent independent scrutiny of its actual competitive economics, or whether consumers would benefit if it achieved global dominance. None of the executives involved were ever disciplined and none of Uber’s investors ever criticized it.
Previous startups focused their external communication programs on explaining product advantages to target customers and explaining future profit potential to the investment community and avoided PR and lobbying spending until a strong market position had been secured. Uber made PR and lobbying one of its top spending priorities from the outset, and emphasized virulent attacks on incumbent operators and regulators. In 2014 Travis Kalanick described Uber as a band of heroic tech innovators who would provide massive benefits for consumers and drivers but for the overwhelming political power of taxi owners and regulators. “…. [W]e are in the middle of a political campaign and it turns out the candidate is Uber” and the opponent is “an asshole named taxi….Our opponent — the Big Taxi cartel — has used decades of political contributions and influence to restrict competition, reduce choice for consumers, and put a stranglehold on economic opportunity for its drivers”.
Uber’s PR provided no information about how their alleged innovations actually benefited customers or drivers, did not mention the multi-billion subsidies that were the actual source of those benefits, did not explain how a highly fragmented and competitive industry constituted a “cartel”, and did not explain why the public should see Silicon Valley billionaires pursuing industry dominance as the disadvantaged underdog in a battle with those fragmented and disorganized incumbents. Uber brought in high-powered political operatives who had worked at the highest levels of government; in Las Vegas Uber spent more on lobbyists than the entire casino industry, and in California had a larger lobbying team than any bank. These major expenditures would have made no sense for a startup that was actually technology based or a transportation company focused on near-term profitability in competitive markets, but were fully consistent with Uber’s strategic objective of eliminating (or nullifying) legal and regulatory obstacles to its eventual exercise of quasi-monopoly market power.
All of Uber’s actions represented a radical departure from past consumer product startups. Whatever Amazon’s strengths and weaknesses as a company, it did not demonize incumbent booksellers, make false claims about industry cartels and how its independent contractors earned $90,000 a year, its initial growth was not based on massive PR expenditures designed to prevent outsiders from understanding their actual competitiveness, or on massive lobbying programs led by close advisors to Presidents and Prime Ministers, and it was not using these techniques to drive more efficient booksellers out of business.
Uber’s Business Model is Entirely Based on the Destruction of Overall Economic Welfare, and the Transfer of Wealth from Consumers and Suppliers to Silicon Valley Billionaires.
This series of articles has focused on the economics of Uber, and presented evidence that its current operations are staggeringly unprofitable, that it is far less efficient than the incumbent operators it has been driving out of business, that it has not introduced any product/technological/process breakthroughs that could explain its rising market share, and that all of its growth to date is explained by predatory investors subsidies.
There is no evidence it could ever earn sustainable profits in a competitive market and he returns its investors are seeking depend entirely on achieving quasi-monopoly industry dominance and eliminating or nullifying regulations that might limit its ability to exploit anti-competitive market power. The unprecedented size of its investment base and all of the strategies it has been pursuing over the years fully support its objective of unregulated monopoly.
If it reaches its objectives, the long-term impact of Uber on consumer welfare and efficiency of the urban car service industry would combine the impact of replacing today’s urban car service industry with a higher cost, less efficient Uber operation, and the impact of replacing today’s regulated industry competition with a completely unregulated monopoly. Since Uber would require $3-4 billion a year more than it is currently earning to provide investor returns, and has extremely limited scale economies, it will need to extract a significant fraction of that amount from consumers, drivers and suppliers via the exercise of anti-competitive market power. The growth of Uber reflects a massive failure of capital markets who have been reducing overall economic efficiency by reallocating resources from more productive to less productive uses.
Even though none of Uber’s services or operations are particularly innovative, and even though Uber has done little to “disrupt” the traditional economics of providing urban car services, Uber could easily establish itself as one of the most innovative, disruptive companies in history. It is disrupting the idea that private wealth creation requires the development of companies with superior products and superior efficiency than existing competitors.
A key innovation is the use of massive private funding to block the signals that markets require to efficiently allocate resources, to overwhelm more efficient competitors and to nullify the laws and regulations that democratic governments had enacted to ensure that taxi services benefited a wide range of citizens, and to protect those citizens from the risks of anti-competitive market power. It is of course unclear at this point whether Uber’s business model, if proven successful, could be readily replicated in other industries, but many investors will undoubtedly pursue the possibility
No startup in history had ever created massive corporate value—much less the $69 billion Uber has created to date—with products and operations that were less efficient that were less efficient that the companies they were driving out of business. Uber’s willingness to use its $13 billion cash to fund predatory competition was its most important “innovation” but money alone cannot explain its seemingly unstoppable progress towards industry domination.
The next article in this series will consider other Uber “innovations” focusing on how Uber got broad portions of the mainstream media to enthusiastically support its efforts to eliminate competition so that it could transfer wealth from consumers to (already extremely wealthy) investors. Why would the overwhelming majority of the financial and business media applaud the growth of this specific private company, and make absolutely no effort to investigate whether its growth was based on actual efficiency or competitive breakthroughs, or whether its industry dominance would actually benefit consumers? Why would major newspapers and magazine celebrate a company that was openly disobeying democratically established laws in order to transfer a portion of urban transport infrastructure to the exclusive, unregulated control of private capital accumulators?
 Artificial anti-competitive market power is used in this paper to refer to the ability to reduce consumer welfare by holding prices above (and/or holding output below) supra-competitive levels, without the risk that new market entry would discipline such behavior in a thorough or timely fashion. For a useful introduction to market power issues see Krattenmaker, T. G., Lande, R. H., & Salop, S. C. Monopoly Power and Market Power In Antitrust Law, Geo. Lj, 76, 241 (1987). Most analysis occurs in antitrust cases where market power is created or enhanced by mergers or collusion, while the Uber case presents a case of market power created by predatory behavior by a single, extremely well financed firm.
 Johnson, Bobbie, How to Get Away with Uber, Medium, 22 Nov 2014
 “The idea: Uber doesn’t just set passengers up with drivers. It’s a company starting to dream of becoming a logistical nervous system for cities.” Lagorio-Chafkin, Christine, Resistance Is Futile, Inc. Magazine, Jul 2013..
 Cook, J., Peter Thiel: ‘Always aim for a monopoly. I always want to have a monopoly’, Business Insider, 2 May 2015.
 Thiel, Peter, Competition Is for Losers, Wall Street Journal, 12 Sep 2014.
 In a competitive market Uber’s ordering app would be considered its “platform”, but with quasi-monopolistic dominance “platform” would refer to its control of the rules that govern providers, customers and all other market participants. Control of a market is a “natural monopoly” even though the industry marketplace is not. White, A., & Weyl, E. G. Insulated platform competition (2012). Available at SSRN 1694317. With dominance the app would provide the basis for controlling “a rent-extraction business of the highest middle-man order.” Kaminska, Izabella, The Sharing Economy Will Go Medieval On You, Financial Times, 21 May 2015.
 Cushing supra note 64
 Fiegerman, Seth, Uber CEO admits he tried to undermine Lyft’s fundraising efforts, Mashable, 5 Nov 2014. D’Orazio, Dante, Uber employees spammed competing car service with fake orders, Verge, 24 Jan 2014. Erica Fink, Uber’s dirty tricks quantified, CNN Money, 12 Aug 2014.
 Smith, Ben, Uber Executive Suggests Digging Up Dirt On Journalists, Buzzfeed, 17 Nov 2014., Lacy, Sarah, The moment I learned just how far Uber will go to silence journalists and attack women, Pando Daily, 17 Nov 2014.
 Including David Plouffe, Barack Obama’s former Chief of Staff, and Rachel Whetstone, who had been a major advisor to British Prime Minister David Cameron Swisher, Kara, Uber Hires Top Obama Adviser David Plouffe as New “Campaign Manager, Recode 19 Aug 2014; Swisher, Kara, Google Comms and Policy Head Rachel Whetstone Takes Over That Job at Uber, Recode, 13 May 2015; Carr, Paul, Bright Young Flacks: “Cameron’s Cronies” now drive Silicon Valley’s most sinister propaganda machine, Pando Daily, 17 May 2015.
 Figler, David, Viva Disruption! How Uber outspent the casinos to buy Vegas, Pando Daily, 22 Jun 2015, “Uber now spends more on lobbyists in California than Wal-Mart, Bank of America or Wells Fargo.” Kirkham, C. & Lien T., Facing regulatory roadblocks, Uber ramps up its lobbying in California, Los Angeles Times, 26 Jul 2015.
Thank you for publishing these articles. Very informative. I always thought there was something not right with what Uber has been doing, and this proves it.
That’s exactly the point. As you can imagine, we’ve been a little pre-occupied for the last few days, but (in my view) Hubert has succeeded in burying his axe in Travis Kalanick’s chest.
Uber’s $70 billion valuation is crap. This should be an enormous story, and we will keep pushing it.
Always remember these people all believe in the free market as long as they are not in it.
It is a big story.
Have those investors—primarily Silicon Valley billionaires—been making society better off by reallocating resources from less productive to more productive uses?
No. Twice a day they get down on their prayer mats with their heads pointed in the direction of the Eccles building to give thanks to where their money comes from.
This series on Uber is greatly appreciated. It is quite clear that Uber does have monopolistic intentions. The question is have is: what next? If the company is successful in driving out the other competitors, and gutting the applicable regulations in the process, what could prevent small competitors from jumping into the market? I guess that Uber would take losses in those markets in order to crush all comers, but how long could they sustain that? Do these investors really think that Uber could actually sustain a monopoly?
I would expect Uber to work with regulatory forces to create significant barriers to entry to the market.
I personally think becoming a software platform for existing car service is next for Uber (or whoever succeeds them). I say this because I believe most riders in car services, or at least the most profitable ones, are business customers. As a business traveler myself, I can tell you that I value convenience and time savings over whatever advantage Uber offers. I land in an airport, get my luggage, and there in line is a row of taxis. I step out of my hotel lobby, and there is a taxi line waiting for me. I arrange a scheduled pick up to go to the airport and call a local carrier company to pick me up at a designated time and ensure that I won’t be late for my flight. I just can’t see Uber getting enough market share to ever become totally dominant. I would value a single app that connects me in some way to the majority of professional car services, that would have value. But Uber to me is just another player in the space.
But there are services that already cater to that market and Uber doesn’t have any cost advantages over them. It would always be exposed to new entrants
I could see ones beating Uber on a non-snooping promise. How many of these high end guys DON”T want their movements recorded and retained, as Uber does? Really rich guys have their own cars and drivers. Why was Merrill Lynch CEO John Thain’s driver paid $230,000 a year? Hint: it wasn’t to drive. It was to keep secrets.
And high end is a relatively small part of the overall taxi market.
Sorry if my comment wasn’t clear, but I was not referring to very high end car service. What you say about privacy and secrecy of drivers is very true.
My large global employer has north of 50,000 employees, and a high amount of them are sales people who routinely travel for work. Black car service is rare for myself or many of my colleagues, but taxis are frequently used as clients are in metro centers. Given that Uber is not making money on rides and professional car services (taxis, airport shuttles, etc) are in the business of making money, I’m assuming that Uber will not be able to displace these local operators.
I think Uber could become the car service hailing app simply because of it’s name brand recognition and reach. It has burned money on advertising and has been featured in Google Maps feature. While there are yellow cab hailing services, they tend to be local only apps, which ends up being a problem. Do I want an app for NYC, Philly, DC, Boston, and Chicago on my phone? Probably not. One app to rule them on would make more sense to me personally.
Yves – just stumbled upon this series of articles. I’ll start by noting that I’m both an attorney and a seasoned tech entrepreneur with two successful startups under my belt, dating back to the earliest days of the consumer internet (1994-1995). Through a series of loosely tied coincidences, I also happen to be an expert on the ride-hail industry more broadly and Uber more specifically, both from a business and legal perspective. I’ve even been sued by Uber (and Lyft), named as a party in a lawsuit they filed against a municipality to preempt them from replying to my open records request regarding their ridership data. In other words, one can safely say there’s no love lost between us.
I say all that as a necessary prelude to what I’m about to say next: this series is a COMPLETE crock. Among many other problems, Horan relies on the barest of financial data to make sweeping generalizations about a company with operations across 75 countries. Much worse, he attempts to use it to make the case that the taxi industry — which exists as a quasi-monopoly in nearly every U.S. market — is somehow a “model of efficiency,” which is the exact opposite argument you’d hear from any realistic economist: monopolies in any form, whether government-sanctioned or not, are practically the definition of inefficiency. (In the case of taxis, consider the fact that in every U.S. city other than NYC, which is anomalous for a wide variety of reasons, the average taxi driver spends 80%-85% of his shift doing literally nothing, e.g. waiting in an hours-long queue to pick up a fare at the airport.)
Part one of the series merely restates the obvious: Uber is hugely unprofitable. Horan excludes any mention of the fact that not only is Uber a huge revenue generator, but that his own figures show a 13x increase in revenue between 1H2014 and 1H2016. (I’m also guessing he’s oblivious to the reality that Uber is hoarding $6 billion in cash, as noted in a NYT article last summer.) Part two combines numerous factual errors and a whole boatload of fallacious assumptions. Just to cite a few:
By this logic, it apparently wasn’t “disruptive” when horse-and-buggy cabs were replaced by ones using combustible-engine automobiles, since the same basic service was the same (and cars of the era only traveled marginally more quickly than horses). That said, Horan is technically correct: Uber hasn’t created a totally new product. Rather, what it’s done is build the proverbial better mousetrap, and I see no reasonable argument to the contrary.
Again, parts of this assertion are true — the American taxi industry has, in fact, been based on a lease model for roughly 40 years now — but enough parts of it are false to call it entirely into question:
1. Outside of two cities I’m aware of (NYC and Chicago), taxi drivers assume considerably more of a cost burden than simply daily/weekly lease fees and gas. Nearly all of them have to at least partially cover their commercial-insurance costs. Typically they have to “contribute” (not by choice) X amount of each paycheck until they’ve saved enough to cover the deductible on their insurance, which is usually $2K. Also, in a majority of cities taxi drivers have to pay an “add-on” fee of sorts for the privilege of picking up fares at the airport. Finally, I have yet to encounter a city where taxi drivers aren’t required to pay credit card processing fees — and even worse, their franchises usually tack on a processing fee on topof the base fee! (This is almost entirely the reason why anyone who’s ridden in taxis on a regular basis has encountered myriad drivers whose credit-card machines are “always broken.”)
2. Uber takes a standard 20% commission, not 30% (but also takes a flat “booking fee” for each ride, usually around $1.25-$1.50). That said, it has increased its commission — though only for new drivers to 28% to 32% in cities where it, in a nutshell, has too many drivers on the road. Since it’s contrary to Uber’s libertarian roots to “fire” drivers except for cause, it forces new drivers to pay more as a deterrent; in effect, it’s trying to protect its existing drivers’ revenue.
3. The remainder of part two appears to be based on a rather serious fallacy: that most Uber drivers work full-time. They don’t. Okay, they really don’t: only 12%-14% of a given city’s driver pool works more than 40 hours a week. Both on a per-city and nationwide basis, over 80% of TNC drivers work fewer than 20 hours a week — which is a crucial point to consider, given that it undermines much of the rest of Horan’s argument. Drivers working fewer than 20 hours a week not only broadly tend to work mainly or entirely during surge-pricing periods, when earnings are routinely amplified by a 2.5x-3.5x margin — a fact Horan virtually ignores btw — but also incur far lower maintenance and depreciation costs than any fleet-owned taxi vehicle does (which is basically in service 24/7). Also, both Horan and the MSM typically depict driving for Uber or Lyft as a “measure of last resort”; in reality, a large majority of TNC drivers are either already employed on a full-time-salaried basis elsewhere, or fall into a “not applicable” pool (e.g. they’re retirees or college students looking to make some extra cash on the side).
Okay, this has gotten long enough. Shoot me a line if you’re open to the notion of a counterpoint article, but I’ll close by noting that the entire basis behind part four — that “unregulated monopoly was always Uber’s central objective” — is absurd, and the large majority of its contents are drawn from what I can only characterize as anti-Uber propaganda sites (e.g. whosdrivingyou.org, which is wholly funded by the incumbent taxi industry). Uber might have had delusions of this nature (becoming a monopoly) back in 2012 and 2013, but that was before they started receiving blowback from local officials virtually every city where they operate. The story is basically the same nationwide: Uber/Lyft enter a market; local regulators, often in tandem with the local taxi lobby, try to shut them down as an “illegal livery service” or something similar; Uber uses its considerable social-media prowess to generate public outrage; and city officials cave and create their own TNC ordinance.
This next point is critical to understand, too: ride-hail services are explicitly not regulated in the same fashion as taxis. This is true nationwide, with the lone exception of NYC: its Taxi & Limousine Commission regulates taxi, livery, and ride-hail services basically the same. Horan is simply wrong that Uber’s app is “easily replicable,” a statement akin to arguing that a rotary-dial phone is roughly the same as an iPhone because both perform the same basic function. The reality is that Uber has spent at least $40 million on developing an app that is effectively bulletproof, regardless of how heavy a load it gets. Their servers routinely keep track of millions of SIMULTANEOUS rides, in real-time, with virtually ZERO down time.
If you want to see an example of how difficult it is to launch your own ride-hail venture, look no further than Austin, which Uber and Lyft exited in May after city officials passed a law demanding that all TNC drivers undergo fingerprint-based background checks. A dozen or so startup TNCs popped up in the subsequent months; all but three of them are effectively dead, and of the ones remaining — which, not coincidentally, had the most funding of the bunch, though nothing even vaguely close to Uber’s scale — have more bugs than a first-gen install of Windows 95. They crash every weekend, without fail, on both the driver and passenger side. (They also cost more and take 2x-4x as long to arrive, on average, versus U/L.)
I approached this series with the objective of learning about how uber stacks up against the taxi industry. Living and working in the Silicon Valley echo chamber makes it difficult to find perspectives like these. We’re quick to label any incumbent company/ business model as bad for society without any critical analysis.
This is precisely why I find the lack of engagement with this comment disappointing. Violet brings up some extremely valid points. Hubert doesn’t mention exactly how existing operators are more efficient than uber. He also completely neglects the impact of ubers superior user experience on its ability to retain users in a competitive market. He also hasn’t addressed violets assertion regarding uber only increasing its cut for new drivers.
It would really help this discussion to see perspectives that really challenge the authors position being discussed.
Hubert did discuss this at length, in the second post in his series, as to why Uber is a high cost producer: Can Uber Ever Deliver? Part Two: Understanding Uber’s Uncompetitive Costs. The onus is not on Hubert to repeat everything he has said in his previous posts. It is on you and Violet to read it. I suggest you both read it, since you either haven’t or have not read it with any care.
And I find it disingenuous for you to tout Uber as having customer loyalty when 1. Uber is basically bribing customers to use its service via massive subsidies; 2. There is no customer lock in; taxi customers can switch to a new service on their very next ride when Uber starts degrading its service (which is inevitable given that the subsidies are unsustainable and inconsistent with realizing a positive investor return).
The fact that Uber reduced its payout to drivers early last year was widely publicized. I don’t see how you missed that. I suggest you use Google.
These comments DO NOT “really challenge the authors [sic] position being discussed.” They reveal either a failure to read the series or a knee jerk rejection of the arguments made, as opposed to a bona fide rebuttal.
In other words, it appears you read this series through your Silicon Valley filter and have rejected arguments that don’t fit your preconceived notions.
“The welfare impact would be analogous to the conversion of urban expressways into privately owned toll-roads. Higher fares would improve product quality for those with more discretionary income”
The potential Uber monopoly status along with the DeBlasio proposed tolls and restrictions on use of the east side Bridges and tolls below 86th street to “reduce and discriminate ” the flow of traffic into Manhattan is a one / two punch aimed at making Manhattan into something else. A Disneyland of Privilege for the few at the expense of the many.
It is not by chance that DeBlasio allowed these guys to flout the rules that Medallion Owners had for decades. This always was a “step transaction” to an eventual monopoly to restrict the use of the streets for private vehicular traffic into Manhattan.
They don’t want the riff raff – B&T’s – in the Gold Zone.
It is time to end this charade and get the MTA involved as I have proposed.
Surge pricing coupled with special rates / tolls for the bridges / roads would be given to Uber just like Amazon (with Sales Tax Abatements and Exclusions) to achieve critical mass and achieve discrimination to restrict use of Manhattan especially at night / weather when subways are most difficult to use
This is about walling off democracy step by step via a – compound – walled off private community while the Commons continue to pay for the infrastructure.
The joke was always “I’ll sell you the Brooklyn Bridge”. DeBlasio wants to defacto sell the BB to Uber and make the fools……………….. NYorkers!
Get ready for more of that type of thinking. Trump’s infrastructure plan will almost certainly revolve around public/private partnerships with rents involved for the users. Upgraded infrastructure will be available for those can pay for it. The idea of commons is so 20th century. In the meritocracy, you will get what you can pay for.
Get ready? That would be too late, as it’s already the case. Whether / to what extent it will increase is anyone’s guess; tbh, it is hard to imagine something being more expensive than the corporate giveaway that is the “war on terror”.
Valued by whom?
The last round of major investment, which was by the Saudis, came in at IIRC a $62 billion valuation. Like all private equity investments, the valuations are made by the private equity firms.
I disagree with the premise that Uber has no meaningful competitive advantage. What Uber has is a ubiquitous app that works in whatever city the service operates in.
Until I can say, “Okay, Google. Call me a cab. This location to destination SFO” Uber has an advantage. Uber works in a city like San Francisco or New York where there is demand and car ownership is not necessary because of a strong public transport system. Uber is less successful in someplace like Los Angeles where car ownership is basically a requirement.
When I’m in San Francisco I travel exclusively via Uber and every one of my work colleagues who live in the city do as well (I see their expense reports, so I know this to be true). When I returned home from a trip last month I opened up Uber as soon as my flight landed but there wasn’t a vehicle to be had anywhere nearby so I took a traditional yellow cab waiting at the airport curb.
I have to say I concur here. While I’m sympathetic to the argument Mr. Horan lays out, my personal experience suggests that Uber is often easier to use than traditional taxis. Traditional taxis are tremendously variabile city to city, prices are all over the place, as is quality of service. In medium sized towns my experience pre-Uber was one of badly-behaved monopolistic players. Lousy service; little response to demand and high prices.
I may well be missing something here, and I’m extremely troubled by oceans of Silicon Valley cash being used to flout laws and put local companies out business. But how do we address the fact that Uber seems to be delivering service some customers prefer over regular taxis for reasons besides artificially low prices?
. . . But how do we address the fact that Uber seems to be delivering service some customers prefer over regular taxis for reasons besides artificially low prices?
Uber’s ability to capture customers and drivers from incumbent operators is entirely due to predatory competition funded my massive investor subsidies—Uber passengers were only paying 41% of the costs of their trips, while competitors needed to charge passengers 100% of actual costs.
Would you use Uber if the fare were two and a half times what you are paying now?
Surge pricing made customer’s heads explode, so price is 99% of the deal.
Disagree. It wasn’t that the prices were higher, it was that the prices were inflated based on demand. The same outrage happens when local stores jack up the prices of staples prior to a big storm hitting. Riders objected to demand pricing, not higher prices in general.
Demand pricing triggers our innate sense of fairness. Just imagine what would happen if retailers raised their prices noticeably in advance of the holiday shopping season (high demand)?
Happens all the time here with the gas stations. Price for gas “mysteriously” goes up in advance of holiday weekends. Investigations are held, all the gas station owners are found to not be colluding, and the practice continues. Since I live in an area having three gas stations within one mile of my home and three more within two miles of my home it’s pretty easy to check prices. Most of the time, the stations are involved in one cent price wars, but come the holidays and it’s a different story entirely.
Some of the gas stations in my town go one step further. They will change the price of gas according to the time of day. (A local station raised the price of gas 3 cents during the evening commute; the next morning it was down 3 cents.)
Just imagine what would happen if retailers raised their prices noticeably in advance of the holiday shopping season (high demand)?
The land fill would last longer.
Kidding aside, I could have made my point clearer, since the actual cost of a fare with Uber is subsidized to the point that you are getting $1.00 of value for 41 cents. For your situation, it is more convenient to use Uber, so would you be willing to pay a premium for that service? Let’s say a regular taxi cab fare were $25.00, would you pay $35 for using Uber because of it’s “premium” service?
If your answer is yes, Uber has a viable business, for a narrow slice of the taxi using public.
Excellent point. I never use Uber, more for philosophical reasons than anything else, but I also abhor monopolies.
I think the articles have addressed this. If i recall correctly, the argument is that market manipulation by uber occurs on both the supply and demand side. So drivers have been compensated with artificially increased amounts or with false accounting to make their take home pay seem higher, and riders have been given artificially reduced rates. The uber app is nice, but easily replaceable. Some taxi companies have responded with nice apps of their own. This software could in principle be sold to other taxi companies.
That might be an advantage for you as a consumer some times. But in what way does the app reduce Uber’s or its drivers’ operating costs down to 41% of the original cost?
Actually, when I use Google Maps, they tell me how to get places by bus and they always add an option with estimated time and price for Uber and an Uber competitor. End of advantage.
How much of the customer base for urban car services is visitors to a given city? If the bulk of your taxi service is within the same area, then this might not be such an advantage, since you’ll be able to utilize the same operators for every trip.
I’ve never had a cellphone so bear with me here, but my understanding is that newer phones have little helpers like Siri who answer your questions for you. So why can’t you say “Siri find me a cab company in SF?”. And I’m guessing the phone may even dial the number for you but if not, how hard is that to do really? Then a quick chat with the dispatcher. And from what I understand some cab companies now use apps similar to uber. I can’t imagine that uber is really saving anyone all that much time or money – but I guess it is convenient for those who can’t be bothered to figure things out on their own.
Hard not to feel sometimes that we are training the vast majority of the population to be entirely helpless.
Funny how your hypothetical involves replacing a quasi-monopolist (Uber) with an actual monopolist (Google). You do realize you can already google for local taxi service to SFO, right? Uber’s app is nothing special, plenty of similar companies have similar apps. What’s special is their commitment to law breaking and predatory pricing thanks to their billionaire investors. As soon as Uber crushes the locals their predatory pricing will be inflicted on you, their customer, instead of their competitors.
Since it takes about 15 minutes to start a similar service to Uber, I will worry about the ‘predatory pricing will be inflicted on’ issue.
I believe Yeah Right meant to say “I am not going to worry about the ‘predatory pricing will be inflicted on customers’ issue,” in case anyone feels like responding.
will worry about the ‘predatory pricing will be inflicted on’ issue…when it happens. Until then, why not use the service as offered.
Trying to set prices artificially high will just lead to new entry, most likely driver consortia who aren’t taking a profit skim.
The reason Uber has gotten as far as it has is that Silicon Valley is near San Francisco and people generalize from that market to others. Big mistake.
And the other point is that there is nothing special re Uber’s app or service, absent the massive subsidies that are currently giving users a better experience than their fares would ever support. There are low barriers to entry. Not hard to write an app. Not very large working capital or fixed capital requirement.
I feel what’s missing is a secure standard to decouple ride requests from specific app downloads, so that we have competing taxi service aggregators instead of ride networks coupled with a specific app to download.
The ubiquity of Uber coverage is in line with Horan’s claim that Uber investors know they must achieve monopoly. Uber supporters cite the “network effect” advantage that Uber has — whatever city you’re in, you can summon a ride. If competitors achieved the same coverage, Uber’s advantage goes away.
You have to go a step further and realize that there are investors that are not investing in the success of Uber, but they are investing in Uber as a vehicle to get rid of certain laws and regulations.
The wool was never pulled over their eyes about “profitability”. It’s an investment based on ideology and they would deny that every step of the way.
LT, “there are investors that are not investing in the success of Uber, but they are investing in Uber as a vehicle to get rid of certain laws and regulations . . ”
That sounds believable, and has a nice dark sinister sound, appropriate to Uber! Do you have any links, or details to expound this theme?
The article has a lengthy discussion of the laws and regulations Uber is breaking.
It’s similar to the way people in markets manipulate and governments embargo countries that attempt to put the “public” back into public services.
It’s similar to the way people in markets manipulate and governments embargo countries that attempt to put the “public” back into public services.
You would need to look at the deep pocket investors in Uber…and look at how they invest elsewhere.
Hmmm… big play by big players… with less obvious (i.e. covert) agendas? Here’s what I’ve been pondering for years… regarding a previous employer who’s profitability seemed very suspect…
In 2006 I started working at an “Environmental Consulting” company who’s majority revenues came from ‘EPA-Mandated Air Pollution Reporting’. At that time, the original founder/owner (who ‘wrote the book’ on Air Pollution Modeling)… with then ~250 employees… sold the company to private equity for a huge sum… $70M. The company has since been twice ‘flipped/recapitalized’ to other private equity for shockingly higher valuations… while aggressively ‘consolidating the market’… i.e. buying up all their competition.
From the very beginning I wondered… who would want to pay such a HUGE amount of money to own/consolidate/control the Air Pollution Consulting/Monitoring/Reporting industry???
If I was a young person looking for a thesis/research topic in economics… something similar to “What is the Real Economics of Uber”… I’d love to look deeper into this “What is the Real Economics of Environmental Air Pollution”… just another “big play by big players… with less obvious (i.e. covert) agendas”???
The local city government tried to make Uber do the same screening and background checks required of cab drivers.
Uber had a hissy-fit, said we are going to take our ball and go home. At least until our “All regulation is bad” governor basically invalidated all local regulation.
(Regulation that promotes competition is bad for business. Regulation that protects your monopoly position in the market never seems to be a problem.)
OTOH, they also passed a law that doesn’t require a license for concealed carry. So go ahead and blast away.
Monopolies are the new “go-to” investment. And the goal that all US companies are striving for.
Many parts/service providers in aviation have attained “monopoly power”, simply by refusing to sell repair manuals to the guys competing with their in-house parts depots. FAA regs require that you use “current approved data” to repair aircraft or components. Stop selling manuals (or price them ridiculously high to competitors) and real soon, you become the “only game in town”.
Here’s how I subvert Uber: One of my friends drives for them.
Do I use Uber to hire him? Nope. I use my phone to send him a text.
How do I pay him? With cold, hard cash, baby!
This may or may not always work. The official fares are so low that drivers need to qualify for bonuses to pull a profit. This is bonuses based on number of trips accepted in the last hour, that kind of thing.
One time I took Lyft from a popular downtown area to a suburb, and he was glad to take cash on the return, but I think that was only because he knew his chances of getting a paid ride request from that suburb were low.
as an ex-uber driver, give a ride to a stranger for cash outside of the app, no way.
the insurance liability is too great. but then again, i fuss about 1 in 10,000+ tail risk.
I appreciate your very informative comments on this series. Question- do you have any idea what the uber driver turnover rate is?
I found a very interesting article in Limousine, Charter & Tour Magazine from some years back regarding 1997 negotiations between the IRS and limousine industry:
According to this article “After extensive negotiations, in 1997 the IRS established audit guidelines specifically tailored to the limousine industry. These guidelines assist IRS agents in determining whether a company’s chauffeurs are employees or independent contractors…………Typically, where the driver has title, physical possession and equity in his vehicle, he is found to have made a significant investment in the vehicle and is usually held to be an independent contractor.”
Über was founded in 2009, but one can only wonder if its founders read about these 1997 ‘guidelines’ and thought it might give them a cost advantage over competitors. Silicon Valley has more than a few companies that use Regulatory Arbitrage for their profit model. Regulatory Arbitrage is my own term for a contradiction between Laws that can remove some worker or consumer protection under one interpretation, while creating a (usually immoral) profit opportunity. A link to the full details of these 1997 IRS guidelines below:
My perspecitive is a simple one… a ‘Monoplistic’ entity is trying to replace another! The author states ‘deregulate’ the industry…the side not given is those regulations are monopolistic practices in and of themselves in order to decrease competition…this is a zero sum game! Will they be successful??? Considering they are ‘very well’ branded into the mellinial identity, they may but time will tell. The author no doubt nailed the VC’s intent of exploiting monopolistic practices and increase ‘rent seeking’ and President Trump will oblige there efforts!
There is a difference. The current ‘monopoly’, as you would like to call it, must play by the rules. The Uber plan is to be a monopoly *and* have no rules. An unregulated supplier with total market control… nothing can go wrong.
Rules lobbied for by there own industry…they set the rules and price of entry now Uber is trying to change them to there advantage! I agree Uber is exploiting every angle they can get away with but I try not to buy into the extremes… ‘unregulated supplier’ & ‘total market control’ is hyperbole and not going to happen! Sure they are building a cheap database in order to raise prices later and then another will enter and make them more competitive or they die and go away….destructive power is much cheaper but the outcomes are still not that predictive or the end of the world. The 2nd and 3rd order effects will be interesting….Thanks for the comments! Always Learning!
I thought most investors have an opportunity to ditch/ sell their investment on down the line…a sucker born every minute.
So it goes — here is an idea to capitalize into hard cash…just as long as the market has traction to keep the securities inflating in price…then profit is made not from the underlying business balance sheet but, from the hype and headlines that can be waived like a matadors cape in front of the bull.
Real investment in a productive company…when has that happened in the last 30 years.
Uber is software..an app that requires maintenance and accounting which are in themselves mostly automated and require little additional human and resource capital when ramping up as opposed to the large resources and time actual people put into doing the actual revenue generating work. Of course Uber wishes to keep as little dollar depleting work under it’s umbrella and outsource the rest, on someone’s dime.
Its just an added middle-man to an equation that can’t hold much overhead as it is. Reminds me of the dot-coms where they added some copied intermediary code and slapped some fancy name and spit polish on it, so it could be cashed out on a public offering. just on a grander scale. All was good until it was bad.
Uber is uber odiferous
It all starts to belatedly make sense. Silicon Valley is aiming to do what it always does: build a massive and detailed customer database and find ways to monetize it. The recent stories about the Uber app expanding its data collection fit the picture as well. I think this is the key point:
To that I would add personally identifiable geolocation data, which could be used for targeted upselling/cross selling and other less savory purposes (for example, plenty of people would like to know when you are definitely at home, or definitely not at home). While privacy policies typically preclude this kind of thing, it’s usually impossible to enforce them or even prove that a breach has occurred – they typically ban unauthorized sale of e-mail addresses to third parties as well, for example, and yet the spam industry continues to thrive. And if anyone thinks that (given their past behavior) Uber would balk at breaching their own policies or breaking the law when they knew they would almost certainly not be caught, I have a bridge I’d like to sell you.
Turning a natural monopoly into a customer data collection engine and monetizing it is a business model that Silicon Valley investors know well, and a credible opportunity to create a new data collection monopoly could well attract funding on the scale that we’ve seen. If they can do that then they may indeed generate enough extra revenue to offset their other disadvantages. Plus if they demonstrate that they can successfully ignore or control regulation in the long term, then things like surge pricing could easily be flipped around as (for example) localized steep discounting to drive nascent competitors out of business. They may not have competitive advantages, but in that scenario they would have plenty of anti-competitive advantages, and they have signalled that they would use them aggressively.
Needless to say the consequences of success would be dire – entrenchment of the gig economy in an entire industry sector, loss of user privacy as they would have no choice but to accept app T&Cs in a monopoly setting, and perhaps most importantly the precedent for rule by corporation and weakening of the law.
Thanks for this series – it was very informative and deserves wide publicity. In particular I think regulators in various countries who are being pressured to not enforce existing regulations and/or change them to be more favorable to Uber need to see it.
Fantastic series. Thanks for this.
“Whatever Amazon’s strengths and weaknesses as a company”
Amazon is a classic monopoly. Bezos’ treatment of his employees is about as “The Jungle” as 2016 gets. His recent policy to force Marketplace sellers to accept any old excuse that buyers give is a way to turn the screws.
“it was not using these techniques to drive more efficient booksellers out of business”
The words “more efficient” must be the escape clause, because Borders went out of business largely due to competition with Amazon.
Other than the comparison to Amazon, this has been a good series. And it’s not coincidental that Uber (founded March 2009), Amazon, Google, and other Internet jackals have done well since January 2009.
Hubert didn’t want to bring Amazon into the discussion. Trust me, he needed to as pre-debunking. Otherwise, we’d have had a lot of “But Amazon lost money for a long time and look how they turned out” comments, when Amazon is a completely different animal.
Thanks for the article, wish it would’ve been posted months before. I probably wouldn’t have quit my taxi job for uber. Now regrettably im homeless and at rock bottom. Go figure ?????????????????
I’m SO sorry.
(Sign)…..After awhile though I took it as a blessing. I was too busy to worry about what was going on in this country and around the world… I thank Alex Jones for waking me up… I also want to thank him for promoting naked capitalism on his show…he mentioned yesterday you guys are suing the washington post… I wish the best for u guys
This article ignores that Uber’s presence can force taxis to improve. I live in Albany NY, where Uber is illegal. I loathe the local taxis. The single taxi company that will even drive me the 4 miles to the airport refuses to take reservations. A few months ago I was on an early morning plane flight that was 1/2 late because the pilot could not get a taxi at 5:30am from downtown Albany to the airport. Taxis at the Albany-Rensselaer train station force customers to carpool. Etc. I’m just hoping for the day when the corrupt and incompetent state legislature allows Uber and then the local taxi companies fold up.
You miss that Uber is subsidizing its drivers. What you pay to ride with Uber is well under the true cost. If Uber really could create a quasi-monopoly, which we doubt due to the lack of barriers to entry and scale economies, they would drive prices OVER the level where they’d make money, which would probably include degrade the service.
In other words, Uber is bribing you now to bring you an even worse future, cost and service-wise.
Worse than it now is in the Albany area would be pretty bad. Not only cannot I not make a reservation to take a taxi to the airport, I have no guarantee that one will come when I call. The alternative is to drive and pay to park my car for the trip duration. It’s not just me, the company gets one star on yelp.
I forgot to mention that meters are not required! Citation, titled: “Taken for a ride? Complaints about condition of cabs, costs pile up around region.”
You need to ask the driver in advance for the cost, and he needs to call the dispatcher while you wait. I’ve had a driver ask me what I paid last time.
Think about the required car pooling from the train station. I’ve never heard of that anywhere else. Of course, each passenger pays the full cost, and does not even get driven directly home.
Local college students really get ripped off, in dollars per mile.
It’s so bad that “the Albany Convention and Visitors Bureau is worried about the image cab rides create”.
Unfortunately, we the consumers cannot afford to pay for expensive studies like this one, and upstate New York is so depressed that Uber doesn’t even want to fight to operate here.
You talk generalities. I have to live in the specific situation of not being able to use Uber, and of having to use taxis.
The local taxis have a joint monopoly now; that’s how they get away with this. Only one company is allowed to operate from the train station. Only one from the airport; that’s why no one else wants to drive there.
This is the problem of living in a small city like Albany. I lived in Providence, RI for a number of years and encountered the same problem with reserving a taxi for a defined departure. There just isn’t that much cab capacity available because most people have cars and would prefer to drive themselves to the airport. The cabs that are available stay in target rich places. Hotels, the airport, near law offices and banks. You’re better served looking for an airport shuttle service or taking a black car (more expensive, but professional). And Uber would not be likely to solve your problem. Uber still does not accept reservations, so you would have to hope that when you wake up at 4:30am for your 5:30am trip, somebody is also awake and driving for Uber. Given the lack of rides that likely occur at that hour, I’m sure your out of luck.
Here’s a shuttle/car service network that sometimes helps me arrange transit to/from airports: http://goairportshuttle.com/
The “you can’t maintain monopoly power in a market with few barriers to entry,” reminds me of Netflix.
These have been a great series of articles. I hope in one of his future articles the author also addresses VCs’ perverse incentives that leads to such sky-high valuations.
I think lots of VCs understand Uber’s weaknesses. But they still invest. Why? Say you’re a VC with a $100mil invested in Lyft at a $1bil valuation. Meanwhile, Uber is valued at $10bil. You make a $5mil investment in Uber at a $20bil valuation. You know Uber isn’t worth that much. But lo and behold, thanks to the magic of “comparable valuations” and breathless reporting in all the major newspapers, you’ve just raised the valuation of all car sharing companys. So Lyft’s valuation now goes to $2bil, which means your investment is now valued at $200mil. You gain $100mil (at least on paper), for a $5mil investment. Even if Uber goes bankrupt, you’ve made out, at least assuming you can sell your Lyft investment to a greater fool before everything collapses :-)
This type of thinking was pervasive before the Facebook IPO. Since all of these are private companies, their valuations are determined by comparables. Everyone, even Facebook’s competitors, were happy every time FB’s valuation went up because it meant your own valuation increased as well, without any change in the underlying viability / profitability of your company.
If I remember correctly Uber investors cannot cash out except to Uber itself and at a preset valuation. So investors must ride this out. Not sure about Lyft.
True, but valuations are tremendously important for subsequent funding rounds. If Lyft is now worth 2bil, then later investors get fewer shares for a given amount of money, leaving early investors with more of the company. So even if you can’t cash out until the end, you’ll benefit.
Great series… thank you!!!
Couple things to contribute…
A friend was over last night… I suggested… “read the NC articles… Uber is yet another scam to enrich the 5% while hurting the 95%”. My friend immediately went into a story about a young person (daughter’s friend?)… a typical moron with very bad credit and no car… who contacted Uber… and Uber arranged for a local car dealership to sell the moron a car on credit… with an agreement that the moron would do so-many hours of Uber driving per week. I asked… “does Uber make the car loan payments by retaining the morons pay?”… he didn’t know… but he did say the moron “has NOT been working the Uber hours… but somehow still has the car”. We then agreed… again… “all the losses from this bad-debt-money the criminal banks/corporations (Uber?) are flooding into the ‘markets’ will again be added to the Fed’s balance sheet (stinking pile of rot) and rolled over with additional trillions of bad debt to pay off bad debt… all while the top 5%’s income/wealth increases while the bottom 95%’s decreases… NICE!!!”
Another story… just another example of Michael Hudson’s “increasing rents”…
I’m an hardware/software engineer… when my pool pump started making too much noise… rather than spending hours finding someone and paying them $1000+ (and all the highly likely… and potentially extreme… aggravation)… I fixed it myself in two hours for less than $25 (unhooked the pump hoses, took out the four long bolts, pulled the two bearings from the inner shaft, drove 5 miles to bearing retailer, pushed on bearings, four bolts, connected hoses, done… motor is now very quiet!). However, my reason for telling this story is NOT… “the cost of maintaining a home is now way beyond the means of an average know-nothing bottom-95% schmuck”… this story is about the young girl who worked behind the counter at the bearing retailer…
Here in North Dallas they (i.e. 95% French investors?) built a dual-public-private loop-highway (Interstate 635… LBJ Freeway [such irony]… now TEXpress Toll Road!!!)… a ‘free’ highway running on top of a ‘highly-priced’ tollway. For years I have asked the question… “does this mean that in the future rich people will have/pay-for their own private streets… rich people streets and poor people streets… everywhere???” (I have yet to meet a single person who thinks my question is anything but proof that I’m a total moron… and that’s before I ask the question… “how is building redundant streets more cost efficient/effective than before when we had all public streets?).
Back to the story… to get to the bearing retailer… to fix my pool pump… I could have taken the LBJ Tollway (which I have NEVER… and will NEVER do)… and in the process of buying the two ~$10 bearings… the young woman behind the counter explained to me that she takes the new tollways (there are numerous new tollways in north Dallas) to-from work every day… and she pays $250 to $350 per month in fees. I was shocked beyond words… a young woman working behind a counter is proud (bragging) that she spends the equivalent of a car payment (1/5 of her pay before taxes?) in toll fees???
I’ve told many people this story… and literally everyone (except my friend above) looks at me bewildered… “so what’s your point… who cares?”.
Uber in itself is a great idea born out of taxi cab monopoly in bigger cities and the startup cost that it takes for a driver to start driving. It’s great idea. Prime example of technology breaking barriers of cost, bureaucracy and pricing. At the same time I have a friend who drives for Uber and is extremely unhappy with the management and the prices. Uber charges some where around 35% of the fare which is unsustainable if you have a small fare. Uber has operational issues and not sure if this will ever be profitable. They can value this company at any thing they want. The model is easily replicable. It would be a great IPO but in the long run a bad company.
Haven’t you missed two things?
First, they now track their customers’ location all the time. This is very valuable data they will sell, as well as use to improve their own service. Indeed, they’ve just bought the AI company Geometric Intelligence to provide analytics from this data.
Second, although self-driving cars aren’t here yet, Uber is developing some themselves rather than waiting for a car manufacturer to crack the nut first. If they succeed, they’ll have self-driving cars before any of their competitors. The competitors will be in no shape to respond as Uber’s pricing falls further, and Uber’s service expands to each vehicle working 24 hours a day.
It’s all about timing. The endgame is the same (capturing 100% of the market, and probably milking it) but the runway is extended. Uber is trying to be the Microsoft of taxis, owning a market by exploiting a shift in technology before anyone else in that market can catch up, thereby winning the entire game.
Self-driving vehicles are closer than you think. Otto, a Uber company has demonstrated a self-driving Budweiser truck in Colorado driving through Denver on the freeway without a driver at the wheel.
Taken from an article posted on the cbc at http://www.cbc.ca/news/canada/montreal/uber-deal-in-detail-1.3756402
The Quebec government reached a deal with the ride-hailing service Uber earlier this week – just one minute before deadline – allowing the company to continue operating in Quebec for another year.
Uber reaches agreement to stay in Quebec
Taxi drivers call Quebec deal with Uber ‘betrayal’
But what is in that 11:59 p.m. agreement?
Here is a look at the Uber deal in detail.
Uber must obtain an intermediary permit for transportation services, which is issued by either the Quebec Transport Commission or by the Montreal Taxi Bureau.
The government will make 300 permits (which are equivalent to taxi permits) available to Uber, which totals about 50,000 hours of service per week.
During those first 50,000 hours of service, Uber must pay the government a fee of $0.90 per ride.
Should Uber surpass 50,000 hours in a week, the fee increases according to the following chart:
50,001 to 100,000 hours = $1.10 per ride.
100,001 to 150,000 hours = $1.26 per ride.
Rules for Uber drivers
Uber must ensure that all its drivers have a Class 4C driver’s licence, which is called Taxis and Limousines. According to the Société de l’automobile du Québec’s website, drivers can only be eligible for a class 4C licence if they’ve held a regular (Class 5) licence for at least one year, are in good health and pass a knowledge test.
Any drivers already registered with Uber before Aug. 17, 2016 have three months to finalize the steps to get their 4C licence.
Uber must ensure its drivers do not have criminal records.
The government will allow Uber to train its own drivers.
Uber must ensure that its drivers have their service cars undergo mechanical inspections.
All service cars must have a sticker, issued by Uber, on the bottom right-hand corner of the front windshield.
All drivers must have car insurance.
Prices for Uber users
Anyone who uses the ride-hailing service can expect to pay a minimum of $3.45 per ride – the same as taxis – as soon as they step in the vehicle. If that minimum price for the taxi industry should rise, the same price would apply to Uber.
Surge pricing would also be capped at times. In the event of an emergency (ex. flood, riot, etc.) Uber cannot charge more than one-and-a-half times its regular base tariff.
Uber must also agree that its service will only be available via its mobile app. Its drivers are forbidden to pick up customers who hail them from the street. They are also not allowed to park at taxi stands or drive in reserved taxi lanes.
Now assume car ownership begins to drop dramatically. Any company that has achieved a quasi-monopoly in the car service/taxi industry will be positioned to do quite well on a number of levels.
When you finally admit you don’t have enough cash to maintain a car that frees up money to spend on ‘car fare’. After all, even with little public transit, you still have to get around.
Others are thinking along the same lines.
Another Auto Maker Imagines Future Without Personal Car Ownership
Uber is nothing else than a global scam
This Travis scam is getting bigger and bigger
We all know that is not about money, uber creepy losers love to meet interesting people like you in their spare time, get good ratings and generate a supplemental income with Travis state of the art disruptive technology lol
In order to drive for Travis you have to have a legitimate income source
Not necessarily a job; can be ssi, welfare, pension, disability, general relief, food stamps; parents support, own business, charity………ect
Travis formula for success :
Uber more Low rates = (more happy enthusiastics, dynamics,efficients creepy losers drivers) + (more cheap, frugal, entitled, rude, cretins, abusive , libertine, disgusting, arrogant, classless, shameless drunks pseudo riders) + (less taxis)
Great series! I’d love to share it but – unless I’m missing something – there isn’t a way to link to the series, only the individual articles. It’d be easier to navigate if there were: a) a landing page for the series and/or b) links within each article page to the other articles in the series. Thanks!