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Comment by ctdonath | Hacker News Reader

For a company with practically zero expenses, losing $1.27 billion in 6 months astounding. Charge a client whatever the driver is willing to work for, plus a small overhead ... what's to lose money on?

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It's a Fabian strategy to establish market dominance. Uber is spending like crazy to expand for market share. On the surface at least, they are similar to how Amazon was operating in its early days - investing in itself early to expand and not expecting to generate a profit for many years.

AWS already makes more money than the entire Amazon retail side. The Amazon retail margins are still razor thin.

It's currently pretty even, despite higher margins for AWS, and "already" is saying a lot despite how long AWS has been around. I covered this 64 days ago in [0], but here's the relevant part again.

Looking at Amazon's Q1 2016 Financial Results [1], page 8, we see that net sales of non-AWS amounts to ~$26B, and AWS is ~$2.5B. From the Segment Highlights section (same page), AWS sales is 9% of total sales. AWS beats non-AWS income only because there were losses in international; ignoring international, it's a $16m difference. Looking at page 14, Media sales in North America and International sum to $5.6B. Media sales alone is double AWS's sales of $2.5B (page 13). Profit margins are way higher for AWS, so there's still a lot of room for a larger income difference between the two segments.

[0] https://news.ycombinator.com/item?id=11951577

[1] http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9N...

Look at their most recent 10q http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-new...

Retail Profits = (702 (Domestic) + (- 135) (International)) < 718 (AWS)

Amazon made more money on AWS than their retail side.

I appreciate all of those VC dollars siphoned off by AWS-using startups subsidizing my consumer goods.

That's fine so long as they're not losing money. Someone can fill us in about how much Amazon sunk into startup costs before breaking even. Amazon is perceived by customers as usually the cheapest place to go for products/services.

My concern is that Uber is already considered "expensive" by customers, and that's at a massively subsidized rate - how will customers react when Uber wins the price war, destroys the competition, and then has to actually raise prices? and not just raise prices to break even, and not just to make a profit, and not just to grow the currently non-existent fleet of physical vehicles (self-driving or not), but to also make back the US$billions lost to win the war of attrition?

the problem is most of amazons profits are in cloud services. moving something from point a to b is expensive and hard to get economy of scale.

Part of the argument is the Uber is building product infrastructure of their own - Amazon built AWS as part of their everyday working, Uber could roll out delivery, autonomous tech or even their financial services as separate strands once they've reached pervasiveness.

Indeed, Uber already has their UberEATS program where they offer home delivered food from restaurants that don't yet have their own delivery service. So they're already experimenting with providing delivery & mobile payment processing services.

I'd be interested to see how UberEATS turns out. Deliveroo has had a year on them, and at least where I am I think the latter is still the favourite.

Yep - much bigger fan of Deliveroo, but whilst UberEATS might fail, could almost see them being more of a delivery API and last mile brand than the full restaurant service stack.

It's pretty simple: they've hired a vast number of employees, they're spending an immense sum on building out a reliable global infrastructure (not an MVP product), and they're not making nearly enough money in relation to their current organization's size. Their bet is that later on that ratio will invert.

Facebook as one example also lost a lot of money (not $1.2b in six months mind you) for years before finally turning profitable. What was there for them to lose money on, social networks are just a couple servers, right? No, they were building out a massive foundation for the future. And now they're a money printing machine.

>Their bet is that later on that ratio will invert.

Because later when the subsidies are dropped and the product price rises, the demand will increase?

But they have enough runway that it doesn't have to be one day cheap rides, the next expensive ones. You simple optimise the rate at which prices increase so as not to immediately alienate customers (isn't it something like we only feel a price rise pain if it's over 5/10% in one go?).

bootstrapping both sides of the marketplace at once is very expensive. They need drivers before riders will bother using their service, but drivers will only sign up if they get paid. So uber has to heavily subsidize the drivers to stick with their platform while they then ramp up customers usage. Over time organic customer demand should be sufficient and drivers shouldn't need subsidies but that can take a while and in the mean time you are burning a lot of cash.

Why shouldn't drivers need subsidies? In high cost areas, the subsidies are the only reason that drivers are willing to work. If the pay dropped much they would be better off finding other jobs, or not working at all.

They pay doesn't need to drop. Ridership needs to increase. As long as drivers are driving and not staying idle they should be able to earn enough to sustain itself. But early on there is a lot of idle time and that's where subsidies are important.

Always having idle drivers available is crucial to keeping wait times low.

I wonder if Uber shouldn't stay hyper-focused on markets where people usually don't have cars or where using a car is pretty difficult. In most of America, people already have their own vehicles which they prefer to drive. Occasion to use an Uber/cab is fairly rare for most people. At least, it doesn't seem like the same hyper-expansion strategy that works in carless areas like NYC or areas with horrible parking like LA would necessarily be applicable to the rest of the US.

There are a lot of reasons to use Uber even in areas where people generally have cars. For example to get rides to/from airport, get a ride back from a bar instead of driving, get a ride to a popular event or a crowded part of town to avoid dealing with parking, etc. All of the reasons why cabs exist can be served by Uber better and cheaper.

Yeah, I'm aware of these -- that's why I said there's 2-3 occasions per year when Uber might be useful. Most people don't go to the airport every week or even every month (and even then, a lot of them will ask a friend or family member to drop them off and save the money). Most people don't go to the bar to get drunk every weekend. Most people don't go to crowded events that often, and if they did, they would probably rather spend 5-10 minutes looking for parking and get to enjoy the comfort and freedom of their personal vehicle on the drive over rather than paying an extra $50 just for someone to drive them.

>All of the reasons why cabs exist can be served by Uber better and cheaper.

I don't necessarily agree here, because Uber always has to have drivers standing by. If usage in the area isn't high, average people won't become reliable drivers because their app will usually be empty and they'll give up. Thus, Uber would probably be more efficient if they paid the same small subset of people to be available at set intervals, and at that point, what's the difference between Uber and a typical cab company?

In markets that aren't hot enough to get normal people in the driver pool, Uber may do better just to open their platform to local cab companies.

"Zero expenses". The cars must be maintained, and the drivers must be paid one way or another.

The car owner maintains the car, and the customer pays the driver for the ride. Uber is the platform and just takes a little off the top each time.

That's the idea at least.

The owner maintains the car, but Uber has to pay the driver enough to cover the cost. So it's a cost for Uber even though it's not on their balance sheet. "The rider pays the driver" is just semantics since Uber decides the percentage.

Well the idea (originally) was that the driver is already driving and so they are sharing/renting out their open seat to get a little bit of money. Uber would just skim off the top for matching riders with drivers.

The reality of the economics is likely different but that's how it works in theory. Now they are likely paying drivers to be out looking for rides to ensure that service isn't disrupted, and yes they need to subsidize that as others are mentioning.

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