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Comment by eof | Hacker News Reader

How is it possible that uber is losing money? It must all be research?

If I take a $20 uber ride, uber gets $4 at a marginal cost of close to zero.

They are selling other people's time, it seems like a flawless business model if you're winning the game..

They often guarantee drivers a minimum hourly rate to ensure there is a pool of available drivers for their users. If they don't do this, users will get frustrated at times and give up on the service.

They're essentially loss-leading until a few things happen:

  - fuel prices drop away
  - self-driving cars are available
  - their competitors die out

People misguidedly say that Uber takes the 25% and then keeps it and throws it in the bank. No one seems to realize that a good portion of that money is funneled back into the drivers as incentives. One SF driver told me that Uber guaranteed her $50/hr for 2 hrs during rush hour, she was already making $100 for the day by driving those 2 hours and everything else was gravy. That money is obviously coming from the 25% cut they take, except they use it to shape the behavior of the drivers so that it more readily matches demand patterns.

In many markets, Uber pays the driver more than they charge the customer.

Uber, at least in the past, has been offering subsidies to its driver in many markets to grow its market share, Basically making up the difference between what customers are willing to pay and what drivers are willing to work for. The driver may very well be earning $25 for that $20 ride with Uber making up the difference.

So in the longer run, either the drivers will have to work for less than they are willing to or the customers have to pay more than they are willing to. Or Uber has to keep paying the tab.

I imagine the plan is that once Uber has become ingrained enough in peoples lives that they have hard time imagining life without it, they can start slowly turning up the price without losing too many customers.

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