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Comment by bob_theslob646 | Hacker News Reader

Title is slightly misleading.

Everyone knows that they are bleeding money, but it is by design to get as much marketshare as possible/get as many people using/ addicted to their services. EDIT* They are a software based business ,of course they can and are highly likely to turn a profit if they raise prices *

The better question that many journalists seem to shy away from asking is: What are the effects of subsidizing goods/services on the end user? Will end users be more likely to pay for the goods/services if they increase/charge market rate for them?

Is it okay to make end users addicted to your services?

It will be a very interesting next 10 years for business models of businesses like Uber.

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"They are a software based business of course they can and will turn a profit."

The aren't as software-based as many people make them out to be. They need driverless cars to become what their current valuation and growth expectations require.

Don't get me wrong, I'm long Uber and think they'll survive either way, but if others dominate them in driverless and drive prices down before Uber is ready with their own fleet, they will be forced to conduct a massive down-sizing.

This isn't necessarily true, they could likely justify their valuation by playing a big part in the freight industry and through ubereats (as restaurants decide they no longer want to employ their own drivers).

Abet, these areas still have a long way to go such as their self driving car division does.

Driverless cars are unlikely to increase their profitability anytime soon (if ever). I dug into the math on this in some depth here: https://news.ycombinator.com/item?id=15744074 The TL;DR is that there is not enough spare profit currently going to drivers to cover the cost of buying driverless cars.

Even worse, that seems to be an optimistic estimate -- I don't think it's accounting for how Uber's ability to charge monopoly prices for self-driving car service will be temporary. Other services (from Google, Chevy, etc) will come on line and drive down the extra profits from not having to pay for drivers.

The only difference between Uber and the other companies is that Uber's main business is markeplace transportation whereas the others don't necessarily specialize in it.

I'm not saying that they cannot compete but initially it's not going to be easy, like flipping a switch as so many make it out to be.

This analysis is the case of trees obscuring the forest.

There is no human driven taxi business in the world where robo taxis exist.

By my calculations robo taxis are 2x-4x cheaper than human driven taxis.

If Uber doesn't do robo taxis then it dies the moment someone else does.

y my calculations robo taxis are 2x-4x cheaper than human driven taxis

Care to share these calculations?

Well that all depends on what you classify as profitable?

Also whoever wrote that piece has never taken a class in accounting. There's something known as useful life of an asset.( You can write off a lot of expenses and do other clever accounting tricks that I'll never post on a public forum)

They also bought one of the safest vehicles.

Wait until they ( insurance companies) start charging higher rates of insurance for having a less safe vehicle AKA not newer model.

They also bought the same vehicle so they can actually use scale for buying parts and services to maintain it.

They also just bought a mapping fleet because wherever it goes it will take images similar to Google Street View. Uber could build its own map service.

All of this reduces costs on the back end.

In terms of operating costs, they can buy fuel at scale and possibly hedge which makes it incredibly cheap, talking about 20-40% cheaper than anyone else.

There also was nothing mentioned about prices increasing. The fact of the matter is that prices will increase. If that's the case they can easily make that money back over 5 years.

These are some thing that was not mentioned in the calculations you referenced.

You don't need any more specific definition of "profit" in this case than "which approach is likely to make the company more money than the other". By going driverless Uber takes on some new expenses (buying/maintaining/operating the car) and eliminates others (mainly what it now pays out to drivers). My sense is that they will struggle to break even much less come out substantially ahead, but feel free to present your numbers showing how that's wrong.

Yeah, I'm having a hard time seeing how a company that doesn't own cars (to the point they insist they are "a software company"), pays thousands of drivers, and whose users don't need driver's licenses; is going to magically turn into a company that owns a fleet of state of the art cars (and parking spots and other land), doesn't pay drivers, and whose users will probably need driver's licenses. These are polar opposite businesses. You don't do that while you're hemorrhaging money and while it's uncertain you can even do that other business in 98% of the world.

>The aren't as software-based as many people make them out to be.

What does that even mean? Has Uber made a single physical product? To the best of my knowledge they do not. Yes they may have to balance wages of drivers which is arguably not easy, nor is it easy to balance human labor(capital) costs in any industry.

They are a marketplace for retail transportation.

I agree that driverless cars could sink their ship if they're beaten to the market first. Self-driving cars are about many years away contingent on the legal system being the way it is today. That could change.The biggest problem to self-driving cars is insurance/liability ,the areas that they are going to be used, people's ability to change/adapt to them.

What people don't understand is that the most population dense places, where uber and other ride handling services are predomimatly used, happens to have many pedestrians and the shittiest infrastructure.

I think even talking about self driving cars is a gigantic waste of time , borderline buzzwordiness of 'machine learning' and 'artificial intelligence'. At least those buzz words are being used today. We are nowhere near a level 5 standards.

I think the “not that much of a software company” has to do with the fact that their product is delivered in person by humans. They’re no more of a software company than UPS or Delta.

Correct.

Has Uber made a single physical product?

The hair stylists and massage therapists don’t make “a single physical product”, but no one is arguing that they’re the next Microsoft. I’m still at a loss as to where you’re going with this “they’re software, of course they’ll make a profit” when they’re arguably not a software company, and it doesn’t matter because plenty of software companies have gone under.

I think “software business” often applies to businesses that have no physical product or human provided services and thus much higher gross and net margins. They are simply a tech enabled service provider that has to operate on very slim net margins. Totally different than surveymonkey or a pure SaaS business that has 90% gross margins.

And even if they are, it’s not a given that “a software based business of course can and will turn a profit”.

Your fixed costs per unit go down as you scale, but you still need to recover them, and recover your per unit variable costs to break even.

For Uber, they gamble they will the only ones to have scale by the time self-driving cars drive per unit costs down, and thus can keep competition out on price and still make a healthy profit.

Problem with that is that they won’t be the only one reaching that globally. That means that, for example, Chinese competition may still be able to enter Uber’s home market. That’s relatively easy if/when self-driving cars become available.

It will also be interesting to see what governments will do with public transport if self-driving cars become available. They could, for example, start operating a much denser and more flexible network of (smaller) buses. That might take away part of the market Uber aims for.

It's certainly not all by design, e.g.

   Uber began winding down [their direct to driver leasing
   business] this summer after learning that losses were
   $9,000 per car on average, steeply above the previous
   estimates of around $500 per car

That's an 18x miscalculation.

I don't understand why this is legal? I thought there were laws about operating at a loss to drive competitors out of business.

Read "Chickenshit" and "The Divide." Starting with the Obama administration and definitely continuing there is effectively no law for the sufficiently rich. It makes no sense for Uber to worry about laws.

I haven't read those, but just skimming their amazon pages they look to be about why wealthy individuals are less likely to be prosecuted, which doesn't really apply to large corporations.

Plus Uber is in the middle of a court case right now, so I'm sure both Uber and its lawyers have very good reasons to worry about laws.

> there is effectively no law for the sufficiently rich. It makes no sense for Uber to worry about laws.

That's clearly false. Uber is currently in a court case and was just reprimanded by the judge for appearing to intentionally destroy business records.

It would be hard to come up with definition of "operating at a loss to drive competition out" that applies to Uber but doesn't kill YCombinator and all other VC businesses.

Dropbox has competitors and for years operated at a loss thanks to investment from YC and other VC firms. So did Twitter, Airbnb and countless other.

If that was illegal, there would be no-one for VCs to invest and you wouldn't be here reading Hacker News, because this website would not exist.

It appears to be covered under antitrust laws and so is only applicable when the creation of a monopoly is likely, but there are situations in which it is illegal. See [1].

I disagree with your claim that there would be no one for VCs to invest in if the law were enforced more broadly/frequently. The important part is that the law isn't applicable to all unprofitable businesses. Only those that are unprofitable because they are pricing below cost.

[1]: https://www.ftc.gov/tips-advice/competition-guidance/guide-a...

You're comparing apples and oranges. "Operating at a loss to drive competition out" is different from "operating at a loss".

> Is it okay to make end users addicted to your services?

How much of a moat does uber really have? It seems to be only made of money - there is nothing inherent in their product that makes it sticky, only "is this the cheapest ride right now?".

You raise a really fair question, but as of August of this year they had a 76% market share in the U.S.

I agree with you that price is king(cheapest) and on stickiness.

Unfortunately, at the moment, they are the dominate service.

> They are a software based business of course they can and will turn a profit.

They're vetting people, and having them do labor on their behalf. Regardless of how the law defines an employee, they're effectively hiring a huge amount of labor.

They're completely unlike most software firms who can sell licenses or ads with no human involvement.

>They're vetting people, and having them do labor on their behalf. Regardless of how the law defines an employee, they're effectively hiring a huge amount of labor.

They are doing this, primarily, with software.

I agree they are not like traditional software companies, but technically they are giving you the right but not the obligation to obtain business, and in that sense it is like a software as a service company.

Again, I agree that it is not traditional, but as another commenter stated they are more like a Logistic Company like Delta or UPS with a focus on the end consumer versus a business.

> They are doing this, primarily, with software.

Not really, no, or at least no more than ordinary companies like Target, where they also have you apply on a website. They're paying people to do background checks, vehicle confirmation, and so on.

"Is it okay to make end users addicted to your services?"

I don't think the definition of "addictive" you seem to be using is the standard one, or it would apply to making any product or service better in any way.

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