Why I don't believe in Uber's Success - Ben-G http://blog.benjamin-encz.de/post/why-i-dont-believe-in-ubers-success/ <comment><USER3> The commercial airline industry has lost money over the whole of its existence. If I'm flying from NYC to DAL, I'm flying the cheapest carrier (with a slight nod to Frequent Flyer programs).

I'm not sure how Uber, Lyft, etc are any different than Southwest, American, etc. Cab companies (which I hate) and airlines saw this years ago and promoted regulations to protect their fees (and, thereby, wages). Airlines lost those regulations under Reagan.

To wit, I had dinner with a few friends in SF and it was raining when we left: "I'll call an Uber and we can share. ewww... 250% surge pricing or $90. Lemme check Lyft. Sweet, Lyft is about $50. Our Lyft will be here in 3 minutes." There was _zero_ friction switching from Uber to Lyft.

Winning in this market seems to require a Level 4+ autonomous car [1] __monopoly __. Level 4+ autonomous cars are not going to be here anytime soon and Uber 's not going to have a monopoly. So it's going to continue to be a gnarly pricewar, made worse by Level 3 (in which the "driver"/pilot is a student doing his homework for $5/hour, taking over driving once or twice per hour).

Not sure I agree so much with the body of TFA but I certainly agree with its conclusion.

[1] [http://www.techrepublic.com/article/autonomous-driving- level...](http://www.techrepublic.com/article/autonomous-driving- levels-0-to-5-understanding-the-differences/)

<comment><USER4> TFA and a lot of commenters here don't seem to understand that Uber doesn't want to compete with taxi services, which are a niche business to be disrupted en route to the real prize. It wants to compete with _your car_ \- imagine 12 lanes of L.A. traffic composed mostly of Ubers. That's their dream. They even admit this in public. [0]

The day they can get cost per mile one penny below what you'd spend owning a Toyota Camry, they'll open up the biggest transport market ever created (the intentionally-inefficient American built environment). They're taking all this VC money and expanding so aggressively not because they like the scale, but rather because _that 's the only way to compete with private car ownership._

[0] [https://twitter.com/travisk/status/564065776005808128](https://twitter.com/travisk/status/564065776005808128)

<comment><USER5> I can believe that's their goal: I see little reason to believe they'll succeed in it, beyond making the market a bit bigger than the current taxi/minicab market.

Just because they're very good at supplying an unlicensed minicab service (apparently subsidised by VC money in many areas) doesn't mean they can (i) run a minicab business at a profit so much more efficiently than every other minicab business in history that the average American decides they can sell off their four-wheeled status symbol and commute in a surge-priced Uber or (ii) compete with the manufacturers in supplying self driving cars on demand, whilst likely operating at a huge disadvantage in vehicle acquisition and maintenance costs

<comment> rm_-rf_slash Can't say I speak for everyone but I mostly walk to get to places and drive when I have to. I live close enough to an ALDI to get most of my groceries by walking and I can walk to work too.

Owning a car means always needing a parking space, going out to get gas, paying for insurance, inspections, etc, having to be capable of driving (because when I'm sauced on a Saturday night I _really_ want to get greasy food, but I can't drive soooo...).

If an autonomous car-share program cost about as much as the car payments and gas _alone_ for the the amount we would use it, we would sell our car in a heartbeat. A car isn't much of a status symbol when most of your friends can't afford a nice one either. Kinda makes you look like a dick, in comparison.

<comment><USER6> > A car isn't much of a status symbol when most of your friends can't afford a > nice one either. Kinda makes you look like a dick, in comparison.

Isn't that exactly what makes it a status symbol? Keeping up with the Joneses, and all -- it's one thing to not play the game, but that doesn't mean a lot of people don't, and this seems to just be _agreeing_ with what makes it a status symbol.

Most American cities are sufficiently un-dense that things like "always having to look for parking" aren't big deals. Laws ensure places have enough spaces (these policies are very pedestrian-unfriendly, but such places are more car- friendly than the dense coastal cities). Traffic is slower at rush hour but a non-issue any other time in these places.

The average car these days lasts 10+ years. Perpetually renting cars is going to be seen as disadvantage for a lot of people who take out ~5 year loans and then can keep the cars for quite a while after finishing off their payments. Anecdotally I'd wager that people buy new cars more for the status, or for the change of having something new, than to replace something that just doesn't work anymore, nowdays.

<comment><USER7> > > A car isn't much of a status symbol when most of your friends can't afford > a nice one either. Kinda makes you look like a dick, in comparison.

> Isn't that exactly what makes it a status symbol?

To be an effective status symbol, something has to be of higher status, but not _too_ high a status. Gold chains are just gauche, despite how valuable they are. So too, once upon a time, having a cell phone.

<comment><USER8> I think the tricky part there is social context. There are social groups where gold chains are absolutely status symbols. You'd be hard-pressed to find an NFL receiver without one, for instance.

Conversely, there are groups where being able to afford _not_ to own a car is a status symbol. Think "I live in a neighborhood where everything is walkable", or "I just throw money at Uber because it's easier and I can afford it".

Anything is a potential status symbol, if a group subconsciously agrees that it is. If your group doesn't value humility then too-high-status isn't really a thing.

</comment></comment></comment></comment></comment></comment></comment><comment><USER9> Definitely worth reading the Naked Capitalism series he mentions in a footnote:

Part 1: [http://www.nakedcapitalism.com/2016/11/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part- one-understanding-ubers-bleak-operating-economics.html)

Part 2: [http://www.nakedcapitalism.com/2016/12/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver-part- two-understanding-ubers-uncompetitive-costs.html)

Part 3: [http://www.nakedcapitalism.com/2016/12/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver-part- three-understanding-false-claims-about-ubers-innovation-and-competitive- advantages.html)

Part 4: [http://www.nakedcapitalism.com/2016/12/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver-part- four-understanding-that-unregulated-monopoly-was-always-ubers-central- objective.html)

Part 5: [http://www.nakedcapitalism.com/2016/12/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver-part- five-addressing-reader-comments-and-questions.html)

Part 6: [http://www.nakedcapitalism.com/2017/01/can-uber-ever- deliver...](http://www.nakedcapitalism.com/2017/01/can-uber-ever-deliver-part- six-bleak-pl-performance-while-stephen-levitt-makes-indefensible-claims.html)

<comment><USER10> Can't upvote this enough. It's a rigorous analysis showing that Uber is running a VC-funded ponzi-scheme in their current iteration.

It is possible that some future Uber innovation will make them profitable, but their current operation is smoke and mirrors.

</comment></comment><comment><USER11> Here's a table of Uber's funding rounds.[1] What's keeping Uber going is Saudi Arabia's sovereign-wealth fund, which put in $3.5 billion last summer. They also took on $1.15 billion in debt last year. That's real debt at 5% interest, not some convertible deal.

Bloomberg says Uber is losing $800 million per quarter.[2] Unless they can find a bigger sucker than the Kingdom of Saudi Arabia, they run out of money in 2018.

[1] [https://www.crunchbase.com/organization/uber/funding- rounds](https://www.crunchbase.com/organization/uber/funding-rounds) [2] [https://www.bloomberg.com/news/articles/2016-12-20/uber-s- lo...](https://www.bloomberg.com/news/articles/2016-12-20/uber-s-loss- exceeds-800-million-in-third-quarter-on-1-7-billion-in-net-revenue)

<comment><USER12> $800 million / quarter = $103 / second. Wow.

<comment><USER13> Wow, indeed. They're lighting 445 kg of $20 bills on fire per day. That's probably enough to stay warm at the South Pole.

</comment></comment></comment><comment><USER14> In my opinion, giving large scale subsidies to customers seems like a business anti-pattern, and is surely gonna kill a lot of startups in near future.

I have been sold to the Idea that Investors are killing any Internet "Business" by advising Founders against simple & straight-forward business plans. They constantly ask founders not to monetize earlier and wait until founders have no choice but to trash out the company/app to advertisers. The End Result is that founders get more and more scared of asking their customers for money.

If It was upto me, I would take 1000 paying customers over 100k free customers any day. Also this would mean free customers(subsidized customers in Uber's case) not hogging company's valueable resources and company could better serve lower number of paying customers.

Edit: I don't really know how to spell "customer".

<comment><USER15> Bing might be 90% as good as google, but when people are trying to search for something they are just going to use google. I really started to realize how useful Uber was when i was traveling internationally I just pulled out my phone and a car came. I didn't have to worry about what the rate was going to be. It might have even been above what a taxi might charge, but at least I knew what the cost was going to be. It just kind of works.

<comment> Ben-G I touched on this point in the post. If there's a significantly cheaper local competitor, most people will be happy to use that service when they're home. Then they'll use Uber (or some other globally operating competitor) while they travel.

<comment><USER16> Especially if Dobrindts "A single app to book all taxis, carsharing companies, car rentals, train or bus tickets, in all of Germany" takes off.

</comment></comment></comment></comment><comment><USER17> I live in Singapore and Uber is a little cheaper than the excellent cab services which operated here even before Uber. There is a big competitor to Uber here called Grab. I switched to Uber because their service is good, drivers are gracious and cars are nice and they give me good offers. Last year I took 300 Uber rides, never once taking the usual Comfort Delgro Cab because their drivers suck. If prices were the same, I would pick an Uber over the traditional cab over 90% of the time due to nicer drivers and service consistency across geographies. The rest of the 10% is when I urgently just need to hail a cab.

I don't think you meant to say that Uber won't be a success. You probably meant that you feel it's over valued. Uber is a success. People love it. They pay surge prices for it. I do it all the time. It MAY be over valued but it is already a success. wake up.

<comment><USER18> It lost 2-3 billion dollars last year and shows no signs of improving its margins anytime soon. How is that a success?

<comment><USER19> So then Amazon is not a success either?

<comment><USER20> Can you explain what Amazon's end game will be?

<comment><USER17> It's customers are fucking g happy. What's the end game you're talking about? Have you invested into them? As a customer I LOVE them. As a student, I studied them in HBX.

<comment><USER20> In 2015, Amazon made $596,000,000 on revenues of $107,006,000,000, or a profit margin of 0.6%. In 2012 and 2014, it lost money. How long should investors wait to see a real profit? Should they expect revenue growth to continue indefinitely?

<comment><USER21> How much profit should they make?

If there was a machine where you could insert a 20 dollar bill and it spit out the 20 and an additional 12 cents, would you not use that machine?

How much would you pay to buy one?

<comment><USER22> Except that if you buy the Berkshire Hathaway machine you'll put in $20 and get back a dollar.

</comment></comment></comment></comment></comment></comment></comment></comment><comment><USER23> I don't understand his point. Maybe I'm dense (today, ha).

If Uber has a (simplified) split cost per drive consisting of vehicle (+maintenance) and/or fuel & driver. If subsidised part is generally covering the driver part. When you replace driver with autonomous vehicle and you remove subsidies, you're left with a sustainable (presumably) model on a certain margin that is already rolling. Rolling in a sense that it is already an established business - people know it and use it. You've used subsidies (well, investors cash) to build a business.

Of course, this relies on a presumption they will build a sustainable model on replacing drivers with autonomous vehicles. It also presumes they will not venture into other, (potentially) more profitable business like logistics.

One thing is certain. They are positioning themselves for a great catch which relies on few key components working in the (near) future.

I think real hazard for Uber is regulation (autonomous vehicles for example) and market regulations (see taxi debates in Europe).

<comment><USER24> The Uber we know right now will probably transition into the self-driving car- based company for freight, passenger transport and ride sharing. It'll be a bit unsettling to see what'll happen to the drivers they're using right now.

I personally think that Uber is not an ethical company (I do live in Europe). They are exploiting tax and legal loopholes to profit off of both drivers and countries, simply because regulation for a taxi company that would be set up like Uber is does not exist yet and most countries take their time to regulate.

When Uber is put up to the same scrutiny as taxi companies are (to ensure their drivers are up to the same standard), they refuse to compete and instead of paying the same tax everyone else does and abiding by the same regulations everyone else does, they just leave the market.

Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.

<comment><USER25> >Don't misunderstand me, taxi service in my country is horrible, they're useless and rude and service is generally bad, but just because that's the situation, we should try and improve that, instead of allowing companies like Uber to exploit the situation.

I don't really understand this mentality. You don't want to let them exploit the situation by profiting off of making things better for consumers?

<comment><USER24> I do believe that I as a consumer am entitled to receiving good customer service for the money I pay for. I do understand that sometimes people can have bad days and I don't mind that, consistently horrible service and a bad system irritates me and I think it's not fair, but it is kind of a one-sided world view, and I personally don't permit that to myself.

On the long run this is a financial equation, it might be more comfortable for consumers at the moment to hail a cab with their phones and use their credit cards to pay, receive better service, et cetera, but let's take into account the long term price paid by them. Letting foreign companies exploit both tax and regulatory laws to take as much money out of the country as possible before getting shot down is not a good strategy on the long term. Start-ups can get away with it, because at the end of the day the only thing that matters is that they seem "exciting" and "booming".

The same way we aren't especially happy with the people who got exposed in the Panama Papers, or Donald Trump publicly admitting that he doesn't care and will abuse the system, we kind of have to draw a line. If we all decide to do the same, because laws and taxes are not convenient to our short term goals or let other entities do it, it's just gonna backfire at the consumer on the long term, when infrastructure and lives depend on a government having money. Let us not even mention the whole international tax situation, it being as problematic as it is. (Just look at what's going on with Ireland)

</comment></comment></comment></comment><comment><USER26> Uber's current problem is they have run out of things to innovate on. They've pretty much nailed the UX in their app, and all they're left with is cars taking people from Point A to Point B. What is left to improve on there?

So now, their only way to grow is to race to the bottom on price and undercut their competitors. And the only way to do that is to light billions of VC dollars on fire in the form of subsidized trips. That money isn't being invested in R&D or any form of innovation, just bridging the price gap between what the ride should cost (because of driver + vehicle costs) and what they are charging (which is a stupid low price most of the time).

The longshot they're taking on innovating by transitioning to self driving cars is downright reckless considering nearly all experts agree we're at a MINIMUM 5 years off from anything feasible in the real world, more likely 10+ years.

So they're going to have to raise their prices, or continue raising funds at an absurd rate (mind you, they've already raised $13,000,000,000 damn dollars). And they'll have to continue to light that VC money on fire in subsidized rides, rather than innovating on their product, because there's not really any other way to innovate on these rides.

As for the subsidies, I can't even understand why they are lowering their prices so aggressively anymore. It feels like each time I get into an Uber it's slightly cheaper. I was happy paying $25 for an uber to the airport rather than $30 for a cab, but now it's something like $14, which is great for my wallet, but I really don't even need it that cheap. It's bizarre.

<comment><USER27> > They've pretty much nailed the UX in their app ...

Ehhhh....I disagree because I have a less than stellar UX every time I use it. However, my situation is more or less an edge case. I rely on Uber to take me from the train station to work every morning. The train station is right by FLL. It's even called the Fort Lauderdale AIRPORT Station at Dania Beach. I have to call the drivers and tell them I'm at the train station and not the airport every time, and sometimes, they'll cancel or just go to the airport anyway. The GPS will place me at the airport sometimes too for extra fun. I've reported this several times to Uber, and it's still not fixed. It's also important to note a self driving car would make my situation worse (no one to contact when/if the app gets it wrong).

I would switch to Lyft, but after having a driver flat out refuse a fare, and leave me stranded in Miami, I'm not so keen on that idea.

<comment><USER26> I wonder how much of those issues are Google Map's "fault"? (genuinely curious). I have the same issue where every damn time the uber tries to pick me up in the alley behind my apartment, not the street, for no good reason.

</comment></comment></comment><comment><USER28> The network effects are pretty obvious actually: as the number of people on the platform increases, the amount of time a driver has to drive to pick you up becomes increasingly shorter, thus enabling the drivers to spend more of their time with a passenger in their car (which is when they are earning money). If drivers are making more money, Uber can pay them less (reduce the subsidy).

Old taxi cab companies can't compete because they have to drive much farther on average for each pickup

<comment><USER29> Uber built its network city by city and a competitor could do likewise. As others have pointed out, most rides are local - if you live in Dallas, TX, you probably require rides mostly in Dallas, TX. If a hypothetically better (in some way) competitor came along that only served Dallas, you might be interested in trying it out.

So a competitor could just focus on Dallas to start out, raising enough capital to hire enough initial drivers for acceptable wait times in Dallas only. Once Dallas was successful, they could then go on to other cities.

This is unlike a website such as Ebay, which truly becomes stronger and stronger due to national and international network effects, not just local ones. If a user selling the beanie babies you want is in Atlanta, having them shipped to Dallas is hardly more difficult than having them shipped within Dallas itself. So that Atlanta user has increased the utility of Ebay to you.

<comment><USER30>
      Uber built its network city by city and a competitor could do likewise.

A _smart_ competitor would cherry-pick the most profitable markets and ignore the rest.

</comment></comment></comment><comment><USER31> > Uber's growth is fueled by subsidies

A lot of people think if their Uber/Lyft ride is cheaper than their traditional taxi because it's subsidized. The lower fare for the most part is due to extreme efficiency difference between a taxi company and Uber/Lyft.

1\. Uber/Lyft don't own the cars. They are leveraging car owners capital

2\. Uber/Lyft drivers are more efficient because they don't have to roam around the city to find a passenger and they get notifications for when to work. The system scales up and down on demand. No taxi company that owns cars can do this.

3\. Uber and Lyft are more convenient for the passenger and it makes people to use them more. I can definitely see myself and people around me to use Uber/Lyft way more than taxi since they came along.

Uber and similar companies are purring cash into this growth because at the end of the day they can make a profit because they are more efficient. And no, it's not easy to make a clone. The network effect is huge!

<comment><USER32> Uber is fueled heavily by subsidies. I took an Uber pool to work, set price of $25. I was the only one picked up, but due to traffic it took ~1hr. The total price that the driver saw was ~60. Someone paid that driver the $35, and it wasn't me, it was Uber (venture capital). That is purely subsidizing and artificially lowering prices.

<comment><USER33> Underfilled pooling is not a great example though-- filling in load shortfall on pooling is a very efficient way to spend money, because you need to build the load, uber needs to only profit on average, and even if there was no subsidy at all there would occasionally be underfilled cars.

For all you know they did five other trips like yours but with three passengers and your "subsidy" was paid by them; and in exchange uber got a happy passenger and driver which will continue to support their business in the future.

</comment></comment></comment><comment><USER34> I think Uber's business model relies on self-driving cars. They're paying subsidies now to build a brand -- the name "Uber" has become synonymous with "pull out your cell phone and call for a ride" \-- that will be very valuable once self-driving taxis become a commodity (which will happen shortly after their introduction).

Uber is not a bet on who can build the most profitable taxi company now -- it's a bet on a brand in an industry that will rapidly commoditize. Given that _literally everything else Uber does_ has been replicated by at least one team at every hackathon I've been to in the last decade, there is very little sustained advantage from technology.

The auto industry is at a crossroads: you have new upstarts like Tesla that are very obviously planning to convert to a transit-as-a-service model. The "old" auto industry (basically everyone that makes cars and is not Tesla) is still struggling to adapt to a more "continuous development" model like Tesla. Tesla's engineering process is far simpler -- an electric car replaces the complex internal combustion drivetrain (an engine block that requires separate air, water, oil and gasoline systems, plus the transmission) with a far simpler electric engine.

The electric system in a Tesla is actually far simpler than your average car: the sensor package in a modern internal combustion engine is an incredibly complex piece of engineering. This gives them a huge cost advantage over existing automakers -- if Tesla is providing transit as a service directly to customers AND making/maintaining the vehicles themselves, that displaces a lot of revenue (auto sales/maintenance to companies like Uber).

I think Uber will eventually merge with an auto manufacturer (and likely keep the Uber branding since it's likely to be the most valuable part of the company). They already have realized that Tesla is their biggest competition; and I think that the autonomous driving deal with Ford is simply testing the waters for a future acquisition.

15 years from now, most people will likely have 3 or 4 choices of how to get somewhere by car: Uber, Tesla, Lyft and likely a mix of local / regional companies. Brand value is powerful; and I guarantee you that at the end of this, the Uber brand will be worth more than what they've put into it.

<comment><USER35> Agreed, and the author even sets us up for this - again and again he mentions how the largest sink is the drivers, the largest cost is the drivers, the biggest blocker is the drivers. Remove the drivers from the equation and things suddenly become a lot simpler.

Imagine if instead of becoming an uber driver, you retrofit your car with an Uber Automated Car Taxi Converter(c), "guaranteed to put your car to work for you!"

<comment><USER36> After having two nightmare drivers this week where I actually had to end the ride early and get out of the car, I can't wait for self-driving cars, and whatever service that rolls out self-driving cars first is going to get all of my business.

<comment><USER34> Yeah; that's ultimately why Uber treats driver quality as a short term problem and they don't do a lot more pre-employment checks... it's a problem they'll fix by removing the drivers entirely; so better to sweep it under the rug and by the time they get in trouble, it will be too late...

</comment></comment></comment></comment><comment><USER37> Warren Buffett summed up businesses like this quite well[0]:

> The worst sort of business is one that grows rapidly, requires significant > capital to engender the growth, and then earns little or no money. Think > airlines. Here a durable competitive advantage has proven elusive ever since > the days of the Wright Brothers. Indeed, if a farsighted capitalist had been > present at Kitty Hawk, he would have done his successors a huge favor by > shooting Orville down.

[0]: [http://www.berkshirehathaway.com/letters/2007ltr.pdf](http://www.berkshirehathaway.com/letters/2007ltr.pdf)

</comment><comment><USER38> I've been an Uber driver for 2-years in a metro-area of about 1-million people. The first year was rough, as Uber aggressively lowered rates and royally screwed me over income-wise. But now, I'm making more than ever thanks to the service scaling.

The author of this blog post admits that he hasn't run any numbers, and his conclusions make that obvious. I've run the numbers, and I make part of my living as an Uber driver (it's not busy enough in my city to do this full- time). Uber doesn't worry about my expenses because it's not their job to worry about my expenses. Their job is to run their servers and make an app that customers want to use, and they've been doing a great job at that IMO. My job is to worry about my expenses, and yes, I've accounted for fuel, maintenance, and depreciation of my vehicle, and I am making enough profit to make it worth doing.

As for self-driving cars, Travis has publicly stated that Uber does not intend to own and maintain them, they are going to look to their former drivers to do that. I doubt Uber is planning on having a monopoly for self-driving cars, they just want to be in on a part of the action, but their main focus will probably always be the software of their core app.

Uber has created more jobs faster than any company in history, and this is something our economy sorely needs. They literally let everyone who passes a background check on their platform. That means no discrimination can even take place at the company level, which I think is something very very cool, especially since I have a serious health condition that has riddled my resume with holes. (Discrimination can still take place from riders however, as the ratings are what determine whether a driver stays as a driver or not.) Also, since I am my own boss, I can rest when I need to, which is essential for coping with my condition.

<comment><USER39> Uber does not create jobs. Drivers are freelancers and not employees. It's not job with all covered insurance, benefits, days out etc. Uber is exactly like Upwork for freelance programmers and designers.

</comment></comment><comment><USER40> How do you define a successful business? Is it solely based on return to investors? How long does it need to be in business to be successful? How does Uber define success?

I hear rumors that IBM is not successful anymore. Also same of GE and GM.

</comment><comment><USER41> The potential for autonomous point-to-point freight shipping should pay off sooner than it's consumer business, allowing it to reduce it's investment requirements. Debatable on the timelines though.

You assume though that the network they've built up isn't valuable when you talk about self-driving vehicles. I agree the car tech will be commoditised and to my mind Uber owning their own fleet isn't the best option. It'd be very capital intensive and not a great use of cash.

I liken the switch to self driving cars to the same market as buy-to-let home rentals. If you've got the money why not buy a one (or more) of them, send them out and rent them through Uber/Lyft etc. and keep the money rolling in around the clock. Uber takes a smaller cut but also doesn't incur anything like as much risk.

<comment><USER20> What prevents other logistics providers from driving the price down to commodity levels?

<comment><USER42> Normal logistics providers have their own fleets and have to deal with the depreciation and maintenance costs. Uber shifts all those costs onto their drivers.

<comment><USER20> That doesn't sound sustainable.

<comment><USER42> Car depreciation is a hard thing to get a real handle on so I bet a lot of drivers aren't really thinking about exactly how much each mile is costing them in the long run.

</comment></comment></comment></comment></comment><comment><USER43> Why theorize about "economies of scale won't help"? We know the answer is "yes they will" \-- Uber's US operations were profitable in 1Q16[1] and that included many non-scaled markets.

Like I said 8 years ago[2]: "Facebook made ~$200mm in 2008. It's pretty clear they could profit on those revenues, and instead are choosing to invest in further growth (with outside capital)."

[1] [https://skift.com/2016/12/21/uber-isnt-profitable-in-the- u-s...](https://skift.com/2016/12/21/uber-isnt-profitable-in-the-u-s-and-is- on-track-to-lose-3-billion-in-2016/) [2] [https://news.ycombinator.com/item?id=427212](https://news.ycombinator.com/item?id=427212)

<comment><USER44> From your first link:

> After turning a slight profit in the in the first quarter of this year, Uber > lost $100 million in the U.S. in the second quarter. The loss increased in > the third quarter, the person said.

That's not exactly a ringing endorsement of their U.S. business.

</comment></comment><comment><USER45> The author forgot another significant problem Uber faces.

When self driving fleets can be deployed for ride sharing, a new startup, one without the hundred of millions / billions in losses that Uber will have accumulated, will come on the scene.

How can Uber, a company with massive losses to recover from, compete with a new, nimble and well-funded startup that doesn't have those legacy losses weighing down their ability to raise capital and pay back investors?

<comment><USER46> Bankruptcy/Reorganization.

</comment></comment><comment><USER47> What OP, and everyone in this thread don't seem to understand is that Uber has waaaay more up it's sleeve than a mere taxi app.

Uber has more data about traffic patterns in every major city they operate in, than any other entity, including the cities themselves. Uber can use that data as leverage in so many ways.

They have an API, they are a logistics platform in a sense. Uber's endgame will be allowing people to plug into that platform for a price.

If they can manage to become the defacto cab platform for all major US cities alone, they are close to being worth their current valuation as is. Expand this all over the globe.

Do not forget they have a 20% stake in Didi as well now, which will more than make up for their 2 billion loss while trying to capture the chinese market.

<comment><USER48> "Uber has more data about traffic patterns in every major city they operate in, than any other entity, including the cities themselves."

I imagine Google has approximately two to three orders of magnitude more data from cellphones and maps usage. Pull open your Uber app, zoom out until you see, say, 20 Uber drivers. They make a point here, a point there. The Android phones in cars would just make lines on your display. So does Apple, probably, or whoever gets the Apple Maps data.

I think Google won't be all that interested in packing that up and making it available... but then again, if Uber's worth 68 billion on the back of that data they may well change their mind.

<comment><USER49> I'm pretty sure uber uses google maps in fact.

<comment><USER50> For now. They hired Brian McClendon to build their own:

[https://en.m.wikipedia.org/wiki/Brian_McClendon](https://en.m.wikipedia.org/wiki/Brian_McClendon)

</comment></comment></comment></comment><comment><USER51> Investors are giving Uber a near infinite bankroll so it's hard to say that they'll be allowed to fail.

I was in Southeast Asia recently and it's insane how cheap Uber is. It almost doesn't make sense to take any other form of transportation. I imagine once the competition dies, they'll have complete control over the market.

<comment><USER52> The problem is that the moment Uber is in a position to exploit its newfound monopoly, new competition springs up. Without regulatory constraints, transportation on public infrastructure just isn't a natural monopoly business.

</comment></comment><comment><USER53> Interesting thoughts. I wrote along this line about UberEats and what is wrong with their current model. They believe they can win the battle thanks to subsidized unit economics. However this is simply not sustainable. The same conclusion is valid for all on-demand delivery startups.

Instead they should leverage their existing community, i.e. users being located next to each other. Similarly to UberPool where ride-sharing is the only way for Uber/Lyft/etc to work, grouping users for food delivery with variable rewards based on location (i.e. discounts) is the way to go.

More here: [https://medium.com/@pwellens/how-a-single-feature-could- fina...](https://medium.com/@pwellens/how-a-single-feature-could-finally-hook- you-on-ubereats-and-postmates-d31244e0073e#.p8j11qmgo)

</comment><comment><USER54> I agree with this, however I don't agree with the author's take on the self driving car part. He says:

> Let's assume that we will see fully autonomous vehicles that can navigate > city traffic in the near future [...] If this technology becomes available, > I doubt that Uber will have a monopoly on self-driving car technology.[...]I > think it's safe to say that many companies will have access to self-driving > car technology.[...]In this scenario I don't see how Uber can generate > reasonable profits

In the ideal 'future' society, everyone will have a self-driving car they can order to pick them up wherever they are. This would drive Uber out of business. _However_ there will be a whole taxi industry for performing this service when someone is outside of their own city.

I believe the taxis of the future will be there to assist someone in one of two scenarios:

1.) Someone in their own city who doesn't own a self driving car

2.) Someone who is in a city different than their own

I still think there will be plenty of business in the above scenarios - <AUTHOR> Uber is positioning itself to be the industry leader/titan. It's definitely a huge gamble since predicting the future is impossible at worst, and extremely hard at best; but we'll see if Uber can stay afloat long enough to reach it.

</comment><comment><USER55> Possibility: seeing all this, Uber looks hard at what they do have and simply becomes contract cab dispatcher for all cabs everywhere, smartly choosing which cab to call to the scene of the caller using their algorithms. And lets existing can companies so the actual driving.

Why? Currently some cab companies have shitty apps, others have none. Your chances of getting a cab in a suburb of an unfamiliar city is zero. Uber can fix that.

<comment><USER56> The question then becomes: Is a global taxi dispatcher worth 70 billion dollars? Maybe. Probably not.

<comment><USER57> My hunch is yes. I decided to do some quick math.

-NYC has ~13,605 licensed taxicabs.

-The average annual net income for a NYC taxi (in 2015, probably a bit lower now) was $58,555.

-$58,555 * 13,605 = $796,640,775

This figure is for taxis only, in one (big) city. It leads me to think that $70 billion is not an absurd number, globally.

edit: sources: [https://www.yellowcabnyctaxi.com/blog/new-york-city-taxi- rev...](https://www.yellowcabnyctaxi.com/blog/new-york-city-taxi-revenue- declines-accelerate-in-last-four-months)

[https://en.wikipedia.org/wiki/Taxicabs_of_New_York_City](https://en.wikipedia.org/wiki/Taxicabs_of_New_York_City)

<comment><USER58> I doubt even a monopoly dispatcher will get all $800 million of the revenue though.

</comment></comment></comment></comment><comment><USER20> Tl;dr: Uber is using rule 1 of Monopoly 101: Subsidize your customers until you drive your competitors out of business. However, it does not appear they have a competitive advantage to prevent new competitors.

Edit: damn you, android keyboard!

</comment><comment><USER59> Two possible ways Uber may expand the market, based on what I've seen in Chicago:

* Uber seems to do a much better job of serving non-wealthy & minority neighborhoods. I can't find an online source, but distinctly remember a local NPR report that claimed over 2MM Uber rides originated or concluded in an underserved neighborhood, vs. about 200,000 taxi rides.

* Anecdotally, Uber's superior experience is changing behavior. Despite having a thriving taxi industry, hailing a taxi is very unpredictable. If it's cold, raining, a busy night, too early, too late, or rush hour, you may be waiting a long time even in a well-served neighborhood. Uber practically guarantees a ride, meaning that I and my friends are far more likely to venture out. Overall demand for transport seems to have increased.

* Similarly, the reliability of ride sharing services permits many people to avoid car ownership all together. Zip + Uber/Lyft is a very compelling and affordable alternative to car payments, fuel, rented parking and insurance.

<comment><USER30>
      Uber seems to do a much better job of serving non-wealthy & minority neighborhoods

When was the last time you took an Uber from O'Hare to the most dangerous areas of the South Side after dark?

Cab drivers are _obligated_ by the terms of their licensing to take you, once you've hailed them. An Uber driver can just ignore you.

</comment></comment><comment><USER60> Uber will be successful, but the problem is right now there is no barrier to entry in the market. They're pushing Lyft to spend more on marketing in order to get shares.

Uber has a huge chance of taking over public transportation and making it more effective. That's what I think they're gunning for...to privatize public transportation. How else will you get around town?

</comment><comment><USER61> It's an interesting topic but the financials are too black-box for us outsiders to form a strong opinion.

Yes the drivers are subsidized but the prices fluctuate based on supply throughout the day. On friday night in the city you can find uber prices surpass taxi drivers. The future of Uber has too many variables to have a strong stance on it's "success".

</comment><comment><USER39> Uber is basically a walking dead company. At least with this business model it just can not justify the valuation. Hence, it just can not go public and needs to continue raising more money to keep its market share.

Unit economics doesn't work—this is Uber's broken moat. In the cities where it works, there are cheaper competitors and Uber struggle to become a significant player. In my city (Kyiv, Ukraine) Uber was introduced a year ago. I used it only while it offered promotional price. Now every other local ride service is cheaper than Uber and has mobile app—sometimes even better than Uber's. Yes, Uber made these services to improve, but now they are all better that Uber in terms of prices of rides, especially in surge periods.

Uber with this model could survive only with:

1/ Autonomous cars to cut costs on drivers and

2/ Controlling the whole driverless platform in every city.

And this is not happening since to control significant portion of driverless cars one need to control the whole driverless tech stack. It will be pretty hard to aggregate in one service different co's driverless tech with different specifics. That's what Tesla does.

I guess later when driverless will become growing en mass, Tesla will start own ride service, and letting own car for the a ride service will be opportunity to reimburse car purchase. It is then that Tesla will start licensing driverless tech to other manufacturers, including sensors configuration and centralised trained AI cloud with driving skills on different roads, and give opportunity to join Tesla's own ride on demand network. It will be a car selling point: "buy a car with Tesla driverless tech and let it for rides via Tesla's network to cover payments for your car".

So, it's rather hard for Uber to use advantages of driverless unless Uber builds own full stack and is the first on the roads with it + starts licensing it to car manufacturers for their cars to join Uber network.

</comment><comment><USER10> The arguments against Uber here are well-stated and have been posted elsewhere (see Naked Capitalism's excellent 6-part series)

In these comments (and other HN threads) I see the same pro-Uber arguments again and again so I will try my best to address them as I think they are misguided.

> Uber is doing all this in anticipation of self-driving cars, which will > change the economics of the whole operation.

The first and most obvious issue here is runway. True self-driving cars that won't need a human in the driver's seat are probably 5 years away. Can Uber lose 1-2B a year until then?

The second problem is that Uber won't have a monopoly on self driving car tech. Google and others will get there around the same time. How will this be a competitive advantage to Uber and not to Lyft or some yet-to-come competitor?

> Uber is building network effects that will protect it from competitors.

Uber's network effect, if it has one, is at odds with the self-driving car strategy. Right now Uber has the shortest ride waits because it has the most drivers. If a driver is a robot, a well-capitalized competitor can just buy a huge fleet and take over any local market.

So you can't have both the network effect and the self-driving fleet. And without both, Uber is likely not worth anywhere near 70B.

> Taxis are just step 1. Uber is building a platform to bring anything or > anyone from A to B.

A software platform for logistics would never be worth 70B. Period.

In Uber's meager attempts to generalize their own platform, such as Uber Eats, they have not done very well.

If total knowledge about driving patterns and navigation is the real money- maker, Google will have a big advantage with Maps/Waze data. In fact, most Uber drivers are using Maps or Waze to drive anyway.

> Uber's customer experience is so good I stopped using Taxis.

Uber's current dominance can be explained by one thing: price. Analysis has shown that every Uber ride is subsidized by about 50%, even in mature markets. If Uber suddenly doubled all prices they'd lose customers in droves.

As for driver quality, any long-time Uber user can tell you this has gone down to be about the same as a cab (slightly better, but not reliably better). The average uber driver is just some guy doing whatever the GPS tells him to do. It's low-wage work and Uber is pushing the wages down all the time, there's no way you're going to keep high driver quality indefinitely.

</comment><comment><USER62> Finally someone is saying it loudly. I've tried to make this point in the past to no avail. If Lyft can hold out they _may_ survive over the long-term, but the strategies that allow Uber to be dominant will also prevent it from being profitable while maintaining market share.

</comment><comment><USER63> A large assumption I keep on seeing is because Uber will lead with self driving cars people will just stop purchasing cars and use just self driving ride sharing. I think that a portion of people will but many will still buy their own self driving cars for multiple reasons. Time saved, comfort and control of passenger experiences, and cash generating vehicle that can be plugged into self driving network while it is not being used.

</comment><comment><USER64> Sure there are lots of losing scenarios. But there are a couple of winning scenarios too, and one - becoming a natural monopoly in mobility services - <USER2> a very big win indeed. I assume that the high valuation partially reflects that very small but non-zero probability of success. Sure, the US government doesn't like monopolies, but shutting one down involves proving that consumers are being harmed.

Let's play out the monopoly scenario. Let's also assume that non-autonomous vehicles are banned. I can't imagine any future scenario where that's not true. So we have roads full of Uber vehicles and no other vehicles. The government will choose to get out of the road building and maintenance business. Uber will gladly step in and take on a 100 year lease on the entire road infrastructure. They'll build their own autonomous recharging stations. They'll build the robots that maintain the roads. They'll build the robots that build the robots. Now Uber has really lived up to its name.

So contemplate what an autonomous mobility monopoly would do for Uber's valuation.

</comment><comment><USER65> People said similar things about Facebook/Instagram. Or even the internet as a whole (Paul Krugman).

<comment><USER66> Those services don't have a fixed cost per unit. Please read the article before commenting.

</comment></comment><comment><USER67> As far as I can tell from how frequently Uber and Lyft give me discounts whenever I don't use them for a few days, they're burning crazy amounts of VC money just to grow.

If investment dries up before they get profitable, I think they're screwed.

</comment><comment><USER68> The claim that taxi supply is sufficient in most cities to compete with Uber aside from on price is clearly not based on much experience with taxis in the US.

I grew up in Australia where every city is served by a small number of taxi companies and central dispatch works great. In every US city I've lived or visited (except NYC) the fragmentation of taxi companies and driver behavior -- most DC cab drivers would refuse to accept credit cards even after it became illegal not to ("my machine she is broken") -- makes taxis worse in every dimension than Uber, and frequently too unreliable to use for things like trips to airports. (In Sydney, I would take a taxi to the airport, in any US city you'd book a van.)

It's not just price -- fragmentation makes dispatch hopeless because the individual companies have too few taxis in their pool and don't hand off bookings to each other efficiently, and local regulations are a nightmare, e.g. in the Washington DC metro area it's painful to get taxis from Arlington (VA) to downtown (DC) and vice versa (Arlington is literally only not downtown DC because Virginia asked for its corner of DC back, we're talking 2 mile rides), and you need to guess which taxi company to use because dispatch is also fragmented and broken. When Uber and Lyft appeared we simply stopped using taxis cold. (Our favorite DC Uber driver was a limo driver who simply used Uber to make money in down-time, and he was clearly not confused about tax and costs.)

I think the idea that privately owned self-driving cars will compete with Uber is wrongheaded but doesn't damage the argument. Any dispatch service that achieves critical mass -- public or private -- can leverage self-driving cars to compete with Uber. I think self-driving cars will vastly reduce car ownership, and pools of automatic taxis will replace them, reduce congestion, and allow lots of car-dedicated space in cities to be reclaimed. I'd argue this threatens Uber's ride-sharing business as much as anything else.

I agree that Uber is almost a victim of its valuation -- it could be incredibly valuable as a virtual integrated vehicle dispatch -- tracking driver and customer quality, vehicle location and capability, and matching vehicles to needs and collecting fares, but by trying to own everything and be valued accordingly it may risk implosion when it fails to deliver.

</comment><comment><USER69> Their algorithms increase the usage of each car, reducing the cost per passenger mile. So Uber can cheaper than normal taxis.

My own self driving car is unlikely to be cheaper to buy than my manually driven car. But the self driving Uber will be significantly cheaper to run than one with a driver.

I can't wait til I no longer need my own car. Uber, and competitors, are the future.

</comment><comment><USER70> If I could bet against Uber, I would do it

<comment><USER64> How would one short a pre-IPO company. Betting sites?

<comment><USER71> The difficulty of shorting something like Uber is getting the timing right. Not only do you have to bet that Uber is over-valued, you also have to bet about the timing of when Uber runs out of starry-eyed investors to fuel the valuations. That is dependent on when it runs out of money, how quickly Uber decides to burn, and when the financials become clear enough to enough people that the public decides that the emperor has no clothes. (If it's actually the case that the emperor has no clothes.)

<comment><USER64> We did see the same doubters in the early days of Amazon. And we see how that turned out. Personally, I'm not confident of either success or failure with Uber. They (and their investors) are making a big gamble. In their favor is that it is a very capital-intensive gamble, and I don't see any other companies stepping forward to make that investment. A large car company could do so, but they've not made the transition to thinking in terms of the future "autonomous mobility services" paradigm.

<comment><USER71> I think the doubts about Amazon were different though. The doubt was whether they would succeed at their goal, rather than whether the goal would actually constitute financial success. Wal-mart for the digital era is clearly a successful position, and Amazon didn't subsidize their product to the degree that Uber has had to.

<comment><USER64> I respectfully disagree. Amazon MASSIVELY subsidized their service. It was commonly stated, and I believe true, that shareholders were paying for that critical 2-day free shipping.

<comment><USER71> In, say, 2006, $884M was spent on shipping and $567M in shipping revenue[1], so there was a subsidy of $317M. This was in total revenue of $10.71B[2]. That's a 3% subsidy, and is within a profit margin.

Uber is a bit harder to pin down from a quick google [3]. I'm seeing $750M loss in the recent quarter, which are "largely" attributed to driver subsidies by third parties, but Uber isn't talking. Let's say $500 as a rough estimate, which is 10% of the $5B in bookings that quarter.

So I guess Uber's subsidies aren't as high as I thought, but are still significantly higher than Amazon's. They both operate in cut throat industries with slim margins. Whereas Amazon invested in warehouses and their infrastructure. Uber may have something up their sleeve, and I hope they do, but it's not clear for an outside observer how they are anywhere as likely as Amazon was to have profits to justify their valuation.

[1] [https://www.statista.com/statistics/236503/amazons-annual- sh...](https://www.statista.com/statistics/236503/amazons-annual-shipping- revenue-and-outbound-shipping-costs/)

[2] [http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...](http://www.wikinvest.com/stock/Amazon.com_\(AMZN\)/Data/Revenue/2006/Q1)

[3] [https://www.bloomberg.com/news/articles/2016-08-25/uber- lose...](https://www.bloomberg.com/news/articles/2016-08-25/uber-loses-at- least-1-2-billion-in-first-half-of-2016)

</comment></comment></comment></comment></comment></comment></comment><comment><USER72> Why everyone assumes that Uber could be allowed to become a monopoly? There are anti-monopoly laws. I understand that so far Uber was allowed to break lots of laws - but this cannot go on indefinitely.

</comment><comment><USER73> This is zero information article. In fact, zero insight article. Getting in to app-based cab business is hard because you need users so drivers come in and you need drivers so users come in. Its chicken and egg problem. The only known ways to break this is put up a huge hussle. Uber is just doing that and if its successful at it then it can virtually monopolize this segment and rip benefits years later like Amazon. Every one can make cab app, but not every one can get millions of users for their cab app.

</comment><comment><USER74> Just as a response to the first section, you can't say that Uber is subsidizing both customers and drivers like they are separate costs. There is some margin, which is the difference between what the customer pays and what the driver gets paid. Currently this margin is negative, which means that Uber is "subsidizing" the transaction by paying the difference themselves. For any given ride the customer subsidy and the driver subsidy are same thing, Uber doesn't pay twice.

</comment><comment><USER75> The author makes good points, but his understanding of Ubers vision is very limited. It's not about drivers or passengers, it's an API to get stuff from A to B, be it people or goods.

Also, describing self driving cars in city traffic as "unlikely" really misses the point that self driving cars are driving in city traffic right now and have been doing that for years. They are too expensive to be commercially viable, but that's definitely going to change in the near future.

</comment><comment><USER76> Whether Uber achieves redemption and become a highly profitable monopoly, or other players make it a low-margin red ocean, transportation seems to be set to be dominated by few players compared to today's diffuse private ownership.

I wonder how road building and maintenance will change? Will the decision to build or scrap a road be decided by a negotiation between the dominant stakeholders, instead of public procurement?

</comment><comment><USER77> "Network effects are mostly irrelevant for Uber's business. Yes, they need a large supply of drivers to make the service viable, but this isn't an advantage of Uber compared to regular cabs which have sufficient availability in most cities."

I've never been to a city where there were a sufficient number of cabs except for Manhattan specifically in NYC and London. Every other US city, the taxi situation is bleak to unusable.

</comment><comment><USER78> To have a moat, they just need sufficient software/human network/infrastructure/legal infrastructure that competing requires too much investment. All of these things are a PITA, and not immediately replicable by fresh local competitors, even without the self-driving cars.

The self-driving cars and consistent platform could seal the deal against the small players entering.

That's not to say their valuation is correct, or anything. :)

</comment><comment><USER79> I live near large city. I can't afford to live IN the city ( because paying 3000$ rent is stupid ). Now I have to commute. I have to Have a car because other options waste too much time. I got a 16 year old reliable toyota that I paid 3k for years ago. I don't see Uber doing anything financially positive for me anytime soon.

</comment><comment><USER80> Uber isn't an on demand ride service. They're a logistics company. Also uber isn't waiting for autonomous vehicles to come along and save them, they're one of the industry leaders in developing autonomous systems, investing/acquiring autonomous systems, and collect more driver/vehicle data than any other company in the world. It's not just civilian transportation either. They've already launched an autonomous commercial shipping service. If there is an item, person, or service that could potentially need to be transported from point A to B, it's a safe to assume that Uber has already started collecting logistics data on it and will(or already has) raise funds to begin implementing a network to service said logistical situation. This all may sound a bit extreme at first glance, but look at amazon. Amazon isn't a revolutionary e-commerce market place, they're a revolutionary logistics company. It's the same story as uber just in a different phase. Years of massive losses and outside funding. Both companies fully understand the value/defensibility of heavily investing in operational logistics at massive scale.

</comment><comment><USER81> As you suggested, eventually Uber will have to make profit but also keep profit margin very thin not to loose customer. Their only hope could be in future most people in cities would not have their own car and rely completely on ride sharing. This massive increase in ridership should help them to make money.

</comment><comment><USER82> Sometimes due to heavy rains or unfavourable weather , getting a uber or even a normal cab becomes really difficult. I am from India ( so it happens here) . Facing that kind of situation may deter from people giving up owning a car.

</comment><comment><USER83> Here is an additional risk for Uber: What if Tesla or Google or some other company bring self-driving technology to market a year before Uber? For those 12 months Uber will be the guy with a knife in a gunfight.

</comment><comment><USER84> I've said it before and I'll say it again -- Uber needs to release a tier where you can hire a backhoe or other construction vehicle and arrive at your destination in style.

</comment><comment><USER85> The only thing they need to do, from investor perspective, is to slide on profit/loss margin line while eating market in big chunks - until human drivers can be phased out.

</comment><comment><USER86> tl;dr He thinks UberPool _is_ a viable business with network effects, but Uber's valuation is too high.

He didn't really support that well though. If everybody uses UberPool because the economy of scale tied to the network size is unbeatable, that's a lot of riders. It doesn't seem impossible on its face that owning the future replacement for public transport for like half the world wouldn't justify a high valuation.

<comment><USER87> This dismisal of UberPool is something we from many people who discuss Uber's business. I wonder why.

<comment><USER88> Because people taking taxis/Ubers don't generally like to share rides. See also car pools.

Now there is an argument that, given sufficient scale and intelligent routing, some sort of jitney bus system could work in a space between private taxis, driving yourself, and scheduled buses. Though that person would then need to explain why we don't really see this business model at any real scale today (in wealthier countries).

</comment></comment></comment><comment><USER89> Many tales have been woven about Uber's imminent demise based on these vague financials that come from a single unverified anonymous source.

</comment><comment><USER90> Depends on how you define success. Imo, Uber will become financially successful when autonomous cars and trucks work well and are regulated.

<comment><USER91> The problem is that Uber can easily be destroyed when that happens. For example, imagine that all the German automakers decide that their fleet of autonomous cars works only for an app that they developed(maximize profits). The same can happen from the Japanese automakers, etc. Another problem is that they will need A LOT of money to buy and maintain all those autonomous cars, something that they don't do now. Personally I think Uber can die under hundreds of scenarios and survive under one or two in the long run.

</comment></comment><comment><USER92> For some reason Uber reminds me of the rental car business. Yeah it appears to be hard to build a monopoly there.

</comment><comment><USER93> uber offers a better product than taxi services do. So if uber raised their rates to be comparable to a taxi services, i would still use uber because its a better experience. And because i learned that because they incentive it with overall lower rates.

<comment><USER88> >uber offers a better product than taxi services do.

Sometimes. I like not handling credit cards and cash. They're faster and more available in areas where taxi services are not great.

On the other hand, I had an Uber-X driver just today drive right past a clearly marked airport terminal entrance because his GPS didn't direct him there and "he hadn't been out to the airport in a while." It's unlikely that would happen with a cab.

<comment><USER94> Yes, but it's also not uncommon that cab drivers use their knowledge of the local streets in their advantage, which is a lot less likely when your average Uber driver relies on GPS navigation.

I particularly remember taking a cab in Las Vegas many years ago trying to get from one end of the strip to the other. I was an obvious tourist - so he took the "faster router" around the city - just to "realise" that the exit he was going to take was blocked due to construction work and he now had to do a huge detour.

<comment><USER88> That's fair. The GPS nav does tend to eliminate obviously scammy behavior which historically has been a significant issue with cabs. (Never personally had an issue in Vegas but have elsewhere.) But it also eliminates local knowledge optimization as well.

</comment></comment></comment></comment><comment><USER95> Amzn and tsla started reporting profits just recently. Would you call them failure?

<comment><USER96> Amzn is profitable without burning through investment capital. Tesla is in a much better position but it also could still fail .

<comment><USER97> Amzn prints money with web services. practically 0 marginal costs.

</comment></comment></comment><comment><USER98> I think one of the biggest points being missed here is that Uber may very well be an iceberg. Meaning moving people is literally just the tip, but to get to the rest you have to subsidize the hell out of moving people.

The fundamental problem with what Benjamin pointed out with the lack of benefits with network effects, only applies when you are thinking about moving people and only thinking about 1 singular network. Sure, you and I may only want to go from point A to B within my city.

I think the real value for Uber is when they have this huge network of constant activity between most points within any city/country, the value proposition to carry cargo goes through the roof.

Imagine being able to send a document (or a package) anywhere else within the city in 20 minutes.

Amazon is experimenting with Drones for quick delivery, but just imagine being able to purchase something on Amazon, Walmart, Target, and get it within 30 minutes from an Uber driver.

Their network effect looks different than most others, say Facebook, because the real value is a network effect of networks. i.e. they have highly concentrated networks within cities, and they have a high concentration of city-networks within states, and outward.

The clear value proposition there is one can easily move a package from your house through your network within your city, to another network in an adjacent city, and on and on to say the next state.

Right now, sure you can ship something 'overnight' via FedEx relatively long distances within the US but technically it's not REALLY overnight. Technically, you have to reach the FedEx store before some cut off time (say 12 noon), so that package can then be taken to their sorting facility and make it out on the flight that night.

Imagine if there is the a real-time network where at any moment any package can be placed on the network and be on the most efficient route to the destination immediately. That's obviously the holy grail, but no longer do you have packages sitting in sorting facilities and waiting on bulky planes to take off.

They may not have these plans, but I have no inside knowledge and that's one clear advantage I can see of having a network where something is always being delivered between almost any 2 points within the network.

I assume that all of these investors are not dumb and neither is Kalanick and his team, so I suspect there is a much larger logistics play than we can imagine.

Just like Tesla isn't just a car company, but is also both a commercial power (Southern California Edison) & oil company (Exxon) plus maybe an autonomous delivery fleet all in one, I assume Uber is something similar we just can't see it yet.

</comment><comment><USER99> Any word on IPO timeline?

<comment><USER62> Every time I've talked to their recruiters over the last couple years it was "just around the corner."</comment></comment>


Should the first in a queue be served last? - <AUTHOR> http://www.bbc.com/news/magazine-34153628 <comment><USER2> A FIFO queue is essentially like an auction where you use your wait time in order to bid for service -- the highest bidder (longest waiter) wins. LIFO service as proposed here is equivalent to the _lowest_ bidder winning instead, meaning everyone will try to bid zero (or as low as they can).

This changes if you have some uncertainty in the cutoff time -- in the flight example, attendants would close off the gate at some randomly determined time, and latecomers would be able to get great seats -- but they'd also have an excellent chance of missing the flight entirely!

In this case, the thing you're bidding with is how much you're willing to risk missing the flight. If you know that the flight will close at a time uniformly distributed between 10:00 and 10:30 for example, those who arrive at 10:29 are willing to accept a 29/30 risk of missing the flight in exchange for being virtually guaranteed their choice of seats.

<comment><USER3> This seems to result in every plane leaving either empty or delayed.

Realistically it would have to be done with an interval of boarding. Whether this interval is known to the passengers or not I don't think matter.

So boarding is between 10:00 and 10:30. The first passenger to arrive after boarding starts will be the first to board, since they would be at the end of the line at that time. And so would the next one, and so on.

</comment></comment><comment><USER4> This experiment has a startling result only because it runs counter to the established method of queueing. If instead of queues we had stacks (last in, first out), we would no doubt see people organize themselves into the stack in such ways that other time-wasting externalities would arise.

I think the queue is a pretty good system to use, because it's effectively an auction for a spot at the top of the line, where you pay only with your time. This seems like it would balance incentives reasonably well. Come to think of it, it'd be interesting to see economic auction theory applied to queues.

<comment><USER5> > If instead of queues we had stacks (last in, first out), we would no doubt > see people organize themselves into the stack in such ways that other time- > wasting externalities would arise.

The purpose of a line is that you have an inconsistent flow rate. If you always had less than one person arriving per minute and it took less than one minute to process one person then there would be no need for ordering the people waiting because there would be no people waiting.

The trouble arises when that isn't what happens. At 10AM there is no line at the lunch counter but by 11AM or noon there are more people looking for food than there is serving capacity, so a line forms and remains until 1PM or 2PM when the rate of new customers has fallen back below serving capacity for long enough to process the backlog.

A queue is inefficient because it causes everyone to wait e.g. 15 minutes during the busy period. If you use a stack instead of a queue then a person who arrived at 11AM and sees the number of people in line in front of them continue to increase will correctly deduce that continuing to wait is futile. They won't be served until ~1PM when the entire backlog is filled, so assuming they aren't allowed to reposition themselves in line _immediately_ , they might as well just leave and come back later. And maybe resolve to get there by 10:45 next time, when demand is lower and everyone is still being served immediately. Which is where the efficiency comes from -- more people arrive either before or after the rush to avoid getting stuck at the bottom of the stack, so the wait time goes down.

The trouble with it is that it lowers the average wait time but it makes the wait time for any particular individual completely unpredictable. You could end up being second to the top of the stack for several hours while everyone else is served immediately.

<comment><USER6> I'm sorry, but none of this is making sense to me.

>A queue is inefficient because it causes everyone to wait e.g. 15 minutes during the busy period. If you use a stack instead of a queue then a person who arrived at 11AM and sees the number of people in line in front of them continue to increase will correctly deduce that continuing to wait is futile. They won't be served until ~1PM when the entire backlog is filled, so assuming they aren't allowed to reposition themselves in line immediately, they might as well just leave and come back later.

Which is a big assumption.

That's exactly what the GP was warning about: people will just go into a different "meta-queue" in which they vie for being the technically-"last" person to enter the real (LIFO) queue [1], with all the externalities that involves. People are still spending time waiting, they just have to do it in a more roundabout way. No free lunch (in money or time).

>And maybe resolve to get there by 10:45 next time, when demand is lower and everyone is still being served immediately. Which is where the efficiency comes from -- more people arrive either before or after the rush to avoid getting stuck at the bottom of the stack, so the wait time goes down.

So ... the entire counterintuitive result is just an artifact of how this method makes it more expensive (in time spent, assuming away the meta-queueing problem above) at peak times? But then it's no different from the case for peak-hour pricing (or the opposite in the case of happy hours and early bird specials).

So it's not that this is somehow more efficient, it's apparently just another way to make peak hour service more miserable. But worse, it does it in a very convoluted way that shifts the entire problem over to "how to game the official record of when I entered the stack".

This whole study seems to confuse a lot more than it clarifies.

[1] which, I know, would no longer be a queue but a stack

<comment><USER5> > That's exactly what the GP was warning about: people will just go into a > different "meta-queue" in which they vie for being the technically-"last" > person to enter the real (LIFO) queue [1], with all the externalities that > involves. People are still spending time waiting, they just have to do it in > a more roundabout way. No free lunch (in money or time).

The ability of someone to "cut in line" by leaving and then coming back is obviously a critical failing of the system if doing that is cheaper than doing the thing you're desired to do. But you can imagine rules to address it, like if you leave and come back then you get the same position in the stack as if you had never left. (And if this is being implemented in a computer then maybe you get a message on your phone once you're at the top of the stack.)

> So ... the entire counterintuitive result is just an artifact of how this > method makes it more expensive (in time spent, assuming away the meta- > queueing problem above) at peak times? But then it's no different from the > case for peak-hour pricing (or the opposite in the case of happy hours and > early bird specials).

It doesn't make it more expensive at peak times. The total cost is exactly the same, but it is imposed highly disproportionately, so that instead of 120 people each waiting 15 minutes, you have 105 people who are served immediately and 15 people who would each have to wait two hours. The theory being that at least some of those 15 people will then _give up and leave_ because they can go do something productive with two hours when they couldn't have with only 15 minutes.

You get essentially the same result by putting a small hard limit on the length of a queue and then banning anyone who showed up when the queue is full from entering the queue until it is completely empty.

</comment></comment></comment></comment><comment><USER7> Am I the only one who's noticed an uptick in the number of articles with clickbaity/contrarian/generalizing titles coming from the BBC lately?

One look at the current BBC tech news feed[1] shows a few such disappointing titles.

"VIDEO: Is this the end of ads on mobiles?" "Are we addicted to technology?"

1: [http://feeds.bbci.co.uk/news/technology/rss.xml](http://feeds.bbci.co.uk/news/technology/rss.xml)

<comment><USER8> I've been noticing a spate of NYT articles lately too that seem to be summed up by "Every Common Sense Thing You Know Is Wrong Because Some Academic Somewhere Ran A Study That Could Be Read That Way." Presumably to be followed up by "Now That Somebody Did Something Different We're Here To Tell You How That Went Wrong, Too".

Maybe it's just that I'm 36 and old and crotchety but is anyone else getting tired of reading the "Every Last Thing Western Civilization Thinks Or Does Is Completely Wrong" article? And I don't just mean the "big issues", but, stuff like this article, too. How you queue up... WRONG. How you drink water... WRONG. How you play on the playground... WRONG. How speed limits work... WRONG.

</comment></comment><comment><USER9> Wouldn't the people at the front of the line start leaving and coming back to the end?

<comment><USER10> > It could be open to manipulation, with people leaving the queue and > rejoining from the back in order to get served more quickly.

<comment><USER11> Is that even manipulation? You're not allowed to leave the line now as everyone after you hurts your standing?

That sentence does not even come close to properly addressing it.

<comment><USER10> It's a quote from the article.

<comment><USER11> I know.

pkaye mentioned one of the critical flaws with the plan, and you quoted the article as if he missed the part where it addressed the flaws. But it doesn't address them, it just says "maybe my plan doesn't make any sense, not my problem".

<comment><USER10> I quoted the article where it concedes the point. Usually a system is only coherent within a set of assumptions, in this case the assumption is people can't easily rejoin or see their placement. That maybe doesn't hold for physical lines but the example the article goes into is an internet service where people have no control or awareness over their place in line.

In any case, I'm just reiterating what the article says about this point, not sure what there was to disagree about.

</comment></comment></comment></comment></comment></comment><comment><USER12> Wouldn't it be simpler just not to open the queue pool until immediately before the event? And shoo people off if they try to line up nearby. Then you get more or less exactly what this system would create, an unholy shoving scrum at t = 0, without the built in cruelty to safety conscious planners.

<comment><USER13> Having flown internationally in Europe recently, I can attest that prompting people back to the seated waiting area (over the intercom) ahead of boarding had zero impact on the forty-sixty people super keen to get on board.

I suspect the airport would be interested in trying out the LIFO approach in this particular location.

<comment><USER14> I don't understand some of the herd mentality at airports.

For a long time, the budget airline Ryanair used to seat its planes first- come, first-served style. This meant everyone would stand and queue at the gate immediately, sometimes hours before the flight, just so they could get good seats. Fair enough, if that's what you want. But Ryanair switched to allocated seating over a year ago, and yet people _still_ stand and queue long before the gate opens, even though there's little benefit. Can it be worth it just to get to your assigned seat slightly earlier?

<comment><USER15> The variable here is overhead bin space, not seats. People want to board first, regardless of their seating assignment, so that they're assured a space for their probably oversized carry-on luggage.

<comment><USER14> Ah yes, good point. Still seems excessive to me, in the past they have offered to check-in luggage at the gate (for free) if they are getting full.

<comment><USER16> I wouldn't trust _any_ budget airline to do _anything_ for free. They're notorious for charging as much as they can for even the slightest convenience.

</comment></comment></comment></comment></comment></comment><comment><USER17> One thing the article doesn't mention is how this changes the final time to have all people processed. Wouldn't this result in (for example) flights leaving later, if people were in competition to arrive last?

<comment><USER18> It does quote "In practice it would be very hard to implement a principle of serving the last in most physical queues where people physically queue up, for example when boarding an airplane. It's simply too difficult to manage for practical reasons."

There's a real-world variation. At some airports people at the terminal go into a bus, which then takes them to a plane. This serves to mix and somewhat invert the queue, since the last people on the bus become the first to enter the plane.

The question I have is, is there a change in the gate queuing behavior between flights that load directly at the gate, vs. one where people first enter a bus?

<comment><USER14> That might be tricky to measure, especially as it's not obvious whether your gate is going to be bus-loaded or just a walk to the plane.

<comment><USER18> For some gates it's obvious. When you're on the ground floor, with only roadway outside the door, then there will be an airside transfer bus.

It's even more obvious when the neighboring gates also use buses.

<comment><USER19> Some buses utilize doors on both sides of the vehicle (or in many locations on the same side). Not all buses are LIFO.

</comment></comment></comment></comment></comment><comment><USER20> When working at a helpdesk company managing IVR services, one quicly learns :

LIFO minimizes latency and resource usage FIFO maximizes latency and resource usage

What you want to serve, as a queue manager, is the largest amount of requests in the shortest amount of time. Counterintuitively, this means that you absolutely don't want people who wait a long time in line to get served, because if they're willing to wait on hold for 30+ minutes they're willing to badger your agent (the guy answering the phone) for a long time into doing what they want. The result of this is that the queue quickly gets taken over by these long-waiters and everyone else gets delayed massively.

What you want to maximize is requests served/agent time. Requests served is what brings in the money, agent time is money leaving. LIFO, combined with seriously incentivizing agents to make sure calls get resolved faster than $avg - 10% or so, ideally with a pay bonus (people, especially people in low- end jobs, respond very strongly to pay bonuses).

The net result is that complex requests will result in waiting very long in the queue (because agents will throw you back to the queue as soon as they realize what you want is complex or impossible (people wanting things you can't provide are very bad in all respects, very common, and the people requesting them usually have way too much time). "I want to talk to manager" -> just throw him back in the queue). This means complex and impossible queries really, really start taxing the customer's willingness to sacrifice their time. Ideally this would result in the 2-hour-long "pay for me sending a slightly scratched product I bought last week in the US for 5$ less than I could have it in Antarctica, and let me ship it for replacement in < 1week, or I will #$)(!@#%)! 1@#)$&!@)#$ @$#)@& @)$&) _#@ & you and your entire family you !#@$ (@_&@)(#& #)( _&_ @)&@! #)( _@#)(_ @" conversations to just not happen. Normally there's a lot of these, they wear out agents (people being treated badly by customers to the point of crying happened almost daily)

Now you don't quite go for straight LIFO. Firstly a lot of people are offended by it, think it unfair, that sort of thing (and then the costs start mounting). You also don't want pure LIFO because there are customers that you actually want to serve with complex queries, so you start building a complex multi-queue system, but the entrypoint is usually a LIFO queue.

<comment><USER21> I came to share a similar experience running the numbers for a tier 1 IP carrier customer service desk.

Per call mixed FIFO/LIFO also gives you a good feel for how technical situations are progressing, and still depletes the older queue entries. Any given center can usually be dialed in, by changing the ratio off the top or the bottom of the stack for the next served.

I would imagine dynamic heuristics based on volume and delta volume/period would greatly assist keeping the queues clean.

</comment></comment><comment><USER22> The research being discussed: [http://static.sdu.dk/mediafiles/4/3/F/%7B43F80C9B-3533-4838-...](http://static.sdu.dk/mediafiles/4/3/F/%7B43F80C9B-3533-4838-9E08-DE09931B9379%7Ddpbe12_2014.pdf)

</comment><comment><USER23> Yeah, that'll go over well...

More to the point, the people who come "too early" are usually trying to get their thing done before some impending deadline.

Global optimizations sometimes don't go over well with individuals, i.e. it doesn't guarantee that a given individual will spend less time in a queue, and that's what ultimately matters to the individual. I could see this working in airports or other places with ushers, but not as a general principle.

</comment><comment><USER6> I just remembered that Steve Landsburg wrote about this a while ago for Slate, in the context of joggers waiting for water fountains. [1] It always Steck me as one of those "mathematically true but unphysical" results. Yes, if you could jog indefinitely, and if you could prevent "meta queueing", then you could make it so that there would never be a line at the fountain, but that's not a good model of joggers' needs.

[1] [http://www.slate.com/articles/arts/everyday_economics/2001/0...](http://www.slate.com/articles/arts/everyday_economics/2001/02/the_first_one_now_will_later_be_last.html)

</comment><comment><USER24> > It could be open to manipulation, with people leaving the queue and > rejoining from the back in order to get served more quickly.

This isn't manipulation, this is pretty much the defined behaviour. In a queue that doesn't close, this is one of only two ways for the person at the front to ever get served. The other way being for that person to be the only person left in the vicinity who wants the thing being queued for.

</comment><comment><USER25> This one got me thinking — what would be the optimal way to face a flight boarding line? If there are no incentives (i.e. seats are already assigned), then you're paying with time for no reward. Many people are using a highly suboptimal approach by waiting in line even before the boarding has been announced. I'm glad I just sit with my computer until there is no one in line :)

<comment><USER26> I do the same, but I believe many people want to be inside ASAP to get their "hand luggage" close. It happened to me once that there were no space anymore and my bag was quite far away with the crew luggages.

</comment></comment><comment><USER27> If the queuers have the opportunity to observe the queue before entering the queue then LIFO can't possibly work because why would anyone enter the queue voluntarely first knowing that you'd be served last? So people would end up hovering around the airport gate indefinitely because no one wants to go first.

</comment><comment><USER28> People like low individual latency, they really don't care about the queue's throughput or the average latency.

This also presupposes the venue doesn't want lines. That's a pretty bad assumption for a lot of service industries. Lines mean your venue is popular and serve as advertising.

<comment><USER29> Only if people are joining your line out of their want for the service, rather than some external requirement. Nobody likes a popular DMV, for instance. Nobody wants to be there.

<comment><USER28> taking the last person to show up at the DMV first will cause riots

</comment></comment></comment><comment><USER30> There is already a well known alternative to queues that minimizes wait time. Pre-assigned time slots.

<comment><USER23> Pre-assigned time slots are really a specific optimization of a queue, and are only applicable when you know how long the work will take.

</comment></comment><comment><USER31> _> Abandoning the first-come-first-served principle would be easier in internet or phone queues though, Osterdal points out._

Someone should implement this in TCP/IP routers and see what happens.

</comment><comment><USER32> "But the researchers experimented with different queuing systems, and when they told volunteer queuers that people would be selected from the queue and served at random, the average wait was reduced."

This is all around a much better system than FIFO. Of course LIFO is the fastest on average, but you want there to be a reasonable, predictable bound on how much time an individual can expect to wait. An extension of this policy could be "partially random first come first served", where you just start at the first person in line and flip a coin with probability 0 <= p <= 1 of getting heads, and if you get heads they get served. If you get tails you move to the next person, with the only exception being the last person in line.

In practice, for airports I would prefer to have the people sitting in the back board first. Then you wouldn't have so much congestion from people blocking the aisle while they stuff their bag into the overhead compartment. Also you shouldn't have to sit in your seat longer for the same flight if you bought a first class ticket.

<comment><USER6> >This is all around a much better system than FIFO. Of course LIFO is the fastest on average, but you want there to be a reasonable, predictable bound on how much time an individual can expect to wait.

Right, this is generally handled by how we (implicitly) judge queues, not by the average wait, but by the average _square_ of the wait, and penalize extreme wait times that are concentrated on one person.

It's why it's better to have one line feed into multiple clerks rather than each clearly get their own line: because there's the risk of some transaction taking a long time and screwing everyone in that line.

Single-queue avoids that by allowing people to be routed around that clerk. There's no change in the average, but you've avoided major quadratic penalties.

It's also the problem with LIFO: even if you could somehow stop people from leaving their early-entrance spot (!!) to re-enter for a better one, you're still sticking a few people with horrible wait times, which good metrics penalize.

</comment></comment><comment><USER33> No.

If it was first in, last out it wouldn't be a queue, it would be a stack.

Come on, author, this is literally computer science 101.

<comment><USER34> unless they're using queue in a non-compsci parlance. i've never heard of being "last in the stack" while "stacking up" for my turn at the counter. this study seems aimed at addressing human systems, not with data structures.

<comment><USER33> _looks at downvotes_ Wow, I didn't realize HN had such a massive stick up their ass with what was OBVIOUSLY A FUCKING JOKE.

</comment></comment></comment><comment><USER35> "Should the first in a queue be served last?"

No. Queues are, by definition, FIFO. This article is one of the most idiotic pieces of drivel that I've read in a long time. I want my two minutes back.

<comment><USER36> I assume this is intended to be sarcasm? I thought that the article was very interesting, especially in the context of software engineering, even if the word "queue" was used in the colloquial sense (and not the stricter technical meaning used in computing).

<comment><USER35> > I assume this is intended to be sarcasm?

Your assumption is incorrect.

</comment></comment></comment><comment><USER37> Easier solution: print out tickets with a vending machine (or link it with a smartphone web app to reduce paper waste) and allow people to SIT or MOVE AWAY without losing their place. Works wonders w/ children (who often enough get bored as fuck, and as result noisy or otherwise disruptive, when forced to wait for longer periods of time with no movement allowed) and old-ish or pregnant persons who simply are physically overwhelmed by having to stand still for longer times.

Also works wonders against rich or pseudo-elite bastards thinking they're too important/rich to wait.

<comment><USER38> When I can make more in 5 minutes than a teenager can make in an hour, then yes, I explicitly am too rich to wait.

<comment><USER37> The entire point of a waiting queue is to ensure equality. The plane is going to depart at the specified time and when you're early enough you can grab the best seat so where's the problem?

Most airports and other venues with predictable queues offer free wifi and power outlets so where's the problem there?

<comment><USER11> >The entire point of a waiting queue is to ensure equality.

Only in the absence of other methods of organization. If you pay for a better ticket you usually don't have to wait in the same line.

And if you remove the social expectations of lines, there's no big deal about paying other people to do easy but boring tasks or whatnot.

Sitting in line is still a waste of time.</comment></comment></comment></comment>


"Search is not a business" - <AUTHOR> http://blogs.law.harvard.edu/philg/2007/03/07/search-is-not-a-business-nathan-myhrvold/ <comment><USER2> It's true -- search _wasn't_ a business. Fortunately some people were smart enough to see that it could _become_ a business.

<comment><USER3> It is true, search was not a business. Back then, most startups depended on DoubleClick banner ads for revenue generation (just as today most startups depend on Adsense). DoubleClick was not a viable business model and Google considered that to be their very last option.

Google was running thin on cash until they finally adopted Bill Gross' GoTo.com advertising model (aka Overture) in 2000. So for the first 2 years, Google was a cash cow with no business model around its search either.

</comment></comment><comment><USER4> Don't forget, Myhrvold is the man who completely missed the Internet while he was the CTO at MS. Were it not for BillG, who realized what Internet represented, MS would have been toast.

No wonder he got kicked out of MS and no wonder that he spends his post-MS days playing a patent troll.</comment>