Pixel Envy

Written by Nick Heer.

We’re All Killing Uber Just By Using It

Jamie Powell, FT (registration required):

Uber is a decade old global brand whose core business — ride-sharing — is now growing at just 2 per cent. It is also betting heavily that its smaller business lines, such as food delivery and freight, will be a source of future growth.

In other words, it’s acting less like a start-up, and more like a legacy tech company scrambling for new growth. Think Oracle, IBM or perhaps even the modern-day Apple.

Notice the difference, however. All of these companies have “cash cow” products which help to keep the buybacks and dividends flowing, as well as funding future bets. Uber on the other hand…

Edward Ongweso Jr, Vice:

Typically, this business model would be paid for with passenger fares. But Uber’s passenger fares are artificially low because it uses investor money to subsidize trips, attract customers, and undercut competitors. This means that Uber is losing money on many of its rides. Taxicab companies can’t operate like this because they don’t have the billions in investor capital that Uber does. Simply put, Uber is losing money in part because its fares are too low; it’s long-game is to undercut competitors long enough for them to go out of business so it can jack up prices, or to develop driverless car technology before it completely runs out of money, pushing its expenses on drivers down toward zero.

I keep returning to a 2017 piece in the Economist, which was summarized and expanded upon by Ryan Felton at Jalopnik: in short, the most shocking thing about Uber would be if it had long-term success. It’s worth pointing out that the Economist made this assessment on having losses of a billion dollars a year; Uber just reported five billion dollars of loss in a single quarter. Even if you’re desperate to give them all the benefit of accounting by deducting the losses incurred from paying out shareholders — and have not read Powell’s piece refuting this very argument — that’s still over a billion dollars in a single quarter.

That’s not to say that Uber is an assured failure. But indicators are stacking up that something must fundamentally change for the company to function in the long term.