10 months, 12 days ago

Uber Mathematics 4

Link: http://rvsoapbox.blogspot.com/2021/09/uber-mathematics-4.html

As I have previously noted, drawing on research by Izabella Kaminski and others, there is something seriously problematic about the current business model of rideshare platforms such as Uber and Lyft. It seems that the only route to profitability is via some disruptive event in favour of their business. Although investors have poured eye-watering amounts of cash into these companies, this only makes sense as a bet on such an event occurring before the cash (or investor patience) runs out.

How does the magic of digital allow a centralized company with international overheads (Uber or Lyft) provide a service more cheaply and cost-effectively than a distributed network of local cab companies, many of which are run by one rather harassed guy in a small booth next to the train station? Well it doesn’t. Even screwing the drivers can only go so far in stemming the losses.

So what is this disruptive event, that these companies and their investors are eagerly waiting for? One theory was that the rideshare platforms could only be profitable once they had eliminated all competition, by a combination of undercutting rivals and doing deals with local authorities – for example, offering to run other elements of the local transport network. Once a monopoly had been established, then they could start to push the prices up.

Obviously this strategem only works if the consumers accept the price rises, and the guy in the booth doesn’t find a way to take back his business.

Another theory was that they were just waiting for self-driving cars. This would also explain why they weren’t looking after their drivers properly, because they didn’t expect to need them for the longer-term. However, not everyone was convinced by this. Aaron Benanav thought that they will have to wait rather longer than they originally reckoned, while Sameepa Shetty noted that Uber’s ambitions in this regard were currently focused on small favourable pockets rather than being spread across the whole operation, and quoted an analyst who worried that investors were throwing good money after bad. 

At the end of 2020, we learned that Uber itself had come to the same conclusion, selling off the driverless car division to focus on profits.

So remind me, where are these profits coming from?

Uber sells self-driving cars to focus on profits (BBC News, 7 December 2020)

Aaron Benanav, Why Uber’s business model is doomed (Guardian, 24 August 2020)

Julia Kollewe, Uber ditches effort to develop own self-driving car (Guardian, 8 December 2020)

Elaine Moore and Dave Lee, Does Uber deserve its $91bn valuation? (FT, 17 October 2021)

Sameepa Shetty, Uber’s self-driving cars are a key to its path to profitability (CNBC, 28 January 2020)

Gwyn Topham, Peak hype: why the driverless car revolution has stalled (Guardian, 3 January 2021)

Related Posts Uber Mathematics (Nov 2016), Uber Mathematics 2 (December 2016), Uber Mathematics 3 (Dec 2016)