Monday, February 22, 2016

Losing money to build market share

This is Joseph.

A remarkable statistic from the Guardian:
A recent article in The Information, a tech news site, suggests that during the first three quarters of 2015 Uber lost $1.7bn while booking $1.2bn in revenue. The company has so much money that, in at least some North American locations, it has been offering rides at rates so low that they didn’t even cover the combined cost of fuel and vehicle depreciation.
These numbers only have to be vaguely correct for there to be serious concerns about predatory pricing.  Because below the cost of fuel and vehicle depreciation is selling at a dead loss.  Of course, Uber is a very smart company and they have created a class of independent contractors to try and make a direct link between costs and revenue tricky to do.

But, I think we can all agree that when losses exceed revenue then the endgame is not likely to be a new system of rides that are more cost effective.  There may be economies of scale, but they are not likely to overcome that kind of problem (not the revenue doesn't exceed losses . . . which is a very long way from profits). 

Just something to ponder when we make direct comparisons between costs of taxi cabs and Uber car services, like here.  These prices aren't going to be this low forever, unless Uber has a clever car plan to reduce costs of acquisition and repair.  And that's the part of the plan that I am most interested in.

1 comment:

  1. Forgive my ignorance but is Uber actually kicking in cash to the drivers beyond what the passenger pays? If so it seems blatantly predatory.

    But I thought Uber took a cut, in which case charging below depreciation values is exploiting employees but less blatantly predatory. I feel maybe I'm missing something . . .