Surprise, surprise… Uber got shit on by public markets.
How long would you be willing to trade a dollar for fifty cents…
Is the era of unsustainable, unprofitable growth over? Or is another WeWork in the cards? And what exactly is the future of transportation and ridesharing?
I recently interviewed Jarrett Walker (a world-renowned urban infrastructure planner) on this very topic. It makes a great companion to this piece.
Let’s talk about Uber
You came here for Uber. (If you haven’t already read this post: Uber’s Going to Zero and Benchmark Knows It!, you should do that now).
So, Uber… Whether you’re short (likely), long (doubtful) or trying to make up your mind on the future of driving, car ownership and transportation as a business model, I’ll do my best to breakdown what the future holds.
To reiterate (from this post), ridesharing and transportation is a local network, not a global one, hence why Airbnb’s incredibly valuable and almost untouchable and Uber’s stock price resembles black diamond slopes.
That means Uber’s awesomeness in NYC or San Fran doesn’t actually help me if I’m living in Atlanta. And worse still, an Atlanta (or Chinese or Southeast Asian or European) competitor can crop up, raise a bunch of money and compete to either (drive down prices/margins) or put Uber out of business entirely (while burning through loads of cash in the process — like Didi did in China).
Investors are realizing ridesharing might always be a net negative business. It’s hard to make money replacing the car while undercutting taxis… and that’s before you factor in regulations, taxes, upcoming benefits (fingers crossed) and possible taxi-status.
And without multiple passengers (ie Uber Pool, etc…), ridesharing does actually eliminate cars on the road… Sure, it eliminates the need for so freaking many parking spots (and for so many cars), but the same number of cars still cruise around.
Also, if you think about it, most Uber drivers aren’t stationary, but driving between possible pickup points, meaning, if anything, there are more cars on the road. Instead of you driving from your house to Whole Foods, your driver’s got to drop off John at Starbucks, hightail it to your place, and then head to the supermarket…. That’s a whole extra trip, right?
Not so ecofriendly…
Ridesharing and pricing power
As previously discussed, Uber can never gain true pricing power over a market. If they did:
a) They’d be regulated as a monopoly and broken up (at least in most countries/jurisdictions), or…
b) New upstarts with cash would crop up to compete.
So, if they’re losing money on every ride today, how does scaling solve the problem? Short of autonomous vehicles (which I argue in this article Google/Waymo will crush them at, or GM/Cruise. And it wouldn’t solve their woes anyways…), they’d be screwed, right?
Unfortunately, there’s no surprise answer, no tricks up their sleeve.
The answer is YES, they’d be screwed.
Remember, fifty cents for a dollar.
Speaking of money…
The economics of on-demand drivers
For drivers, driving for Uber (or Lyft) is becoming more and more of a raw deal. While the flexibility of choosing your own hours is pretty sweet, the lack of benefits (one of the main reasons the services are able to be so cheap — in addition burning cash and marginally increased efficiency).
But when drivers are giving up 20–25% to a company that’s hemorrhaging cash, laying off employees and leaving execs with massive bonuses and stock compensation (how much did Kalanick walk away with?)… creates a two-tiered system, huh.
And if you can make more money driving for Lyft or Amazon (or recharging Bird scooters — on to that soon…), why waste your time with Uber. This lack of driver loyalty (especially as more services like Walmart/grocery delivery, UberEats competitors, etc… are looking for gig drivers) drives up costs. If Uber has to fight to keep drivers, that hurts margins…
What about electric scooters?
Micro mobility is the latest trend in transportation, and I love it. The scooters (and to some extent bikes) are incredibly convenient and a great development for the environment. Once we figure out the scooter-sidewalk-graveyard problem, these small, portable, eco-efficient devices are ideal for last-mile transit.
And with 32% of trips being less than 2 miles, that takes a ton of cars off the road.
And last I checked, a scooter is smaller than a sedan…
Of course, Uber and Lyft have been working to get into the game. Both have made serious acquisitions of explosively growing scooter companies. And the idea behind the scooter companies is ingenious. Put a cheapish product on the street that people will use a few times per day, charge consumers a few bucks a ride and within a few months, you’ve recouped your investment. VCs love that…
There is one BIG problem… charging and maintenance. Even with gig workers redistributing and charging the thousands of scooters flooding our streets, the logistics are tough and the costs high to maintain a legitimate scooter network.
And, as with our global vs local network effects, scooter companies suffer from the same usage dynamics. It doesn’t matter if you’re in Boston if I’m stuck in the ATL…
Sure, there are in-city network effects (more on the 5 types of network effects and how to hack them), but it’s even cheaper and easier to spin up a scooter competitor than a serious contender in ridesharing…
And people are kicking the crap out of the little scooters. The scooter torture videos make S&M seem mild, and many folks are vehemently opposed to radical new forms of transportation.
“Get off my sidewalk!”
Will these issues get sorted? Of course. In this case, regulation or at least city-wide limits and restrictions on use, storage, etc… are needed because the truth is, cities are dying under the weight of cars. Fourteen percent of LA’s is wasted on parking alone. And then there’s actual driving… And no one likes traffic, pollution or pounding horns.
What about driverless cars?
The scary truth about autonomous vehicles is that they will probably make the congestion problem worse through what is called “induced demand.” (More on that here)
The problem is, when it doesn’t cost you time/energy/money to do something, you’re more likely to do it more. When sugar became cheap, we ate more of it. A smartphone’s a more powerful supercomputer than NASA’s moon mission in your pocket, yet almost the entire world has at least one, even the developing world. And there’s a reason we get so many damned robocalls…
Would you think twice about sending your autonomous car to pick up the groceries, the laundry, a few extra trips to the store?
With “abundance,” optimization and efficiency go out the window… It’s not your problem, right?
That will lead to many more cars on the road. And autonomous vehicles wouldn’t need to park, at least not nearly as long. If want to go shopping or see a movie, it could drive laps around the mall (to avoid paying for parking), or rent itself out to other riders. And extra laps is anything but good.
And while renting your ride is good, it still leaves us with the ridesharing problem — it doesn’t actually take cars off the road, regardless of who owns the car.
Many people believe increased efficiency and reduced vehicle spacing due to AI reaction times/coordination will cut down on traffic. This is true.
Cars will be able to drive closer together and reduce braking-and-accident-related traffic jams (which account for a huge percentage of slowdown). At the same time, it would be ignorant/arrogant to assume we can eliminate all accidents. Between faulty programming/software updates and the general random chaos of the world… come on.
And it is hard to say how much these efficiency increases will help. They help, but it probably won’t be enough.
And now, the future of transit
Sorry, Elon, it isn’t tunneling either.
The truth is, there is a geometric consistency equation ANY transit system MUST solve based on the area and density of a city and the number of people you can fit on the road.
And when it comes to space efficiency, nothing beats good-ole public transit (when it is done right).
Sorry tech bros…
How many people can you fit on a bus? How many fit in a car? Enough said…
And scooters/bikes are a major player in this system. Buses, trains and trams are great, but for big cities (especially spread out American ones), first/last-mile transit is a big problem. If the subway is two miles from your house, you ain’t using it…
Therein lies the value of micro-mobility. And though every city is different, and the ideal transit system similarly unique, the way forward HAS TO incorporate both reliable public transit and micro-mobility options.
It’s like filling a jar with rocks, pebbles and sand. Start with the sand and you’ll never get the rocks… But, if you plan ahead and account for the strengths and weaknesses of each, you can perfectly fill the jar and find a solution that fits the most people… with the least traffic, pollution and cost for all.
Back to Uber…
It doesn’t look pretty. And I love Uber. It is super convenient and in Cape Town completely eliminated the need to own a car. It revolutionized the world for billions, but needs to be better thought out.
As an investment, it’s still on the fall, like it’s earnings. The company’s taken sucker punch after sucker punch. That said, they’re still standing. Can they right their business, pull out of unprofitable markets and turn around the once ~$100B private unicorn?
No one’s pulling for them more than SoftBank… Investors and expectations did this to Uber. Like Napoleon and Hitler (stupid enough to fight multi-sized battles at once), Uber’s empire probably peaked.
Private investors pushed all the wrong incentives: growth at all costs. And only cancer can grow forever… and it kills the host. I think we can all agree that was an interesting experiment.
At least the public didn’t get hosed by WeWork too…
Can Uber survive?
Uber owns JUMP, the bike and scooter rental company and are still pushing hard for sustainability. The private markets have pretty much dried up (although it looks like SoftBank is always willing to bail out a big bet…) which means they need to approach profitability fast.
And though their network of both drivers and riders is the unquestionable leader, they’re still fighting too many fires. Selling off (or just closing) regions and markets would be a good idea. If they could structure similar deals to the Didi retreat from China (where Uber acquired a 20% stake in Didi, which could ultimately go on to be the most valuable piece of Uber), they’d be a great position as a lead gen/holding company. There are certainly other markets the could/should attempt this in.
And since the “your margin is my opportunity” thing is fading fast from the public perception of Uber, they have to start raising prices. The big question, will competitors follow suit. Uber has deep pockets, but so too do their competitors. And, will riders start switching as prices rise?
In a market where price (and convenience) sensitivity seems quite high and loyalty/lock-in very low, it’s doubtful riders would tolerate higher prices. If that’s the case, usage drops, the stock drops, and the flywheel from hell accelerates…
Will it go to zero? Of course not… but it will be a far cry from $80–90 billion.
The ride was nice while it lasted.
And flying cars?
No discussion of the future of personal transit would be complete without going Bladerunner.
“They promised us flying cars and all we got was 140 characters…”
Across Silicon Valley, startups and rich billionaires are fighting to bring their sci-fi childhood dreams to life. And nowhere is this more apparent than flying cars (unless you count life extension…). And if you’re that rich, can you blame them?
But are flying cars a thing of the future or of fantasy? And do we actually want them? Would they help?
Air traffic controllers can retire at 50 and are forced to do so at 56. Managing incoming and outbound aircraft is an INCREDIBLY stressful and taxing job. And even Atlanta airport (the world’s busiest) has only 2500 flights per day. To give you context, Atlanta has over 3.5M cars.
So, without perfect autonomy, flying cars are a pipedream, at best. Allowing human pilots is an obvious impossibility. Would you let distracted human drivers behind the “wheel” of a hovercar?
And if designing level five driverless cars is hard, adding a third dimension makes things exponentially worse. And if Bezos is drone delivering tacos and more, that’s potentially millions more high-speed objects zipping through the air.
Optimizing not only individual vehicles, but entire airspaces seem impossible without high-level AI (not AGI). And based on my conversations with AI experts, we’re not remotely close.
And then there’s the FAA, terrorism and national security… Driverless cars alone have a ton of regulatory hoops to jump through. And as 9/11 showed us, a flying car (or airliner) is no different than a missile. What are the chances governments are cool with that, or even everyday citizens? It’s bad enough when ISIS drives vans in a German Christmas market…
Will flying cars happen? Maybe one day… but it’s a long ways off, Uber’s nowhere close to the leader (as explained here), and with their move fast and break things approach (which broke a lot of things…), would you really want to ride an Uber air taxi anyway?
“Houston, we have a problem…”
The future of transportation is a big topic. And throughout the world, it is one that will increasingly dominate the global stage as climate change and consumer preference push us towards a brave new world, one likely with little-to-no personal car ownership.
And full autonomy opens up a whole new can of worms. So, is it possible for Uber to thrive in the upcoming transportation transformation where cities and lives are redesigned for a sustainable world? Of course… but really, how likely is it?
The company’s been anything but an upstanding global citizen, and for the reasons highlighted above, does little, if anything to alleviate the problem of congestion.
While true ridesharing is incredibly valuable (more on the differences here and additional ways to fix our broken transit system with ZipCar founder Robin Chase), ie., where you’re headed somewhere anyway and give me a ride, the glorified taxi model of Uber/Lyft is anything but.
Dara Khosrowshahi is a huge step up from Travis Kalanick in terms of corporate and global citizenship, and his vision for the company seems to be one pushing for profitability and long-term success, but living up to lofty valuations of old will probably prove impossible. And increasing market (and regulatory) pressures have the potential to eat further into their profits.
What happens next, only time will tell…
What do you think? Would love to hear your thoughts in the comments section below.
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