Hi All, Hope you all are doing great! The good news is that Uber is no longer getting all the bad press and is at rebirth in Silicon Valley Time. The newest bad kid on the block is none other than WeWTF (Scott Galloway coined this and I love this term). I didn’t expect the IPO to get delayed but Galloway in an interview clearly pointed to 2 options ONLY. 1) Layoffs and trim to get back to profitability or 2) Bankruptcy. I think layoffs are likely if they ever want to IPO!
Anywho, back to my favorite company, Uber and take rates:
1) Take Rates and Uber/Lyft
The interesting thing here is that your take rates don’t need to be THAT high to be profitable (Amazon/Airbnb) v/s Uber/Lyft that have higher take rates! This all comes down to marginal costs and how you scale your marginal costs matters!
In 2013, Benchmark Capital’s Bill Gurley wrote a piece stating, “High volume combined with a modest take rate is the perfect formula for a true organic marketplace and a sustainable competitive advantage.” Today, however, some successful online aggregators appear to be taking surprisingly high platform fees, as shown below. While platform fees differ by industry and offering, based on the company models we have examined the average fee is roughly 30%.
Some companies like Uber enter a market offering low platform fees to acquire users, only to increase them over time.
Yet, pushback from business owners, or drivers in the case of Uber, as well as regulators can put a ceiling on platform fees. Interestingly, while Uber’s take rate has been fairly constant over time, Lyft’s have increased.1 That said, because both firms went public recently, they may have been putting their financial statements in the best light, obfuscating their equilibrium take-rates. ARK is debating the best take rate strategy to maximize unit volumes and profitability.
A brilliant articulation from Ben Thompson on tech companies. Is Uber a tech company? Also what he has written seems like almost every manufacturing company from the 1980’s.
This was a great article. We are all so fearful of the consequences of quitting a job that we just stay and take it. I think this kind of story is only going to happen more as workplace disharmony becomes worse and worse. A friend of mine told me something that made a lot of sense, especially in the valley. I get paid twice the money to do a job two levels below my capability only to live a life one half as good as anywhere else in the USA. Yeah! Yet here we are!
This article covers the evolution of marketplace from just market makers to process makers (workflows). Not just a marketplace but a marketplace, a network/identity and a workflow, all working together
8) A good overview of basic interaction design principles [LINK]
10) Continued unbundling : The great LNKD unbundling [LINK]
If you think unbundling was over. You are mistaken. There is demand for differentiated platform functionality which needs to be served for niche audiences. With technology going online
11) Are users ever going to be loyal to Uber? Will Uber ever be profitable? Is Uber a tech company? (See Ben Thompson’s read above)
NOTE : These are just random notes I made as I was thinking about Uber. There is no missing linked article
What’s the price elasticity for a rider (remember competition is not just Lyft but any other mode of transport). My guess and anecdotally I price a ride in my head. For example from Caltrain sf to 1455 MKT it is worth $x for me to get there in an Uber v. walking (for short trips even taking a scooter). For long daily trips no one will Uber everyday (the economies of car ownership or car “subscriptions” kick in)
Profitability will only be possible if companies stop following a scorched earth strategy which neither company is doing (at least until now) - one possible option in the future is a merger of Uber/Lyft (good luck on that from an anticompetitive angle)
Even if a merger happens, self driving will kill them. Self driving tech will not be much of a long term competitive advantage (the same way that having an erp system lost its competitive advantage for a manufacturing co) - Brand will help but only so much and it will end up becoming a Walmart play (razor thin margins for walk in the door products) which to me are “daily/commuter” use cases with higher margins on say airport rides (infrequent)
Furthermore, this is only the US. There is no “rule the world strategy”
They can potentially unlock goods delivery or become a multimodal aggregator which might help growth a bit) - again razor thin (there is no “eyeball” or “intent” competition here that facebook/goog have). You need to get somewhere you need to. Period.
Overall Uber will survive just fine but the days as a cool “tech” company are over. Their stock price has any and all growth baked in. Some investors get rich, Masayoshi Son gets screwed. That's the reality of venture capital (yes, even late stage)
You rent the device, and with it all its subscriptions - movies, games, perhaps bundled apps (all the 2+MM of them), hardware services, insurance, phone plan. This is likely where the strategy will end up
So useful. Thank you