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A nobody; a nitwit; a pilot; a motorcyclist; a raconteur; a lover...of life - who loves to laugh, who tries to not take myself (or anything) too seriously...just a normal guy who knows his place in the universe by being in touch with my spiritual side. What more is there?

16 May 2019

Can Uber Survive?

For seven years I drove a taxi here in Pensacola, Florida. When Uber came on the scene, it was apparent to me that it was a taxi service disguised as something else.  Uber was using various weasely excuses to get around the traditional licensing of taxicabs that many (but not all) municipalities have in place.  Once the camel got his nose under the tent, there was no stopping it.  Now Uber is everywhere.  I saw the handwriting on the wall and made the Big Switch last May - a year ago, come to think of it!

As a company, Uber has never been profitable.  It loses billions of dollars each year.  Yet investors threw money at it like crazy, allowing the company to grow on a worldwide scale.  And, sure enough, one of the reasons people use Uber is because it works everywhere.  One app: every city.  What's not to love?

Well...investors do love profitability.  And it must have been with a certain amount of trepidation of senior management when they took Uber public this month (May 2019).  Because now, instead of just being answerable to a relatively few investment capitalists, there will be another layer of management to deal with: Stockholders.  And stockholders are notoriously fickle and single-minded (read: profit-oriented).

Uber came out of the box strong during the IPO, but the stock price dropped and dropped in the first week.  I'm certain it's because of fear and skepticism on the part of would-be investors.  To wit: Can Uber ever be profitable?  Can it even survive?

Uber has stated that their future profitability depends on self-driving cars (SDC's).  And they've hinted very strongly that SDC's are right around the corner.  They're not.  Merely saying something with conviction about some future event does not make it so.  Sure, the technology has made great advances, but there's still a long way to go, and many issues to be solved before SDC's become a reality in your town.  And even then they won't be introduced country-wide.  Maybe they won't even be introduced first in the litigious U.S.!  Would you get into an autonomous vehicle/taxi right now?  I wouldn't.

But if Uber can take the driver (and what they pay him/her) out of the picture, then that's 40% more revenue for them.  That's the theory, anyway.  Who actually knows what additional, unpredicted costs there might be in terms of...oh...insurance, for one thing?  If a driverless car gets into an accident and fare-paying people inside of it are injured, who pays?  The reliability in heavy-duty commercial use of these new SDC's is unproven.  It's a safe bet that passengers will treat an SDC Uber like they do a current taxi, maybe worse.

And what other fees will municipalities levy against the company for having their cars, roaming the streets while searching for fares, circulating aimlessly in already-clogged downtown areas?  Here's the thing about a commuter's car: He drives it into the city, parks it, and it's OFF THE STREET during the workday.  An autonomous ride-share vehicle drives itself into the city, drops off its passenger and then will still be in the mix of traffic, adding to the congestion instead of reducing it!  And instead of twenty or thirty or forty people on a city bus, these same people will be divided up into four- five- or six-passenger (presumably electric) Uber cars?  This is supposedly better?  Maybe, maybe not.

So there are a lot of unanswered questions, a lot of unknowns.  We've only addressed a couple.  With driverless cars, Uber assumes that their cost of operation will go down.  But I don't think that is assured.

Here in Pensacola, Florida, Yellow Cab has come up with this thing called Z-Trip.  It's a hybrid taxi/ride-share service.  You can use it just like a regular old taxi: Call Dispatch and they'll send you a car.  OR, you can have your credit card information on-file with them and use Z-Trip as you would an Uber.  Either way, they charge the going taxi rate here in Pensacola which is $2.25 per mile, which is higher than Uber and Lyft at the moment.  Yellow Cab is transitioning all of their traditionally colored taxis to the new Z-Trip branding.

Right now, Z-Trip is only available in certain U.S. cities.  And it's not global, of course.  But if anything can eat into the ride-share market, it could be Z-Trip...if it can be rolled out and available nationwide.


Ed said...

I was just listening to a podcast the other day on Uber and the fallacy that it is an ecological way to travel for the reason you mentioned in your post.

I guess reading my tea leaves, I don't see Uber going away anytime soon. The allure of the one app and being able to use it in any city, without having to carry cash, is just too alluring. Eventually I'm guessing they will find some sort of model that will work well enough. I just hope it isn't Johnny Cab from the movie Total Recall.

Bob said...

Really interesting. It’s strange to me Uber is not profitable since it’s become so popular, but I guess a good idea that allows a driver to make a few bucks and is incredibly convenient for passengers does not necessarily translate into profitability for owners/investors. If I’m not mistaken, its chief competitor, Lyft, faces similar problems.

The whole thing with self-driving cars makes my head swim. I don’t expect them to become ubiquitous in my lifetime, but I expect they’ll be prevalent when my grandchildren are my age.

And what do you think about some Uber and Lyft drivers going on strike? I guess anyone can stop
working anytime they want to, but what kind of bargaining power do independent contractors have? I don’t get it.

As for me, I love Uber and Lyft for reasons I’ve previously stated. I’m in a big city and I can get transportation without having to have cash and I know how much it’s going to cost in advance. Here at home, I can get a ride to/from the airport, or to/from another destination in town and the cost is often comparable to or even less than parking.

Bob Barbanes: said...

Guys, it does seem inconceivable to me that Uber cannot make money. It makes you wonder where all their money goes, no? Bribes? Let's not fool ourselves into thinking they didn't pay off a BUNCH of politicians. I am confident that they...er…"compensated" our mayor here in Pensacola in some form if not an outright brown paper bag full of money. But bribes are usually a one-time thing. Uber's legal costs have to be humongous as they fight challenges from legitimate, licensed taxi companies. But still...I don't know. Maybe now that they're a public company we'll be able to see what they do with their money.

As for drivers striking? It's nonsensical. Nobody ever promised that ride-sharing was a full-time job. Courts have repeatedly ruled that ride-share drivers are *not* employees but rather, independent contractors. Uber does not prevent me from also driving for Lyft. I always wondered about that! Then it dawned on me: They do it specifically so that I cannot claim that Uber limits the scope of my employment. Clever!

To me, the only way for Uber to make money will be to raise its rates. In the beginning, one of the big advantages of Uber was that it was "cheaper than a taxi." Right now Uber is still "slightly" cheaper than a taxi over a given distance. We certainly don't charge half as much - it's probably more like only 20% cheaper, if that. And that may have to change.

Even so...even if Uber and taxis cost exactly the same, wouldn't you choose an Uber? I would! "Other Bob" mentioned all of the reasons. Unless and until taxis can do what Uber does, "Uber" will survive. And like Ed, I don't see the Uber business model going away any time soon. But if we cast our memories back and think about the introduction of video cassette tapes, in the beginning there were two formats: VHS and Beta. Sony, a giant in the home entertainment industry put their weight and money behind the Beta format (remember the Betamax?). Sure enough, it was VHS that became dominant. And likewise with ride-sharing, I think that eventually only one...Uber *or* Lyft...will survive. And it might not necessarily be Uber.