Unless I'm missing something, the claim that becoming a taxi driver can become a well-salaried, middle-class job for a significant number of people is patent nonsense. There is a reason that taxis look the way they do and are driven by the people who currently drive them, and regulations and licensing is only a small part of that.
Uber might disrupt the taxi industry, maybe for the better, but once equilibrium is reached, incomes for drivers will have shifted to the right slightly, at best.
It's hard for me to understand what the long play is for Uber's investors. Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.
The long game as I understand it is the idea that Uber is building out a platform for real-time mobile logistics, and that transportation is the simplest and most broadly compelling example of something that would run on that platform.
> Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.
The long game is in capitalizing on (a) network effects and (b) the effects of changing technology on consumer behavior and market structure.
Start with network effects. I live in New York. There are many transportation options. Like my tendency to default to a "top of my wallet" credit card, I tend to fire up Uber first. Other options are considered if Uber disappoints. It seldom does; Uber remains at the top of my "stack". This leads to me demanding several rides a day more from Uber than from its competitors. That, in turn, makes Uber marginally more attractive to drivers. The technology is easy to copy, but the ecosystem is not: network effects.
Let's now consider the effects of changing technology on consumer behaviour. I can walk out of the aeroport in San Francisco, Paris, Austin or Abu Dhabi and have an Uber fueled and ready. Uber has been the driving factor behind me abandoning my driver's license, and with it expectations of ever owning a car.
Here's another technology: driverless cars. Driverless cars reduce fleet costs and risks, and increase scalability on the supply-side (i.e. scale is no longer limited by driver availability and quality). If I were writing Uber's strategy, everything until the availability of fully automated automobiles would be geared towards establishing a strong opening for driverless cars. The tactical phase deploys in force only after the supply side of the scaling problem has been kicked away.
But neither network effects nor technology will change overall number of people who need rides (demand) and the fact that driving cars is unskilled labor.
If Uber pays more, taxi drivers will make rational decisions and become Uber drivers. Or Lyft drivers. Or whatever other competitor.
If Uber has nicer cars or more efficient service, taxi services will adapt or go out of business. The drivers will go elsewhere, not change industries.
> But neither network effects nor technology will change overall number of people who need rides
It did with me (granted, N=1). I reduced my own driving to zero and replaced it mostly with Uber. That isn't just a shift in my quantity of rides demanded, it's a shift in my demand curve.
> driving cars is unskilled labor
I would not have given up driving if the alternative were yellow cabs. New York taxi drivers are not knowledgeable about routes. Further, it is not uncommon for a trip to end with a debate over whether the credit card reader works. I will pay extra for even a minimally professional Uber driver over an unprofessional yellow taxi.
The correlation between driver skill and rider experience is one of the problems Uber is running into when it considers scaling. That limitation is one that would be mitigated by driverless cars.
> The drivers will go elsewhere, not find other jobs
Network effects limit the viability of alternatives: there will be less demand on those platforms. As mentioned above, I do not believe most yellow taxi drivers would do well as Uber drivers–the supply is not fungible.
If Uber significantly affects demand, then we might see seismic shifts in the demographics of drivers.
As for the existing drivers, my point is that the effects you're touting are temporary. Taxi companies that provide a lesser service will die off and be replaced by others that follow the example of Uber. The overall economics of the thing will not change unless there is a significant change in demand. I don't think this is going to happen due to Uber any more than it did due to ZipCar.
> Taxi companies that provide a lesser service will die off and be replaced by others that follow the example of Uber.
I don't think Uber in its present form will shift the demand curve dramatically. Driverless cars will. A world with driverless cars could follow two models. Let's call them Apple and IBM.
Apple: each household owns a driverless car. Perhaps it can be occasionally rideshared via UberX, Lyft, etc. In this world, you are right: Uber tomorrow will be Uber today.
IBM: Uber (or Google or Tesla...) owns (and finances and repairs and replenishes) a fleet of driverless cars. Households pay it use fees. In this world, Uber's strategic autonomy is dramatically improved over today. If I were Uber, this is the long game I'd be playing for. I would be (a) training riders to depend on hiring cars with minimal personal contact, (b) encouraging the development of driverless cars, and (c) building a cash pile for rapidly acquiring a vast fleet of driverless cars the moment they become viable.
You are far more optimistic than me about the future of driverless cars. Given N driverless cars, some fraction p will eventually run over and kill small children. Stand back and watch the hysteria and the end of driverless cars.
Also, before driverless cars become widespread, they will need to be first proven and then regulated. Imagine the fantastic force of the driving lobby that will oppose that from happening: taxi drivers, truck drivers, fleet drivers.
Why do trains and subways still have a human sitting in them?
You chose to make your point with probability, which is actually what will most likely make people accept driverless cars in the end.
It's amusing to read the same reasoning after striking away "driverless":
"You are far more optimistic than me about the future of cars. Given N cars, some fraction p will eventually run over and kill small children. Stand back and watch the hysteria and the end of cars."
or with elevators:
"You are far more optimistic than me about the future of automatic elevators. Given N elevators, some fraction p will eventually malfunction and kill small children. Stand back and watch the hysteria and the end of elevators."
If the accident probabilities can be brought to acceptable levels, why wouldn't we adopt them?
PS: With trains and subways we have 1 driver per dozens of passengers, where the savings gained from reducing it to 0 may not outweigh the risk increase/loss of safety feeling.
Good point. I totally agree that if the risk is low, we should adopt the technologies.
I was addressing how I believe these sorts of accidents will portrayed in the news and media, especially if there is an organization with an agenda behind the coverage.
Yes, I think (automatic) car makers will have to be extremely careful. If we have dramatic accidents to soon, it may be hard to sway the public opinion with statistics (as is the current case with nuclear power).
“If you look at newspapers from American cities in the 1910s
and ’20s, you’ll find a lot of anger at cars and drivers,
really an incredible amount,” says Peter Norton, the author
of Fighting Traffic: The Dawn of the Motor Age in the
American City. “My impression is that you’d find more
caricatures of the Grim Reaper driving a car over innocent
children than you would images of Uncle Sam.”
Same thing happened with the horseless carriage when it first showed up. Didn't stop it.
That's the amazing thing about Uber: it does increase demand. By making it easier and simpler to ask for a cab, and actually providing an enjoyable experience in a market where expectations are very low, they managed to attract people who didn't really "need a ride" before.
This does come up in every thread that touches Uber, posted from different accounts. But do you have any idea if this is actually the case? It sounds a bit implausible that measurably more people would suddently get a burning desire to call a cab just because the app is so cool. Numbers, or any facts at all, could certainly help make your case.
Anecdotally: yes, it has for me and many people I know.
It's not because the app is cool. It's because it eliminates the biggest points of friction of taking a cab (namely, ensuring that one arrives soonish, and payment).
It would be shocking if that didn't increase demand in the margin. Who knows what the magnitude increase is, though (I believe it is significant).
I can only offer anec-data from the Atlanta area, but I know multiple people (including myself) that either sold a car or removed buy a car from their plans solely due to Uber. I've heard a lot of people state they used to risk a DUI driving home now take Uber instead.
It's nothing to do with the app being "so cool", but being able to get a clean car that actually shows up and being able to pay with a credit card. If you call a taxi in ATL, you expect at least a 15-30 minute wait if they show up at all. 90% of the time the driver will be blaring music or talking on their cell the entire ride. Some times they will refuse to take you to places, or refuse to run the meter but demand $xx for the trip. (Happened multiple times to me, all my friends have similar stories.) If the meter is running you have to carefully watch that they don't drive longer routes or even literally in circles (happened to me). And at the end of the trip, it's guaranteed they will only want cash and to take a CC will likely result in a screaming match and attempts to charge extra fees.
When Uber hit Atlanta, it was awesome. A car that actually shows up in 5 minutes? Clean, quiet, with a friendly driver? Map of your gps tracked trip emailed in receipt and card on file charged? The reasons people avoided cabs were removed. I personally take far more uber rides than I ever did taxis, and I know many friends for who it's the same.
It's not that demand for rides wasn't there, it's just there was no supply of quality rides before Uber. Taxis in ATL do not provide an acceptable experience, and are used only if there are no other options. People who before might have crashed on a couch, drove home after drinking, not attended an event with limited parking, asked a friend for a ride, etc. are using Uber because it's easy and economical. I have no idea how big of a percent this is nationally, but among the city dwellers in Atlanta I know of, Uber has been immensely popular and used for trips people would previously avoid with taxis.
Even if the only difference between Uber and taxis was that Uber seamlessly takes credit cards, that's enough to increase demand vs. walking / public transit for the growing population that doesn't carry cash. Add in that an uber is much more likely to show up when called than a taxi, and all of a sudden it seems worthwhile compared to an airport shuttle or wheedling a ride from a friend. Finally, knowing you can get home after a late night without relying on the uncertainty of the taxi system may make you more likely to go out in the first place, again, increasing demand.
Just an anecdote, I sold my car after moving to Seattle because public transit + bike, Uber, Lyft, and Flywheel (yes, normal taxi) + Car2Go + car rentals, was cheaper than owning (including opportunity cost), storing, and paying insurance on my car.
I started using Uber and Lyft a few months after selling my car. Flywheel was a good enough and cheap enough alternative for my needs.
I highly doubt more people are calling cabs based on the technology, but I would definitely believe fewer people are buying cars (or people are selling cars) because alternatives are easy and plentiful.
Definitely true for me, I take more cabs in Providence since Uber became available because the local taxis are so inconvenient/bad I never considered it a real option, and I take more cabs in Boston because Uber is a lot cheaper than the yellow cabs.
>But neither network effects nor technology will change overall number of people who need rides (demand) and the fact that driving cars is unskilled labor.
This may be unrelated but I don't see how technology changes doesn't increase demand. If Uber is convenient/cheap enough that people forgo car ownership and decide to use Uber, doesn't that increase demand. Even if, in the long term, car ownership was cheaper, surely there are people who would rather spend $6 today than sign a loan for $6000.
I think you're misunderstanding what "network effects" means. A product or service benefits from the network effect when it becomes more useful the more users it has.
For example, a telephone by itself is completely worthless. A telephone when all your friends also have telephones is great.
Uber doesn't benefit from this effect in any meaningful way. If my friends all use Uber, that doesn't make Uber inherently more useful to me than Lyft (or a cab). Its utility is divorced from the number of other people using it.
What you're talking about is more properly called "mindshare" (much as I hate that term) or simply "consumer awareness".
>Uber doesn't benefit from this effect in any meaningful way. If my friends all use Uber, that doesn't make Uber inherently more useful to me than Lyft (or a cab). Its utility is totally divorced from the number of other people using it.
True for the general model, but IIRC they're adding (or have added) features that do exploit network effects:
- The fare-splitting feature [1] gets more useful as more of your friends have Uber.
- The carpool service [2] will be more economical the more people you can find on the same route.
You need to look at it the other way - it's really a two-headed network effect: there are two classes of users, drivers and riders.
The more drivers they have the more useful it is to riders. There more riders they have the more useful it is to drivers.
Whether this is sufficiently far from the original meaning of "network effect" that we need another name for it, maybe. Given how obvious this effect is, is there an existing name already for it?
This isn't particularly new nor unique to technology. This is the entrenching effect you see in all exchanges - the stock exchange, eBay, etc... any clearing house for sellers and buyers to meet will benefit from this effect.
I don't think "mindshare" is the right word for this.
> Given how obvious this effect is, is there an existing name already for it?
It's a marketplace.
As a seller, and a buyer, you generally benefit from going to a larger marketplace. But that analogy breaks down for ride-sharing because there's nothing preventing drivers from being simultaneously available on multiple ridesharing services, and it's trivially easy to switch between them. So there isn't any true isolation between different services, and it makes more sense to think of them as part of a single, larger ride-sharing marketplace.
> Uber doesn't benefit from this effect in any meaningful way. If my friends all use Uber, that doesn't make Uber inherently more useful to me than Lyft (or a cab). Its utility is totally divorced from the number of other people using it.
The larger the rider base, the more drivers the service will have. Higher driver density certainly leads to a better product.
Well, if Uber isn't used then there aren't any cabs when I want one. Lots of people use UBer => I can always get a ride. SO that example might not be a good one.
I sincerely doubt that. I believe once driverless cars come around, there will be nothing to differentiate Uber from any other app from an established fleet management company like Avis, Hertz, or Enterprise.
Their costs would fall by that magnitude, sure. But so would everyone else's, so that doesn't immediately translate into higher margins.
I think it would benefit Uber more than rent-a-cars and other such services because of their greater effectiveness at finding rides to match with unused (driverless) cars, but that figure overstates it.
If they started to have a 50-80% unit margin, why wouldn't people compete with them? Why wouldn't, say, Amazon compete with them? It doesn't sound like a tough business to get into for Amazon -- just buy a bunch of driverless cars. And Amazon excels at competing at close to 0% margins -- why would we imagine that Uber would be successful at competing against Amazon in this scenario?
I have seen some taxi companies trying to add convenience--for example, I tried using TaxiMagic when I was in Denver for a conference. When it worked, it was great! I could see the car on the map as it arrived...But, the next time, I tried it during a mild snowstorm and the cab never arrived. So, I gave up on using them--but I imagine that with time, traditional cab companies will have more reliable apps. So, where will that leave Uber?
I imagine that there must be a floor to what can be charged such that a driver is willing to work for the service and such that Uber can earn a profit. So, let's imagine that the market segments and that Uber wins say 80% of the market and the rest is left between competitors (I say imagine this, because as someone mentioned, there is a STRONG inertia effect. If I already have a taxi app with my information in it, then unless the price/service advantage is large, then I'm unlikely to change.). I imagine that one area that Uber will still maintain an advantage is that they will have a pretty good map in large cities of the traffic patterns (based on tracking of cabs). I imagine that that routing information could be valuable to delivery services in general. While large players like Google, Verizon, UPS, and such already have such data, there must be smaller players for whom it would be useful. Cities themselves might find it useful for traffic planning.
Also, on a scarier note, Uber knows the route that its customers take. If it can link that data to demographics, then that might have some value for advertising along given routes, commercial real estate, etc.
> Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary.
I think part of it is a bet that individual car ownership will decrease with technology, which I think is a great bet. Not to say that investing in Uber is the best way to bet on that.
This is not based on any kind of deep analysis whatsoever, but I'm starting to get the same vibe from Uber as I got from Groupon several years ago.
Groupon's promise to local business owners was that offering a Groupon deal was an easy way to attract new long-term customers en masse, despite the sizable up-front loss. History showed that that did not happen for many businesses who used Groupon.
Similarly, so much of Uber's marketing is targeted towards the supply side (i.e. drivers) and the promise of making more than they could at any other available job, with "flexible hours" and other dubious perks. This is just the latest article to show that that is not the case.
Groupon's and Uber's business both depend on acquiring and retaining the best local businesses and drivers respectively, and as these kinds of stories keep coming to light, I wonder whether Uber will be able to retain all the drivers they acquire. Lyft has focused from the start on making their drivers happy, which is a smart way to differentiate from Uber's mercenary mindset, but I also wonder if that is enough to really differentiate itself in the eyes of drivers, at least enough to make Uber really worry.
In all honesty, I am rooting for someone to beat out Uber. When I first learned about them about 2 years ago, I marveled at their business model innovation and their ability to execute. But everything I read (and personally experience) about Uber tells me that they are becoming the new Investment Bank, both philosophically and culturally.
A key difference between Uber and Groupon is that with Groupon, unhappy business owners simply ceased their dealings with Groupon. With Uber, unhappy drivers may be able to inflict far more damage beyond quitting or jumping ship.
Most threatening to Uber's long-term viability are putative class action lawsuits, such as one alleging that drivers were misclassified as independent contractors[1]. If Uber is forced to reclassify its drivers, it could literally upend the economics of Uber's business overnight.
Because of the legal and regulatory challenges it faces, I think Uber is actually in a far riskier position than Groupon ever was and Uber's valuation seems to indicate that investors have too significantly discounted these risks. At this point, I actually think Uber might for some investors prove to be a binary investment. That wasn't even the case with Groupon, which still has a $4 billion valuation despite its decline.
While you can join a union as an independent contractor, independent contractors who are members of a union do not have the same bargaining rights and protections as employees who are members of a union. So here too, the classification of Uber's drivers makes a critical difference.
> offering a Groupon deal was an easy way to attract new long-term customers en masse
What does that even mean, at scale? If it is a money printing press for everyone involved, you have to postulate either that the entire market grows rapidly (for "local businesses", no matter what they do, in this case) or you've (at best!) created a middleman to tax all transactions in the system.
Only if the lower costs that enable that increase in the riding market are sustainable, which appears its not (at least until self driving vehicles are here).
Quite honestly - do you believe that making more than $50,000 per year for a HS grad is a bad thing?
I am not saying that they should not make more, but for most non college educated individuals - $50,000 is above US average income.
Uber may have shady tactics, and might be deceiving drivers - that's true. But the reality is that the opportunities they are giving drivers are not insignificant.
Unfortunately - these drivers are paying with their wages the price of a market equilibrium that has not been found yet in terms of finding the right pricing model to match supply and demand.
This is the problem that has existed in all major Internet marketplaces where you deal with people's businesses - with eBay, Uber, Amazon, oDesk, etc....
How are drivers making $50,000? According to the article it's more like ~$12 an hour. Working full-time, 40 hours a week, that's only ~25k. 12 * 2048 = $24,576
1/ They mention drivers making $1000/week.
2/ Smarter drivers are driving very gas efficient cars with much lower gas costs
3/ Wages are way better if you drive during peak hours. I did and it is pretty neat how much you can make.
Why are you making assumptions about the education level of Uber drivers? 15% of cab drivers in the US hold a bachelor's degree [1] and I'm sure that number will keep rising.
I've heard complaints about how increased competition with other drivers and slashing fares are causing driver's salary to dramatically decrease lately. I can't comment on the "average" driver salary however, it is a job that comes with some serious caveats, which is the territory of being an independent contractor - so because of that real salary is significantly lower than that of employees making the equivalent.
Besides the number being wrong, it is precarious employment without benefits and therefore not equivalent to a $X/yr "real" job. Moreover I would expect Uber wages to decrease over time (unskilled, easy to acquire work)
They may not be lying - that could be raw revenue. Unlike white collar jobs driving a car for a living comes with a lot of costs that kill your actual take-home income, far above and beyond just taxes.
Maintenance, repairs, insurance, and gas are all direct costs that don't really improve with economies of scale. Car payments too - though white collar workers may also be hit with that, but probably less so.
I think there's a bit of deliberate obfuscation here where Uber wants you, the office worker, to think of that $90K without all the strings attached, in which case it would be a pretty decent income.
Could this be, hmm, not so much lying as willful ignorance?
There are probably middle-men in the Uber industry just as there are middle-men in the taxi industry, who own a car and pay people to drive it with Uber. If they have one account per car, the account could me making $100k / year via driving 24/7, and Uber could be choosing to believe that these accounts represent a single self-employed driver.
Being a middleman would be extremely hard as you have to provide a profile picture and passengers use the picture to verify they have the correct driver.
I have no idea how they arrive at that number. I think I read somewhere that its a hypothetical rate, assuming someone worked a given number of hours.
Or else the "Data Driven" company doesn't know what the difference between Median and Maximum are?
On another note, I've met quite a few UberX drivers who have financed their cars. That level of fixed costs make someone significantly less able to absorb any price cuts.
Finally, what is the really Price Elasticity of Demand here? Even when the fares are at surge levels of 2x, how does often does that deter people? Sure, if its 8 blocks, I might walk it, but at a certain threshold (which I assume is the best revenue anyway) the only other alternative is some other mode of service with an almost equally high cost. My guess is that their claim that lower fares = greater ridership has a much lower coefficient than they let on.
I think that to a large degree, Uber is competing not against taxis/other ride shares, but against "taking my own car." Most Americans -- even urban ones -- have the ability to drive themselves. And at that point you aren't competing against a firm other cost, but against a squishy composite of "parking cost + annoyance of driving myself + value of being able to drink without worrying about driving home."
Well, the article claims that Uber has been unable to produce even one driver making $90,000 in NYC. Given that it's supposedly the median, they should have hundreds or thousands of drivers making it. It certainly seems damning.
Plus income != profit. If you buy a car and gas and insurance and maintenance and then Uber cuts the price, you might not make much at all out of that.
We at Sherpa has collected around 1M trips from Uber and Lyft. The average hourly rate of Uber driver is around $15 -- varies among cities. If you work 8 hours a day for 365 days, you will earn around $43,800. Of course, if you drive for 24 hours a day, you will earn as much as $131,400.
Do drivers collect the additional income during surge pricing or does the delta simply line uber's pockets? It seems like you could game the system by simply only driving during surge pricing.
I think that's the point. During times when there is a higher demand, they want to provide extra incentive for drivers to be out there. That way the supply of drivers doesn't just dry up instantly because of the swell in demand.
"It seems like you could game the system by simply only driving during surge pricing."
The more drivers stay at home, the more there is surge pricing. The more drivers drive, the less there is surge pricing. Such is the game of equilibrium :)
It's the same 80/20 split as usual. If your fare is $11 including a $1 "safety fee," then drivers see $8. If you're in x2.0 surge and so your fare is $21, drivers see $16. For UberX.
Really cool article I found it pretty informative. I think the Uber/On-Demand Taxi Service was a revolutionary idea but the question is how successful will it be in the long term, and how much power does uber truly have over controlling the price? I think they've taken a risky route and may be susceptible to failure without some type of change.
Uber might disrupt the taxi industry, maybe for the better, but once equilibrium is reached, incomes for drivers will have shifted to the right slightly, at best.
It's hard for me to understand what the long play is for Uber's investors. Given the sheer volume of demand for rides, the relative ease of copying this service, and the number of cars owned by Americans, I don't see how their large revenues can be anything other than temporary. I think the investors are playing the short game.