Is Uber the Amazon — or the Enron — of the transportation industry?

By Steven Hill, Medium, May 9, 2019

Uber has been promoting itself in its pre-IPO roadshow as the “Amazon of transportation,” but the comparison is misleading. CEO Dara Khosrowshahi is cleverly positioning his company so that it appears as more than just a taxi-like ride-hailing business, highlighting itself as an online platform that can connect users to a number of transportation-related side businesses. “Cars are to us what books were to Amazon,” says Khosrowshahi. This is part of Uber’s sales pitch for why it is different from its competitor Lyft, which has seen its stock plummet since its IPO as analysts start reasonably questioning how the money-losing ride-hailing business can ever be profitable.

But if we look more granularly at Uber’s side businesses, there’s not a whole lot there to suggest that those will ever be any more profitable than its taxi business. Those businesses are operating in industries either with low profit margins, heavy competition, immature, unpredictable markets, constraints on widespread product adoption, or wholly dependent on technology that is not even close to being ready. Let’s take a closer look at each of these side businesses:

Uber Eats. This is its food delivery business which Uber has heavily promoted in its IPO pitch. But the bottom line is that you can only squeeze so much profit from delivering an $8 burrito. Food delivery is fiercely cutthroat among many competitors, including Instacart, DoorDash, Postmates, GrubHub and more.

Bikes and scooters. Uber acquired Jump, an electric scooter and bike vendor, but the potential size of this market is unknown and profit margins are low. A recent study by the Center for Disease Control finding that a third of new users get injured on their first ride. Hospitals across the country have reported a dramatic rise in injuries, and even a few fatalities. Undoubtedly this is a big reason why another study found scooters mostly are “white dude transport machines,” since apparently that demographic is more willing to take a risky spin on this unsafe form of transportation. It’s hard to see how this service can be made safer, severely limiting its market potential.

Uber Freight. This is Uber’s service for contracting with individual truck drivers to deliver cargo shipments. This industry has a shortage of drivers, low profitability, and the competition in this industry is notoriously fierce. Long-time insiders like big dispatch companies dominate, and more recently new startup dispatch companies have launched their own Uber-like apps. Since Uber Freights’s launch nearly 2 years ago, take-up by drivers has been slow with only 30,000 active users currently out of the 3.5 million truck drivers in the US. Uber’s previous package delivery service, Uber Rush, was shut down in March 2018 because it was failing and had difficulty finding enough drivers. It’s not clear how Uber Freight won’t suffer the same fate.

Autonomous cars and Uber Elevate. Uber has build its brand on being a cutting edge tech company, but responsible companies and experts say that autonomous cars are still 10 to 15 years away from Level 5 or even Level 4 general use (which shouldn’t be confused with the current Disney-like experiments occurring in certain cities in small, well-defined areas that have been extensively mapped by Lidar technology). So self-driving cars will not change Uber’s bottom line any time soon.

And Uber Elevate is its” moonshot” to launch flying taxis (yes, you read that correctly). Despite its grandiose announcements, Uber does not have a working vehicle prototype, nor has it made headway in figuring out the enormous logistical, legal and regulatory hurdles involved in sending humans hurtling through the air on large drones. In actual fact, Uber Elevate seems to be typical Silicon Valley hype and bravado to promote the company brand.

Uber and its IPO promoters are saying these businesses make Uber the “sum of its parts,” but in fact these “parts” may each end up as loss leaders for the company, requiring constant investment and little return. So what about its core business, as a popular, urban-based taxi service? Surely that is the basis for a solid future?

Actually not. As is commonly known, Uber has been losing billions of dollars every year, primarily because of its struggling taxi business. Not only has it been losing money but, more worryingly for investors, Uber’s revenue growth has declined and growth in its user base appears to have maxed out.

In addition, what’s not being discussed much in the IPO frenzy is that one of the main reasons Uber loses so much money is because it subsidizes about half the cost of each and every ride. This has long been a part of its predatory pricing scheme to gain market share, and certainly it has resulted in rapid growth. But at this point it has become the opioid junk drug that Uber is addicted to. In the ultimate irony, the more customers use Uber, the more money it loses.

So the comparisons to Amazon are apples to oranges. Yes, Amazon lost money for a number of years (though not as much as Uber). But Amazon was able to bring an efficiency to retail by getting rid of brick and mortar stores and sales clerks across the country through selling online. That allowed Amazon to leverage those savings to sell its products cheaper than the competition, yet still eventually reach profitability even as it expanded into other side businesses.

What efficiency does Uber bring to the taxi industry, or even to any of its side businesses? What can the company do differently to stop subsidizing each fare and earn a profit? How many customers will it lose when eventually it is forced to double its fares to reach profitability? Neither its current CEO, Dara Khosrowshahi, not its previous one, Travis Kalanick, has been able to figure out the answers to these ongoing challenges. Despite new leadership, Uber’s true limitations remain because at the end of the day its problem is its business model.

Uber could possibly carve out another revenue stream by selling and exploiting its users’ personal data, like Facebook and Google do. But Uber already had a massive data breach — and an attempted cover-up — that resulted in the company paying $148 million to settle lawsuits filed by all 50 states. A business model focused on data harvesting would be a risky path as well, certainly not one that Khosrowshahi can count on.

So once you blow away the Silicon Valley fairy dust, what you are left with is a company with a heavily subsidized taxi business that is still desperately seeking a profitable business model. Since its inception, Uber has gone through a number of what Silicon Valley calls a “pivot,” which more often than not means your business model is failing and so you have to make a change or face extinction (such as shutting down Uber Rush, one of its previous pivots). There’s nothing about its current menu of “businesses” that lends one to think that they will work out any better than previous ones.

In short, this hardly seems like a company that will ever be worth the approximately $80–90 billion that its IPO is projected to launch at. That’s more than General Motors, and nearly twice as high as Ford. Something is seriously wrong with this “irrationally exuberant” picture.

In the meantime, Uber has contributed a number of negative externalities to urban cores: dramatically increasing traffic congestion, carbon emissions and automobile use; declines in ridership and revenue for public transportation; and the creation of crummy, low-paying jobs which has resulted in a backlash among many of its exploited drivers, including recent IPO-inspired protests. Uber is encountering regulatory pushback in city after city, the target of late-night comic jokes, a polarizing company that is either loved or hated — not exactly a quality that helps a commercial enterprise or its brand.

And by the way, the exact same things can be said about Lyft. At this point, any differences between Uber and Lyft, in terms of their business model, are minimal.

The dirty little secret of Silicon Valley is that seven out of 10 startups fail. I think it’s very possible that Uber is destined to be one of them. But everyone is afraid to say that because a good chunk of Silicon Valley — the venture capital funds, leading companies and influential leaders — are heavily invested in it and hoping to cash in. An Uber failure would send catastrophic, Enron-like shivers throughout Silicon Valley. But the warning signs have been there for a while. Uber is Silicon Valley’s Frankenstein, and now everyone is waiting to see how this epic movie turns out.

[Steven Hill is a San Francisco-based journalist and author of Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers”and Startup Illusion: How the Internet Economy Ruins Our Welfare.”]

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