Let’s break it down.
>Uber takes 25% of the money from each ride on the app.
>It does not pay for any of the costs involved in the actual rides, not fuel, insurance, or vehicle costs, all that is paid by the driver.
>Their customer service is outsourced to India
>Each city they operate in requires a tiny office with very few people, simply to screen drivers
>They maintain mobile apps to operate their service.
Now, based on this, there is no reason why they should not be turning a profit on their $11.27 Billion annual revenue. What causes the $1.8 billion loss?
In: Economics
Former taxi business exec here…Uber and all other “unicorns” basically observe some form of [blutzscaling](https://hbr.org/2016/04/blitzscaling). Coined by Reid Hoffman, it’s the practice of being the early or first mover in a market to rapidly grow market share.
This is designed to disrupt and destabilize traditional markets in a way that they cannot catch up. These companies rely on venture capitalist funds to stay alive and purposely lose tons of money until they have the share of the market or have created a new market which is profitable.
What does that mean for Uber…essentially Uber has destabilized the personal transportation market and gotten a tremendous market share by over supplying it. This basically means…when you click on the Uber app and see a 10 min wait time it’s not because of fancy algorithms, it’s because Uber basically has drivers everywhere just in case you want to ride. What’s great for Uber (and shitty for the drivers) is that unlike traditional personal transportation markets (taxi), Uber drivers only get paid when they carry a fare, but when they do carry someone, Uber has artificially held prices down so people will take the service. So, even though they pay less for the driver, the driver isn’t making enough for the company to turn a profit.
Ok…now to answer your question, because of this over supply and not charging as much, Uber loses on every ride.
Further, Uber’s customer acquisition costs are very high, it costs them tens or more millions to enter a new city.
All that is to say, without taking more subsidies from public entities, or charging more, Uber can’t make a profit for a little while on their core business. Which is why utilization is so important.
Utilization is making sure the driver is generating revenue for every hour they are out there. That’s why Uber eats, and deliveries, and ancillary services like that will be Uber’s cash generators for a little while until they figure out the core business model.
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