Why are service apps like Uber and DoorDash losing so much money despite being so popular? What are they spending all that money on?
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In an effort to grow, such services need to quickly build up a concentration of both drivers and users… that means spending money on lots of incentives to entice enough drivers to sign onto the service, and it means discounts, offers, etc. to get users used to using the service. For example, I get “free” access to GrubHub+ because of Amazon Prime and because of my bank, so I get various delivery fees waived. Well, that money would have gone somewhere to fund something, but they’re just eating that cost. Uber was long subsidizing rates on rides to get people used to using the service regularly. The services also pay sign-on bonuses and other bonuses to drivers to keep them driving.
The services also have lots of start-up costs. Uber/Lyft, expecially, had to spend a TON of money on litigation, lobbying to be able to operate legally when most cities had strict rules governing taxi services. GrubHub, DoorDash, etc. have to spend money getting restaurants to sign on with them, to help restaurants get set up with equipment to accept orders and provide support for setting up menus and such.
Definitely not their drivers. We get paid dirt. The answer IMO is straight greediness within CEOs and the higher ups. Their end goal is to pay their drivers as little as possible. I might make $3 from a delivery while Uber makes $8 for doing nothing. It’s criminal.
The lifecycle of services like this is to initially lose money *in order to become* popular. DoorDash hooks customers with coupons or fees that don’t reflect how much it actually costs to run the app. They hook drivers by padding their pay relative to what they’re actually bringing in from users. Most importantly, they hook restaurants by getting them to refashion their businesses around app-based delivery, possibly abandoning the old system where each restaurant maintained its own delivery driver(s).
Then once you have lots of customers who open DoorDash whenever they feel hungry, a bunch of drivers who are financially dependent on the app, and a bunch of restaurants with no other way of delivering food, you can drop the mask and reveal to everyone how much it *really* costs (or, more likely, how much you think you can get away with charging). Those “real” prices may well have been too high to entice people to habituate themselves to the app initially, but now that this has already happened, you’re hoping that enough will stick around to generate a good return on your initial investment into their habits and goodwill.
Uber’s rideshare division is thought to be profitable. People are generally willing to pay more money to get somewhere than just to get food delivered. They take a cut of the sales price as a middleman fee to aggregate customers and drivers together, like eBay’s business model. The customers are willing to pay this markup in order to access a larger pool of drivers, and the drivers are willing to pay this markup in order to access a larger pool of customers.
UberEats and Doordash are losing money on all fronts though. They offer a lot of temporary incentives to get restaurants, drivers, and customers to sign up since their business model only really works when they have a large enough market share. They have to facilitate communication and payment between 3 parties, which means way more of a chance that one of them fucks up and you have to clean up their mess. And the worst part is that customers expect free or close to free delivery, which isn’t really realistic given how labor intensive the delivery process is.
They try to make up the difference by charging the restaurant a cut, but restaurants already have razor thin margins and are generally unwilling and/or unable to pay this, and they don’t really see the benefit. Restaurants make most of their profits from drinks and tips from customers dining in, and they forgo that with delivery.
During the gilded age the robber barons of the time created Wall Street and the federal reserve systems to be funnels of money to their own central banks. In retrospect it’s pretty predictable since they were robber barons but at the time they just called them “industrialists”.
This bad piece of source code set up a system that worked when there was only 2 billion people on the planet and no internet but has accelerated the dysfunction since then.
Now we have 8 billion people all doing business 24/7 and it becomes very obvious in companies like Uber and door dash.
The third law of thermodynamics states that energy is neither created or destroyed, it’s just rearranged. The robber barons needed everyone to believe that money, business, and the economy were not subject to the laws of physics because that would make them accountable for clear cutting forests, mining to oblivion, polluting water sources etc.
Objectively it’s pretty easy to see that they were wrong because the earth has finite resources so obviously the economy is NOT the only thing in the known universe that isn’t subject to the laws of physics.
When a tech bro siphons off a couple billion of an artificially inflated valuation on a company that has no real assets and doesn’t actually make anything, he is effectively a parasite that bleeds more blood out of the host than the host creates. It works for a while, until it doesn’t.
Uber doesn’t own the cars, the drivers do. And all those cars need oil and tires and batteries etc to stay functionally maintained.
This starts a clock. And since the tech bro/parasites won’t give back any of the blood they drained, the cars owners take the hit and it becomes a race to the bottom.
But all the other Wall Street thieves have a vested interest in prolonging the con because their “value” is tied in to the stock price of a company that is worth 1/10th what they bought into it for.
Short answer- the whole system is corrupt and broken
Marketing. They basically drove the initial push for the ‘delivery app’ industry off the back of intense marketing campaigns. The trouble is, when you spend millions upon millions of dollars before your business is really even off the ground, that money had to come from somewhere. Typically that money will come from investors and loans, and they have to make payments on those loans.
That means that if they’re barely making money before the loan payments are factored in, they’re losing money hand over fist once those payments are made.
Amazon did something very usual. They ran at a loss for many years. But built themselves to a point where they are essentially a monopoly, under cutting all competitors. Once they reached monopoly status they switched and can make higher profits easily.
Uber etc are all trying to repeat that process.
Whether it is in the public interest, and should be legal, is a different question.
Russ Hanneman said it best, “It’s not about how much you earn. It’s about what you’re worth. And who’s worth the most? Companies that lose money.”
Uber’s business plan hinged on driverless cars from day one. It was never profitable to be paying drivers. So they started the company and building a name and customer base in the hopes that they would be poised to corner the market the moment driverless cars hit the point where they could be taxis.
Obviously that’s taken a lot longer than they anticipated, and they’re in a holding pattern trying to maintain their market share while simultaneously bringing in as much new venture capital as possible to stay afloat. As long as roch people keep giving them money as an investment for when they “hit it big,” they can continue to operate at a loss because it’s other people’s money they’re losing.
It’s expensive to exist as a “_____ as a service” / social media / tech company (lumping these together b/c they share corporate similarities).
Consider just the engineering side of things. Hosting and infrastructure costs alone would be in the tens if not hundreds of millions of dollars per year. A highly available platform like Uber or DoorDash that probably sustains hundreds of thousands of QPS and moves and stores exabytes of data (read Uber’s [engineering blog](https://www.uber.com/blog/engineering/data) to get an idea of the scale of data they move / store) and all the supporting services behind the scenes that makes it all work is not cheap. At this scale, just storage and network ingress / egress costs alone (even if we assume they’ve optimized networking via VPC peering / Transit Gateway arrangements + a service mesh architecture so inter-service traffic doesn’t need to go out to the internet, which few companies have done well) probably would put them in the red, and that’s not even getting into compute costs and AWS support tiers.
Unless you’re Google and have dedicated teams and SWE and SRE headcount for in-house software, you’re gonna need services like GitHub enterprise for code, Splunk for observability, PagerDuty for on-call, GSuite for user management, IAM, and communication and collaboration, Jira for PM, and on and on it goes.
Then you have hundreds if not thousands of SWEs and SREs responsible for product development, engineering, and support, who are supremely expensive if you want to attract and retain good talent. For every product team there are like 10 teams owning the internal services that make it all work: internal dev platform, build & deployment, identity, data platform, compute, service platform, service mesh, API gateway, data lake, observability / monitoring / logging, security, privacy, data governance & compliance—these are just the engineering teams and internal products. We haven’t even covered the other functions and roles that make a company tick. But a company does not just consist of engineering roles. You need PMs, IT, HR, marketing, finance, legal, leadership, all of which command serious comp if you want them to stick around and do their best job.
Note this is common to all tech startups—it doesn’t even get into whether their business model is profitable or not.
It’s not at all surprising tech startups like Uber aren’t profitable. Many tech startups fail and never become profitable, though they provide a great service to the people and a great UX for their users who use them to death, because everything involved in running a tech company is going to be insanely expensive.
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