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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A friend of mine who works there gets paid ~$400,000. They’re not an executive or anything, just a very competent individual contributor. At $5 in fees per delivery, you need to do 80,000 deliveries just to pay their salary. That’s one employee.
Let’s say you take an Uber ride and pay $10.00. Most of the costs below grow in proportion to the ride costs – so double everything for a $20 rides. But for $10 rides:
* The driver gets $7.00
* Insurance costs are incredibly high, and unlike most costs, get higher on a per ride basis as Uber gets bigger (deeper pockets means more lawyers looking for huge settlements every time something bad happens.) Call this $0.75 for your ride.
* Credit card company gets 2.5%: $0.25
* IT costs: payments to google for google maps; to amazon for hosting, etc. $0.25
* State and municipal taxes: This is a big one. Hugely variable, and some states don’t let the companies charge through to riders, so it’s hidden. Call it $0.50.
* Driver acquisition: Huge costs. Marketing, signup bonuses, criminal background checks. And then most drivers leave every year and you have to get new ones all over again. This one’s big, call it $1.00/ride.
Ok, so on your $10.00 ride, they’ve spent $9.75. The remaining $0.25 isn’t nearly enough to cover rider marketing, engineering, customer service, executive pay, legal teams, etc. Say that all adds up to $1.00/ride. Now Uber’s in the hole $0.75 on your $10.00 ride.
So why don’t they just charge $1.00 more? They’re trying, but they’ve run thousands of experiments that show they’ll lose a lot of their business to Lyft, transit, personal cars etc if they do this. Investors wouldn’t like to see their demand crash.
Why not pay drivers $1.00 more to reduce the churn that increases driver acquisition? Where’s that money going to come from? Their unit economics don’t allow it.
Etc. There’s no easy solution.
(DoorDash is a bit more complicated since the restaurant gets paid too, but same general cost structure problems.)
I believe Uber’s plan is to build up their user base while they move to self-driving cars. No need to pay for drivers. They’re willing and able to operate at a loss in the meantime. But not indefinitely.
But the self-driving part is taking much longer than they had expected.
Are they so popular? No way am I paying extra to have some stranger that’s not part of the organization I’m buying from pick up and deliver my food. No freaking way.
What do they need to engineer further though?
It’s an app that is already made. They don’t really need to make changes to it unless they want to.
The only real expenses are drivers, basic liability insurance, and credit card company fee.
Marketing is kind of wasted money when it comes to Uber as everybody just kind of already knows about it. No reason to promote it.
Execs should just make the leftover profit.
As an additional point, in some countries the commission taken by uber is much more than others. For example in India where I live, they supposedly take 30-35% of the total cost. Whenever I commute by using Uber or Ola, the cab driver is often more than happy to request a cancellation and offer a lower price than what’s shown on the app. This would mean that these ridesharing apps are essentially providing the service to drivers and customers for free which would certainly result in a loss. We have 2 apps called Swiggy and Zomato which are similar to Doordash, if a person is frugal about which restaurants to buy from and abuse the coupons which rotate and can often discount a substantial amount from the bill of the order, the app would almost certainly be losing money in the long run. This shows in the IPO for Zomato, they opened high and have fallen by around half since. Swiggy has reported an 80% increase in losses in the 22-23 financial year.
Growth but they also massively underprice services in some markets in order to drive out competition. They’re ultimately a shell game that makes money off the back of delivery drivers and small and mid sized businesses while claiming to only be a software company.
Because they employ a small army of PhD’s making 500k a year to make their algorithms 0.10% more efficient. Used to work on the marketplace optimization team at one of these companies.
Interface, operability, rebates and customer loss due to driver incompetence and outright fraud
they are optimizing the customer experiences digitally, but it will take forever as opposed to the decade or so it took Amazon, and investors and consumers will keep giving them rope because they’re still broadening and complelety rebuilding services that are typically poorly managed.
Regarding Uber….my calculated assumption is they are betting on driverless cars to become a thing….
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