OP-ED
Uber’s Failing Fantasy
The sharing economy promises cheap and easy fixes in a time of limited resources. But if you peek
behind the facade, many business models look unsustainableby Steven HillDespite recent bans in neighboring Germany, Italy and
Hungary, the ride-sharing company Uber has been
quite well received in Austria, a flexible, inexpensive
transportation alternative, an appealing new option
for the digital age. But its popularity hides a fatal flaw –
Uber is bleeding money.
While Uber’s valuation has zoomed to around
$70 billion – greater than Volkswagen, BMW, Ford,
GM or Tesla – the company lost nearly $3 billion in
2016 (plus another billion or two in China), and has
already lost over $1.3 billion in the first half of 2017.
It’s the dirty little secret of Silicon Valley: Seven out
of ten startups fail because they never become profit-
able. And Uber may soon be one of them. While claim-
ing to be a “disrupter” of the traditional taxi industry, it
has, in fact, never figured out how to offer the same ser-
vice at a lower price and still earn a profit. Conse-
quently, Uber has become stuck in a trap – it uses
billions in venture capital to subsidize at least
50 percent of every ride to cut fares and to drive out the
competition. In the ultimate irony, the more customers
use Uber, the greater into debt it goes.
Uber users in Vienna like the fact that it is less ex-
pensive than a traditional taxi – about 25 percent
cheaper, according to some estimates. Now you know
why – your Uber ride is being subsidized, but in this
case by private venture capital instead of taxpayers.
This works only for so long. At some point, investors
expect a return, or they turn off the spigot. More than
anything, that’s what led to the recent ousting of CEO
Travis Kalanick. Uber’s board was willing to overlook
scandal after scandal, as long as the business model
seemed to be on track.
But Kalanick was never able to figure out how to
change the basic economics of the taxi industry.
Amazon, for example, was able to “disrupt” the book
business by replacing brick-and-mortar shops with
online sales, allowing it to cut costs and eventually
reach profitability.
Confronted with his failure to find similar efficien-
cies in the taxi business, a desperate Kalanick set his
sights on deleting drivers and their wages through thedevelopment of autonomous vehicles. But this is anoth-
er massive gamble that Uber cannot win, at least not in
time to save itself. Most experts, including those
previously bullish on self-driving technology, such as
The Economist, have recognized that autonomous
vehicles are at least 20 years from fruition. We will con-
tinue to see various experiments on city streets, and
autonomous service vehicles used in very limited
settings, but the dream of a self-driving transportation
grid of the future, dominated by Uber, is pure science
fiction.
Uber’s only chance to survive at this point is to actu-
ally make its company profitable as a “taxi business for
the digital age.” Here is what Uber must do to survive:
1) Parlay Uber’s popularity among its users into a sig-
nificant increase in fares.
2 ) Find a way to hit “reset” on its poor relationship
with its drivers – only four percent are still driving after
a year – since it will need them for a good while longer.
Uber burns through drivers as fast as its investors’ cash.
3) Drop foolhardy futurist ideas like self-driving or
self-flying vehicles (the latter was Kalanick’s latest
brainstorm) that have little future and are a waste of
resources and attention span.
4) Head off the coming backlash over urban con-
gestion by cooperating with local officials to use the
company’s tracking technology to reduce congestion
(aggravated by Uber itself) that is plaguing cities.
That would mean sharing drivers’ data to track traffic
flows and create congestion zones as in London and
Stockholm. While ride-sharing may survive, it’s more
likely that without some drastic changes, Uber will
burn through its remaining $6.6 billion in cash and
eventually go out of business.
But no worries, when Uber closed its business in
Austin, TX after the local government required
stronger background checks, four new local ride-
sharing companies entered the field.
And in Vienna, traditional taxis, newer options like
Car2go, and the public-private Wiener Linien
continue to be the mainstays of a successful transporta-
tion matrix.STEVEN HILL is a technology
and economic journalist based
in Silicon Valley, and the author
of the recently published Die
Start-up-Illusion: Wie die
Internet-Ökonomie unseren
Sozialstaat ruiniert (Droemer
Knaur). He was recently a
Holtzbrinck fellow at the
American Academy in Berlin.
Do you know why Uber is 25% cheaper than a traditional taxi?
Your ride is being subsidized, but in this case by private
venture capital instead of taxpayers.
PHOTOS: THIS PAGE: ANNETTE HORNISCHER; NEXT PAGE: JOE MCNAMEE.