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Uber’d

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Uber’s postmature attempts to change its toxic culture are off to a great start:

Uber Technologies Inc [UBER.UL] board member David Bonderman apologized on Tuesday for a comment he made about women at an all-staff meeting at the ride-hailing firm during a discussion of how it would transform itself after a probe into sexual harassment at the company.

The ill-timed remark came as Uber board member Arianna Huffington was informing employees of the importance of increasing the diversity of the board.

“There’s a lot of data that shows when there’s one woman on the board, it’s much more likely that there will be a second woman on the board,” Huffington said, according to a recording of the staff meeting published online by Yahoo Finance.

In response, Bonderman said: “Actually, what it shows is that it’s much more likely to be more talking.” Huffington responded with a laugh.

Hahahaha, just look at that mouthy broad Kamala Harris amirite?

While we’re here, let’s return to the “no path to making a profit” problem that Uber has in addition to its massive sexism problem. A few commenters expressed variations of this view:

I always thought it was openly acknowledged that Uber’s intended business model was to subsidize fares (via burning through VC money) until they achieve monopoly status, then jack up rates back to what taxis cost now. Is that even a controversial statement?

[…]

Future entrants will face a rather significant barrier to entry: access to billions in VC cash to underwrite your subsidies.

So from that standpoint, Uber’s business model makes more sense. While the first-in-the-door examples of this business model are able to drum up funding for this scheme, it’s going to be harder for future competitors to do the same when Uber already exists.

But it should be obvious that the Standard Oil model won’t work. There are two fundamental problems facing Uber’s potential profitability:

  • The inherent costs of entry are low
  • Demand for cab service is highly elastic

The circle just can’t be squared. The reason it takes a lot of venture capital to compete with Uber is because it’s massively subsidizing riders and drivers. But if you assume that Uber can charge market rates and still make a profit, then it would be easy as pie for a competitor to enter the market. To assume that market rates are profitable and that it would be extremely expensive to enter the field is a Mnuchinesque mistake. If you share my assumption (and, apparently, the assumption of the companies themselves) that they would hemorrhage riders if they charged market rates, then it doesn’t matter if Uber achieves quasi-monopoly status — it’s still losing money.

And the problem is even more acute in smaller, less dense markets than NYC and SF. Some of the problems I identified — cars in poor condition, opaque pricing, forced ridesharing — are regulatory failures and/or cases of companies being incompetent. But there’s a reason why outside of the biggest cities cab service tends to be unreliable if it’s available at all outside of transportation hubs and major hotels. Basically, in cities where people don’t take cabs for most trips you face the choice of making it worth their while for drivers to stay on the road when they don’t have passengers, or you’re going to have cases where people want cabs and can’t get them. Given that demand is particularly elastic in places where people generally have cars and rarely use cabs, cab companies are probably going to choose the latter. But this creates a downward spiral — if you need a cab and can’t get one, you’re even less likely to use a cab going forward. I don’t see anything about Uber’s technology that solves this fundamental problem.

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