CHARLOTTE, N.C., August 29, 2016 – How did popular ride-share company Uber rapidly surge to become a multi-billion dollar business and then lose more than a billion dollars in the first six-months of the current year? That is exactly what happened to the company in 2016, according to the New York Times.
Currently valued at over $62 billion and growing, Uber received one of the largest single investments in a private technology business in history when the Public Investment Fund of Saudi Arabia anted up $3.5 billion for the company in June. Even so, Uber is said to have lost $1.2 billion in the first six months of this year.
According to the Times, unnamed sources claim that much of the loss can be traced to subsidies being paid to riders and drivers to attract more business, especially in China.
Part of the brilliance of the Uber concept is its comparatively low overhead when compared to that prevalent in the taxicab industry. Uber drivers pay for their own fuel and maintenance, which means most of the company’s expenses are operational and legal in nature. That makes the current losses all the more surprising.
Among Uber’s numerous legal battles in a host of cities throughout the world, one of its toughest was with the strongest ride-sharing service in China, Didi Chuxing, which Uber has been challenging for at least two years.
Earlier this month, that war ended when Uber sold its subsidiary, Uber China, to Didi Chuxing in exchange for a $1 billion investment by Didi into Uber Global. That move is said to enable Uber to enlarge its war chest to fight other competition, particularly Lyft — another San Francisco operation — in some of its larger international markets. Upping the ante further, both Uber and Lyft are heavily involved in developing driverless technologies. Uber will begin Beta testing their version in Pittsburgh in a matter of weeks.
The question of Uber’s losses could actually be more of a contradiction in terms rather than evidencing a genuine drain on their finances. To paraphrase Charles Dickens’ famous opening sentence in “A Tale of Two Cities,” Uber’s technological impact on American business represents the “best of times and the worst of times.”
While it is true that Uber strongly subsidizes drivers in the early stages of its operations in a new city, the business is hardly a “driver friendly” organization. The subsidies quickly disappear and a closer inspection reveals that they only marginally benefit the drivers
When it was created, Uber’s initial concept was a stroke of genius in the true spirit of American entrepreneurship, namely the urge to “create a better mousetrap.” Incorporating modern GPS technology and capitalizing on woefully poor service by most taxi cab companies throughout the nation, Uber quickly captured the imagination of the American public.
Arguably, the most positive advances Uber has made are:
• Reduced response times
• Significantly lower costs for riders
• Simplification of payment by using credit cards
• Driver independence
Among Uber’s greatest virtues, though likely an unintended consequence, is the great reduction in the number of inebriated drivers on the road. New Year’s Eve is a prime example where taking an Uber ride is a far better and safer option that is also more cost efficient than driving yourself.
As for Uber drivers, Uber is accurate with its accounting procedures and pays promptly on a weekly basis.
That said, Uber is a technology-based business with little concern for the people in the field who make that business function as designed. If a problem can be managed by creating an algorithm, so much the better for Uber with little or no consideration for real life situations.
Uber’s negatives are every bit as powerful as its strengths:
Limited access to people who can solve problems quickly
Inconsistent and frequently poor GPS applications
Continuous tweaking of the app, which frequently jams while downloading causing drivers to be unavailable until installation is complete
Lack of compensation for cancelled trips regardless of distance, unless the driver has already arrived at a destination
No tipping or compensation for unreasonably long trips which require deadheading back to the original pick up area, making multiple stops during a trip, or extreme waiting times during a stop
Additionally, drivers who participate in the program quickly learn that there is also a “Big Brother” aspect to the business which can be uncomfortable at times. Uber will actually send messages to drivers to let them know when they moved their phone during a trip.
The ride-share revolution began in California about eight years ago, and the phenomenon has become so popular that it is here to stay. Driverless vehicles could the next innovation, but there will likely be other smaller modifications along the way.
Like Coca Cola and Kleenex, Uber’s generic name recognition for ride-sharing gives it a powerful edge over the various incarnations of its competition. If Uber’s business model could develop some degree of “people skills” that respects drivers and improve service with real world applications rather than “geeky” theoretical advances that complete a computer programmer’s bucket list, the company might recoup that $1.2 billion loss rather quickly.
On the other hand, when you are worth $60 billion and growing, what difference is a billion dollar loss?
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Bob Taylor has been traveling the world for more than 30 years as a writer and award winning television producer focusing on international events, people and cultures around the globe.
Taylor is founder of The Magellan Travel Club (www.MagellanTravelClub.com)
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