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12 min read

    12 min read

    Harry here.  It seems like the Uber news cycle never ends, and luckily that’s a good thing for us 🙂  But last week, there was a lot of buzz around Google/Waze’s entry into the rideshare space.  I’ve always been kind of bearish on real ridesharing (aka carpooling). It might work in other countries, but it’s just not ingrained into our culture.  There are dozens of carpooling apps that have launched in the US and faltered because most of them underestimate the work it takes to share a ride.

    Ask an Uber driver and they’ll all tell you that pick-ups and drop-offs are the toughest part of being a driver and if rideshare drivers are unhappy with rates in the $0.90/mile range, why would anyone do the same thing for just $0.54 a mile?  It might work on distinct routes to and from Apple and Facebook’s campuses, but go test it in a place like Nashville and let me know how it goes.  Today, senior RSG contributor John Ince takes a look at Google’s newest venture, shares the unsurprising news of another Uber for X failure and examines a few of Uber’s latest driver-friendly partnerships.

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    In this roundup, we take a look at Google's newest venture, share news of another delivery failure & examine a few of Uber's latest driver-friendly ideas.

    Google Takes on Uber With New Ride-Share Service [Wall Street Journal]

    Sum and Substance: Google is moving onto Uber Technologies Inc.’s turf with a ride-sharing service to help San Francisco commuters join carpools, a person familiar with the matter said, jumping into a booming but fiercely competitive market. 

    Google, a unit of Alphabet Inc., began a pilot program around its California headquarters in May that enables several thousand area workers at specific firms to use the Waze app to connect with fellow commuters. It plans to open the program to all San Francisco-area Waze users this fall, the person said.

    Waze, which Google acquired in 2013, offers real-time driving directions based on information from other drivers. Unlike Uber and its crosstown San Francisco rival Lyft Inc., which each largely operate as on-demand taxi businesses, Waze wants to connect riders with drivers who are already headed in the same direction. The company has said it aims to make fares low enough to discourage drivers from operating as taxi drivers.

    Waze’s current pilot program charges riders at most 54 cents a mile—less than most Uber and Lyft rides—and, for now, Google doesn’t take a fee. The company says it doesn’t believe Waze drivers’ income is taxable because it considers payments through its service effectively as money for gas. Google’s push into ride-sharing could portend a clash with Uber, a seven-year-old private firm valued at roughly $68 billion that largely invented the concept of summoning a car with a smartphone app.

    Google and Uber were once allies—Google invested $258 million in Uber in 2013—but more recently have become rivals in some areas. Alphabet executive David Drummond said on Monday that he resigned from Uber’s board because of rising competition between the pair.

    Uber, which has long used Google’s mapping software for its ride-hailing service, recently began developing its own maps. The two also are racing to develop driverless cars. Google has led the way with such technology, founding a project in 2009 that has now amassed more than 1.8 million miles of autonomous driving with its test cars.

    Uber earlier this month bought Ottomotto LLC, a six-month-old driverless-truck startup founded by Google veterans. Uber said it plans to start testing robotic taxis in Pittsburgh over the next several weeks, beating Google to a commercial test of self-driving technology.

    Waze is one part of Google’s larger ambitions to upend transportation. Google is considering testing its driverless cars in a ride-sharing service, people familiar with the matter said, and executives have identified that as a potential business model for its self-driving technology.

    My Take:  There have been signs for some time that this was coming.  Google’s subsidiary, Waze tested a similar venture in Israel.  David Drummond, Alphabet’s legal counsel, who sits on the board of both Alphabet and Uber, was rumored to be shut out of Uber board meetings.  Last week Drummond resigned from Uber’s board citing potential conflicts of interest.  This development is very much the Google (Alphabet) way: start small, learn the business, slowly expand, and if all goes well, they’re a major player.

    Not everything Google does turns out well – witness Google Plus and Google Glass, but they’re deliberate and tenacious.  Uber, on the other hand, enters a market with bluster and braggadocio.  In the long run, I suspect that Googles approach is more effective, if for no other reason than they tend to piss off fewer people.

    The open question here, however, is: what are Googles objectives with this move?   Google thinks strategically and long term.  It’s unlikely they’re after the same market as Uber.  Google doesn’t want all the hassle / expense of dealing with drivers.  In this baby step, Google wants experiential knowledge – not revenues. They’re already making plenty from advertising.  One thing is for sure – the ride-hailing space is still very much in play for several major players beyond Uber and Lyft.

    The ultimate symbol of the Uber-for-X bubble is out of business [Techcrunch / Quartz]

    Sum and Substance: Make more room in the Uber-for-X graveyard. On-demand laundry service Washio recently informed customers that the service would shut down as of Aug. 29, TechCrunch reported today. 

    “We generated millions in revenue and hundreds of thousands of orders, but the nature of startups is being innovative and venturing into uncharted territory: sometimes you make it, sometimes you don’t,” Washio’s co-founders wrote in a note cited by TechCrunch. “No more orders will be accepted and outstanding orders will be returned promptly to customers.” 

    Washio launched in 2013 with a few million dollars in angel funding and the following June landed $10.5 million in a Series A investment. Those years were peak Uber-for-X, as entrepreneurs raced to replicate the formula that was working so well for the ride-hailing industry: using a smartphone app to connect customers with legions of independently contracted task-doers. Nowhere was this more apparent than in the frothy laundry-tech scene. By mid-2014, Washio’s competitors included but were not limited to: FlyCleaners, Laundry Locker, Rinse, Sudzee, Sfwash, and Bizzie Box.

    In a May 2014 profile for New York Mag, Jessica Pressler anointed Washio the ultimate symbol of on-demand-mania gone too far. In the two short years since, several of the laundry founders who were once so bullish on the press-a-button future have been hung out to dry. Prim, another 2013 entrant into the laundry race, shut down in January 2014. Homejoy, a related Uber-for-home-cleaning startup, closed up shop last July. FlyCleaners is still pressing along in New York but has earned a reputation for high prices and poor service. Unlike Uber, which gave consumers a better ride option than taxis at a cheaper price, these laundry apps are and were middlemen selling convenience at a premium, and for a service most people use far less frequently than transportation. 

    Elsewhere in Uber-for-X land, on-demand groceries startup Instacart has struggled to get its model right, and delivery startups like Postmates and DoorDash are failing to make instant-anything cheap. These companies—Uber included—have also learned that even “asset-light” businesses can be cash-intensive to run. At launch, many had easy access to money from venture capitalists and relied on expensive subsidies to attract both customers and workers. Since the fourth quarter of last year, an abrupt decline in funding has made that model untenable for all but the richest on-demand startups.

    My Take:  The lesson here is clear – subsidies born of angel investments will only take you so far.  Sooner or later you need to demonstrate that you have a viable business model.  This kind of venture seems to make sense inside the Silicon Valley / tech echo chamber, but it just doesn’t wash once you step out into the real world.  Will Uber be different? Only time will tell.  They’ve got over $3 billion in the bank, which separates them from the pack.  But they’re bleeding red at an unprecedented rate.  Now that more and more Uber for X startups are going belly up, it’s time to take a cold hard look on the venture that spawned all the others. That’s exactly what’s happening now in the media and the investment community.

    Postmates has failed to make Uber-for-anything cheap, and is quietly misleading customers about it [Quartz]

    Sum and Substance: In late June, Shawn Cook had a cold and needed some cough medicine. The mobile game developer turned to on-demand delivery startup Postmates to make the run to Walgreens for him in Los Angeles that Tuesday night.

    Postmates estimated that four of the five items he ordered, which were listed in its Walgreens inventory, would ring up to $48.96. Cook would also pay a delivery fee, Postmates’ 9% service fee, and whatever his fifth item—a “custom” request for “Ibuprofen/Advil, the largest one”—wound up costing. The total was bound to be higher. But $94.24 was a shock. “It was the worst,” Cook says. “After I closed the door, I was like wait, this isn’t right.”

    It would be easy to cast this off as an isolated incident, but similar complaints about misleading pricing at Postmates and its competitors abound. These on-demand delivery startups won enthusiasm and big funding from investors by making the ultimate Uber-for-anything promise: stuff, brought to your door, at the touch of a button and for a nominal fee. But the price of instant gratification is rarely so cheap.

    Postmates delivers from corner-store shops like Walgreens and retail brands such as Apple and American Apparel, but the bulk of its business is in traditional restaurant takeout. The company is valued at $450 million, and its delivery fees can easily top $10 for food that costs less. On DoorDash, a food delivery company last valued at $700 million, delivery is usually between $4 and $7. Uber-for-groceries startup Instacart charges as much as $12 for delivery on each order. It’s worth a whopping $2 billion.

    Practically every company in the on-demand delivery space has spent big on coupons and vouchers to make its service seem reasonable, but other strategies go further. Caviar has a $15 minimum in New York City that it doesn’t reveal until checkout. Delivery and Caviar’s 18% service fee get added on top. DoorDash was slammed earlier this year for marking up restaurant prices in its app without any indication to users. Instacart previously used hidden markups on groceries to help offset operating costs; it made the system more transparent in April 2015 after customers protested, though prices are still inflated in some stores.

    My Take:  Deception has become fairly commonplace in this industry, and Quartz details how many ways these new high flying startups are enticing customers with offers that seem too good to be true and usually are.  The challenge for these companies is to convince customers that what they’re offering isn’t really a luxury, but rather something they need.  The problem here is that this client base is fairly small and restricted to the tech echo chamber – a world that seems increasingly isolated from the world that most of the rest of us inhabit.

    Why Uber Is Trying To Make Nice With Its Drivers [Time Magazine]

    Sum and Substance: Uber, the ride-hailing juggernaut valued at some $68 billion, has made headlines lately by promoting pilot plans for driverless vehicles. But at the moment, the San Francisco, Calif. startup is intensely focused on shoring up its relationship with its human drivers. 

    Since it was founded seven years ago, Uber has taken enough investment capital to turn it into the world’s most valuable startup. Its global reach, market share, number of customers, and revenues have surged. And yet the company, to some extent, is still searching for a business model.

    Uber is a private company and doesn’t disclose the details of its finances. But earlier this month, Bloomberg reported that the firm has lost at least $1.27 billion in the first half of 2016. Losses over the course of the firm’s existence, the report claimed, total at least $4 billion—an unprecedented figure even compared to Amazon, whose founder and CEO Jeff Bezos is famous for being willing to lose massive sums to gain market share, as well as infamous dot-com busts like Kozmo.com, Pets.com and Webvan. 

    If the reports are accurate, much of those losses are due to subsidies Uber provides its drivers. Indeed, Uber’s relationship to its drivers is at the center of its competition with rivals, including ride-hailing startup Lyft as well as old-line taxi and limo services — they all need drivers, after all. The firm also spends a lot to attract passengers with discounts and other perks, gaining market share and thereby making the service more attractive to prospective drivers. 

    Uber has been working overtime recently to woo new drivers and satisfy existing ones. For example, on August 31, Uber announced a new arrangement with Stride Health, primarily a healthcare broker for workers in the so-called “gig economy” who lack many of the benefits of traditional full-time employment. Stride has been offering Uber drivers access to private health plans for two years. Now the company has released a new app free to Uber drivers intended to help them log their mileage and other expenses for the purpose of increasing their tax deductions.

    My Take:  I suppose it’s a good thing that Time Magazine has decided to tackle an issue like driver dissatisfaction. Yes, Uber is developing all these kinds of partnerships.  Yes, they have some minimal benefit to drivers. But Uber shows no willingness to budge on the three big issues that really matter to drivers:  in-app tipping, ratings, and declining fares. When Uber makes a move on those three fronts, then we’ll have something significant. Until then it’s all window dressing.

    Readers, what do you think of this week’s stories, and are you surprised at the demise of Uber-for-X apps?

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    -John @ RSG

    John Ince

    John Ince

    John Ince is a former Fortune reporter and Wall Street banker. He has about 1,000 rides under his belt driving part time for Uber and Lyft.  He’s writing a book about his experiences entitled:  Travels With Vanessa:  A Rideshare Driver Tries To Make Sense of It all - For a sneak peak visit the link above.