If you’re headed to the Detroit Auto Show next week (1/14-1/18), make sure to check out some of the start-ups participating in AutoMobili-D. I’m working with several of these start-ups (Mystro, Pablito, Softbit, Vugo) and if you’re a company in Detroit that would like to meet with them, please let me know.
Lots to cover in this week’s round up, including a fascinating article by Forbes contributor, Len Sherman, on Uber’s profitability. Why can’t it seem to make a profit? The answer may not surprise you. In addition, senior RSG contributor John Ince takes us on a walk down Uber’s memory lane in 2017 – it already seems so long ago!
Why Can’t Uber Make Money? [Forbes]
Sum and Substance: … Uber’s aggressive NYC launch in 2011 ushered in a return to unregulated car service expansion, dramatically improving urban mobility at lower prices, but dragging the industry back to an era of profit-killing competition. Not surprisingly, NYC medallion prices collapsed, from a peak of $1.4 million in 2014 to as little as $150,000 three years later. And, in sharp contrast to the growing value of taxi medallions prior to Uber’s launch, the stock price of Medallion Financial Inc. — a publicly traded company which finances and trades in taxi medallions – collapsed by 85% over the past five years, while the Dow Jones stock price index appreciated by 47%.
In historical context, Uber’s extraordinary losses are thus not just a case of growing pains of an ambitious Silicon Valley startup, but a reflection of the deep structural deficiencies in ride-hail industry economics. Prior to artificial regulatory supply caps, the unregulated taxi industry was unprofitable and subject to growing concerns over negative externalities. Uber is now facing the same relentless drag on its P&L.
Supporters of Uber’s unfulfilled potential often point to Uber’s first mover advantage, strong network effects, asset-light business model, continued revenue growth and adjacent business expansion opportunities as reasons to expect a near-term turnaround. But none of these factors reverse the fundamental weaknesses in Uber’s business model.
These business model dynamics underscore the bleak earnings outlook for Uber drivers. A recent study found that Uber’s net driver compensation in three US major metropolitan areas in late 2015 was only $8.77 – $13.17 per hour, and this was before Uber instituted significant fare cuts in 2016. Uber’s low and declining pay has been a leading cause of Uber’s low driver satisfaction and growing turnover, both in absolute terms and relative to its main competitor, Lyft.
There are two possible remedies to improve driver compensation, but both alternatives would undoubtedly harm Uber’s already tenuous economics. Uber could raise fares at its current revenue sharing split, or increase the driver share of gross revenues.
My Take: This thought provoking article by Forbes contributor Len Sherman is thorough and well researched. I had planned to feature it in the roundup two weeks ago and again last week, but it got bumped in favor or more breaking news. Three weeks after publication, the article is still relevant and convincing.
While many of us commentators have made the point that Uber’s business model is suspect, Sherman gives some historical perspective explaining why Uber is losing so much money. Sherman points out that Uber/Lyft were disrupting an industry (taxi) that would not have been profitable without legislation that created the Medallion system and artificially limited the number of cabs on the streets.
In the taxi system, supply was suppressed while demand grew – insuring pretty good prices for taxi drivers. Even so, the biggest winners were those who enjoyed the speculative gains of owning a Medallion – not the taxi drivers.
This is eerily similar to the situation with Uber and Lyft, where the biggest winners are those who are lucky enough to unload their stock in the Softbank deal, secondary markets or the IPO. Yes, drivers make some money too, but it’s the driver incentives and the bonuses that keep the wheels spinning. Without that, the wheels of this vehicle fall off.
The economics of urban transit never made sense. Isn’t it amazing how so many smart investors were pushing and shoving to get in the early rounds? Anyone who had done the kind of research Sherman did would have realized the game will only keep going as long as new investors are willing to fund the ongoing losses. Stay tuned, there’s more coming.
How I Got Paid $0 From the Uber Security Bug Bounty [Medium]
Sum and Substance: So Uber partners with HackerOne to offer a public bug bounty program, advertising a $500 minimum guaranteed payout if a security vulnerability is found within an Uber app or information asset. Fair enough, I’ve led numerous penetration tests over the years in addition to delivering advanced pentest training for corporate clients.
I spend a few days getting some resources lined up for the analysis piece, and build a fairly comprehensive map of Uber’s various endpoints using subdomain enumeration and application fingerprinting. I also start kicking the tires of Uber’s Android app, which is locked down pretty tight per the Uber Bug Bounty Treasure Map with certificate-pinned HTTPS requests. After a few hours of wrangling with the Android SDK, I get the most recent Uber .apk running in an ARM emulator as they apparently don’t publish any x86 Android apps. Slooooooow progress to say the least.
I manage to bypass some of the certificate pinning security in the Uber .apk, sufficient to start mapping out some of the Uber mobile endpoints. There is reference in that traffic to a Microsoft Phone API, so I head over to the Microsoft Store and start testing the Uber Surface/Windows Phone app.
It doesn’t implement any type of certificate pinning, which is a violation of Uber’s own publicly-stated Treasure Map; so there’s the first guaranteed $500 payout per their bug bounty…
My Take: This is an amazingly detailed and credible account of how Uber reneged on a bug bounty promise to an accomplished hacker. Sound familiar to any drivers out there who had trouble getting paid for something they deserved? Looks like this strategy is company-wide – pay only what you have to pay and make them work for it.
A look back at Uber’s hellish year [Techcrunch]
Sum and Substance: We endured plenty of the drama Uber packed in for every five-hundred twenty-five thousand six hundred minutes of 2017 — and what a year! From protests to a major sexual harassment probe, the ousting of co-founder and CEO Travis Kalanick, the crowning of new CEO Dara Khosrowshahi, the promising hints of that long-awaited IPO and an on-going lawsuit with Google over self-driving cars. Uber, out of any tech company, arguably kept us the busiest here at TechCrunch in 2017.
For those who just can’t get enough (or would like to remember just what happened when) we’ve compiled this nifty timeline to walk you through it all again. So buckle up and enjoy the ride down memory lane. This was Uber’s 2017. …
1/31 – Uber’s 2017 kicks off with protestors outside its SF headquarters
2/31 – #deleteuber takes shape during immigration protest at JFK
3/31 – Susan Fowler accuses Uber of ignoring repeated reports of sexual harassment
5/31 – Alphabet’s self-driving car technology unit, Waymo, sues Uber
… 5/02 – Uber faces a nationwide class-action lawsuit
… 6/20 – Uber CEO Travis Kalanick resigns
… 8/27 – Uber board offers CEO role to Dara Khosrowshahi
11/27 – Uber and Softbank reach an agreement
My Take: This article give a nostalgic walk down memory lane for those of us who have been following the Uber saga closely for the last year. Remember #deleteUber, the viral video where TK flipped off a driver, the lawsuits, the spying, the horrendous financials, the Susan Fowler letter, the Holder Report, the Jacobs Letter, the Softbank deal? It’s all there for those who are curious – just make sure you’ve got an extra big bag of popcorn.
Drivers, what do you think of this week’s round up?
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-John @ RSG
Latest posts by John Ince (see all)
- Could a California Law Increase Drivers’ Pay Nationwide? - June 15, 2019
- The Great Economic Divide Between Uber and Its Drivers - June 10, 2019
- California Rewriting Rules on the Gig Economy - June 8, 2019