Uber’s cash burn dilemma
/by @Wharton |
| knowledge.wharton.upenn.edu |
| http://knowledge.wharton.upenn.edu/article/growth-vs-profits-ubers-cash-burn-dilemma/ |
| |
* " Revenues have continued to grow quickly for the eight-year-old Silicon Valley company, but the bottom line isn’t pretty: Uber was on track to lose about $3B in 2016 on net revenue of $5.5B ... has raised more than $11B with scant capital costs ... valued at more than $60B.
/#financials |
| " other substantial costs: In helping to create an innovative new market — the sharing economy — Uber spent a fortune training, recruiting and subsidizing drivers, giving away free rides so consumers would get hooked on the service, setting up a global system of local and regional offices as well as hiring lawyers to deal with lawsuits and regulators. |
| " Uber operates in a classic “two-sided market” where Uber is the “market maker” between the driver and rider by providing a platform for them to connect. As such, he adds, there is a “strong network effect” taking place. |
| " for companies to reach critical mass under these circumstances, they need to subsidize both sides of the market — pay them to join the system. |
| " Uber’s playing a very long game. |
| " It needs the public on its side and it needs ridesharing to be a significant portion of the economy so that regulators have an incentive not to kill it |
* " Uber’s tactic of lowering prices to get more riders ... would count on its dominance of the market after all significant incumbent taxi businesses exit
/#predatory pricing |
| " Uber has launched UberEATS, a food delivery service, UberCHOPPER for requesting a helicopter and UberFreight for long-haul trucking, among others. But these could be distractions. |
| " in many markets, there will be an oligopoly composed of Uber and perhaps one or two local startups — not more. “The barriers to entry [have risen.] You need a brand, you need cash,” |
