Can Uber make money?

Probably not… but they could destroy a few businesses finding out.

Taking one sector of the US market- business rides. IN the past taxis and rental cars were the dominant players, until Uber came along and destroyed these businesses in business hiring.  Back in  2014, taxis and rental cars combined still provided 92% of total reimbursed ground transportation for business travel in the US. By  2018, this plunged to just 29%.  The share of taxis plunged to just 6% in Q1 2018, from 37% in Q1 2014. The share of rental cars plunged to 23% of the total, from 55% in Q1 2014. (reference)

But ride share companies Uber and Lyft combined, which had a market share of just 8% in Q1 2014, have taken 71% of the total by 2018 – from non-entity in the sector to total domination in four years.

That must be great news for Uber… its shows the business is winning, and in a sector that is probably price inelastic… business people got to get there no matter the cost.

But a special battle has been fought between Uber and Lyft in terms of ground transportation reimbursement for business travellers. Uber’s share was 98.8% in 2014, when Lyft just amounted to 1.2%. By 2018, Uber’s share dropped to 80.9%, and Lyft’s share surged to 19.1% admittedly of a much bigger proportion.

To what extent Uber’s self-inflicted fiascos have taken a bite out of its market share, and to what extent Lyft has benefited, can be seen in the chart below by Uber’s steepening downward slope throughout 2017, and by Lyft’s steepening upward slope. However, this year, the decline of Uber’s market share has slowed, though it continues:

There are two interesting battles being fought here:

One is the market-share battle between Uber and Lyft. Both are losing huge amounts of money and need constant new funding from investors to remain viable. In turn, Uber and Lyft then burn this cash as fast as they can. Billions of dollars vanish in no time.

The second battle is the result of Uber’s and Lyft’s ability to burn cash without constraints. The rides are priced to where they’re guaranteed huge losses. But rental car companies and taxi companies have a hard time competing with these subsidised prices because they cannot afford those kinds of losses if they want to stay in business. And their investors demand profits unlike Uber and Lyft.

Is this sort of financial attack from mega-investors with global resources unfair competition?

Unfair or not, it’s now an almost universal strategy when a new company, funded by unlimited amounts of investor money, sets out to “disrupt” an existing industry where other companies have to make a profit to stay alive. The new predatory capitalism referenced from here.