<story><title>On-Demand Startups Are Hemorrhaging Tens of Billions a Year</title><url>https://www.bloomberg.com/news/articles/2019-04-01/on-demand-startups-are-hemorrhaging-tens-of-billions-a-year</url></story><parent_chain><item><author>Johnny555</author><text>Where does the money go for Lyft&amp;#x2F;Uber? The software platform can&amp;#x27;t be that expensive amortized across a million+ drivers.&lt;p&gt;It&amp;#x27;s not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs)&lt;p&gt;What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?</text></item></parent_chain><comment><author>mlinsey</author><text>From what I&amp;#x27;ve seen at other on-demand co&amp;#x27;s, the three most likely culprits are:&lt;p&gt;1- User acquisition costs (discounts, marketing, etc - for &lt;i&gt;both&lt;/i&gt; sides of the platform). this gets more expensive in the face of competition, and there&amp;#x27;s some hope that if you can &amp;quot;win&amp;quot; the market then eventually these costs will be reduced sharply.&lt;p&gt;2- Money as a band-aid for reliability&amp;#x2F;support issues.  Frequently, an Uber driver refuses to take me on a long trip (SF to Mountain View, for example), makes me get out of the car, then marks me as a no-show or that &lt;i&gt;I&lt;/i&gt; canceled the ride.  Fortunately, my rider score is high enough that I just fill out the form describing what happened, and Uber (usually almost instantly) refunds the fee and sometimes also gives me a make-up $5 credit to apologize.  With food delivery options, a non-trivial fraction of the time, the wrong order arrives, and similarly any complaint to support usually results in an immediate refund + credit.
Without an easy, scalable way for the support team to audit what really happened on the ground, chances are they are not penalizing the driver &amp;#x2F; restaurant for these incidents unless there is a clear pattern in the data with a particular provider. So this is just loss for the platform. With very small margins it takes a surprisingly low percentage of such cases to really eat away your unit model.&lt;p&gt;3- Subsidizing low-utilization markets. Markets with a much higher density of supply&amp;#x2F;demand will be more efficient and profitable; newer markets will often need subsidies to get over the cold start problem (eg when uber launches a new city, you&amp;#x27;re gonna need to pay some drivers to sit idling on the road, or else someone opening the app won&amp;#x27;t see a driver; you might also discount rides even more heavily to get past this phase quicker). Compared to the other two factors, this is probably the best-case scenario for why a company might be bleeding money, and why you sometimes hear people say &amp;quot;Uber is profitable in XYZ cities&amp;quot;, but it&amp;#x27;s hard to say from the outside if this is actually what&amp;#x27;s happening or if there&amp;#x27;s something more fundamentally wrong.</text></comment>
<story><title>On-Demand Startups Are Hemorrhaging Tens of Billions a Year</title><url>https://www.bloomberg.com/news/articles/2019-04-01/on-demand-startups-are-hemorrhaging-tens-of-billions-a-year</url></story><parent_chain><item><author>Johnny555</author><text>Where does the money go for Lyft&amp;#x2F;Uber? The software platform can&amp;#x27;t be that expensive amortized across a million+ drivers.&lt;p&gt;It&amp;#x27;s not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs)&lt;p&gt;What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?</text></item></parent_chain><comment><author>vkou</author><text>&amp;gt; Where does the money go for Lyft&amp;#x2F;Uber?&lt;p&gt;Mostly into customer discounts and driver incentives.&lt;p&gt;Both companies are burning billions of dollars on selling people a $10 taxi ride for $5, while paying the driver $12.&lt;p&gt;Once they stop spending their way to market-share, customer demand, and driver supply will drop.&lt;p&gt;There&amp;#x27;s a price point where they are a viable, profitable business (After all, taxi firms have existed for centuries), but that price point will be higher for riders and lower for drivers, than it is today.</text></comment>