Uber: A Wrong Turn and a Lost Company

Uber came out of nowhere for me. I didn’t really know how it worked until I found someone passed out drunk on the side of the road. My friend and I stopped to check on him and started a conversation with his girlfriend. She had called an Uber, so when a car rolled up and stopped on the side of the road, we picked up the drunk dude and loaded him up in. Turns out that car wasn’t an Uber, just a very confused driver who stopped to check if the drunk guy needed help. Guess I still didn’t realize how Uber worked.

The Rise of Uber

Before I knew it, I was calling Uber’s regularly. At first, it was just when I was drunk. Then it was when I was going to areas that were difficult to park. Later it was in lieu of renting a car. I considered not owning a car because of Uber.

Uber transcended its own TAM. What started as just a cab company quickly gave rise to people selling their cars because using Uber was so easy. All of a sudden, Uber went from taking a cab just when you were drunk to when you needed to go anywhere. People trusted Uber. They would take you somewhere, then take you home. All for some semi-reasonable amount of money. It was transportation on demand.

The Fall of Uber

Garret Camp and Travis Kalanick built Uber into the disrupter it was. Uber built trust and reduced people’s uncertainty. Then it all started to erode all away. Kalanick stepped down as CEO amid pressure from large investors. Uber eventually went public and has been flat for two years plus. Worse yet, the quality of Uber rides has declined, while the price of them has increased substantially. Many times people are being left stranded, when they had trusted Uber would be available to take them home.

This isn’t how marketplaces are supposed to work. You aren’t supposed to have shortages. Maybe prices rise to meet demand, but demand is always met. That is the whole point of a marketplace. Yet Uber has high prices and shortages. Oh yeah, and they still aren’t profitable.

Some people try to attribute the fall of Uber to poor unit economics. This ain’t it. DoorDash arguably has worse unit economics, but is somehow free cash flow positive, all while growing faster.

Uber is broken. Not the stock, the company. They lost their way. It doesn’t matter if you are profitable if your customers hate you.

How to Fix Uber

Fixing Uber doesn’t seem easy, but if I’m going to complain about the company I might as well try to help. Given the marketplace business model, I see three ways to help:

  1. Increase user trust and engagement
  2. Reduce driver churn
  3. Add value on top of the marketplace

Uber had trust and engagement. It won’t be easy, but gaining back that trust is needed. Maybe they need to subsidize cheap rides again.

Driver churn is insane. Why is it so high? Is it just the nature of the gig economy or something more? Uber drivers are the spokespeople for the company, if they are constantly turning over, it isn’t a good sign for the company. Reducing driver churn is simple… give them more. Pay them more, give them benefits, etc… No one is going to work many hours at a job that doesn’t give benefits or pay that well. Give full time drivers benefits. Reduce Uber’s take rate. Increasing driver retention and happiness will increase user engagement as well.

I love marketplaces, but solely relying on the marketplace is a race to either disruption or lower take rates. The key is to add value on top of the marketplace. Below are some ideas:

  • an enhanced (free) loyalty program
  • guaranteed ride times or it is free
  • Uber stops (i.e bus stops, but paid for by Uber). You show up at the stop and app prioritizes picking you up.
  • owning a fleet of cars for Uber drivers to use
  • let drivers Uber others’ cars (i.e Uber pays me to let someone else drive my car – a marketplace within a marketplace)

Uber has tried many of these things and much more. But to me it is clear they haven’t done enough. I fundamentally come back to the same question: how do you have a shortage in a marketplace business model like this? Uber the company is broken.

Why I’m Not Long Uber

What Uber is today, isn’t what the bulls dream of. They dream of a marketplace of the future with autonomous driving, they dream of a logistics company that covers all things distribution, they dream of a company that truly manages distribution more efficiently. Essentially, they dream of distribution as a service.

We live in a crazy time. We have mass shortages. In some ways, I understand Uber’s struggles. Every company is struggling with labor right now. Everyone is struggling with price increases.

Yet the great companies continue to kill it despite the challenges of today. DoorDash is killing it in a similar industry. Uber is lost trying to maximize profits, but have too short of a view.

I love the idea, I love the service. I’ll be hailing rides the rest of my life, I just won’t be owning Uber.

Author: fatbabyfunds