In transportation business major costs are vehicle depreciation/maintenance/consumables (fuel, insurance, tires, etc), wages and you can include domain specific expenses (insurance, driver health chek-ups).
* You can't reduce DS expenses. You can offload them to drivers, but that will still be reflected in prices
* You can reduce wage cost by eliminating administrative load by having tools (apps, backends) do the job. Considering the size of Uber they are just transfering wages from operators to engineers.
* You can't reduce wehicle depreciation. You can reduce maintenance costs by having own workshop. Taxi companies might have that, for Uber that would be next to impossible due to practical reasons. You can reduce operating costs by buying fuel/insurance/etc in bulk. Agin, easy for cabs, difficult for Uber (not impossible though).
The only place I see Uber can compete is having innovative algorithms route the cars by adjusting for projected demand. Unless they have huge army of dedicated drivers, drivers driving for multiple companies kind of defeats that advantage. currently Uber does compete by exploiting legal frameworks and not labeling their drivers as professionals and their service as transportation. This is not a major factor in operating costs though.
You noticed I said in theory - what you have raised is the practice :)
Personally I think a lot of Uber business model is hidden cost shifting onto the driver and society. Drivers are underestimating the true cost of being a Uber driver and society is losing out via inadequate insurance and tax avoidance. The drivers are not taking out the correct insurance and a lot of them are not declaring their income or collecting sales tax. I guess as long as it is all done on an app then it must be cool and OK.
I am not sure how much of an edge one can gain by doing demand prediction through algorithms. In large markets the patterns are fairly trivial (big game ended, everybody goes home; it's 5 pm in financial district, people are leaving work; busy time at the airport, bunch of flights arriving at once) and known to all participants.
My point was not about (officially or not) scheduled spikes in traffic. These are known for all parties in advance. I was talking more about organic traffic - Random Joe hailing a cab just because. And cabs generally just drive around expecting to catch the Random Joe wasting time/vehicle/fuel. Now if you can predict temporal/geographical density of Random Joes hailing a cab - well, you have an edge there simply by increasing utilisation rate. Is this even possible? Have no idea.
The valuation for Uber has got to be based on #2. Specifically that you can drive down wage costs by having a fleet of self driving cars. And that the current app/business model is just to get the app installed onto as many phones as possible.
You mean like how all the horse and buggy companies became highly successful car manufacturers? I can see the Uber logic - we will sell buggies now since we don’t have the technology to make cars and when the technology eventually arrives we will be able sell cars because we have such a great buggy customer network.
Self driving cars aren't coming tomorrow. They are years away. Maybe a decade. How long can uber coast on VC money before that happens? And then how do they guarantee dominance in the self-driving taxi market? Basing their value solely on this shoot-the-moon project is problematic.
