Will Uber ever be profitable?
Rideshare advertising could help save the industry.
Uber, Lyft, Juno, and Via are killing each other. Via rides in NYC are $2.99 right now. When I first moved to NYC I got rides with Lyft for $5 basically . . . anywhere. These promotions are expensive and a dangerous precedence, all for the hope of larger market share.
How can that be profitable? It’s not.
Rideshare companies have been fighting for two things from the day they were incorporated — drivers and riders.
They can’t do this forever, but for now, they’re eating the expenses to establish themselves in the industry. In this example, and there are and were, plenty more: You pay $2.99 — Via covers the other $12.
Uber has a clear advantage — they were first, and they haven’t let go of the lead. But Lyft has been slowly cutting into both their driver and rider base as the industry has grown as a whole.
Of Uber's $5.4bn in net booking (rides) revenue in the 3rd quarter of 2016, 69% was paid out to their drivers. That leaves $1.7bn for expenses (both operating and SG&A), just to break even.
Drivers, in particular in NYC, are struggling to make payments on their vehicles. Uber has been taking more of the booking revenue, most recently bumping up their cut from 25% to 30%. Despite this, they’re still losing vast amounts of money each quarter.
And so . . . what if Uber and Lyft let their drivers advertise on their vehicles? Using NYC taxi-top advertisements as a proxy, rideshare drivers would be able to generate an additional $300–$400 a month, revenues that wouldn’t cost Uber or Lyft a dime. Given they’re independent contractors, and the majority of drivers own their cars, rideshare drivers wouldn’t have to share any of the ad revenue.
“Uber would have to double prices to have any hope of being profitable, but they’re trying to drive the competition out of business so they can’t raise prices. They haven’t found a way to be the taxi company of the digital age. They lost $2 billion in China. They lost $3 billion in 2016. That’s the most money lost by a startup ever.” — Political author and former New America thinktank fellow Steven Hill
Looking at their financials from the 1H2016, Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares.
As their marketing expenses go down, and let’s say, their percent of distributions paid out to drivers stay the same, Uber will be much closer to turning a profit in the near future. If they keep taking a larger cut from their drivers, they’re going to lose out to other rideshare companies, shrinking their driver base. Rideshare driver advertising revenues could help fill the gap between net loss and net income for Uber and Lyft, by outsourcing some of their driver expense. At a minimum, rideshare advertising could keep rideshare drivers from demanding more money just to pay their bills.
Rideshare advertisements, something New York based mobilads is trying to get off the ground, could be a major player in keeping drivers happy, paid, and loyal — ultimately benefiting the rideshare companies themselves.
At $300-$400 a month per driver (in NYC only), and with 79,000 rideshare drivers in NYC alone, Uber and Lyft should start to consider rideshare advertisements as a way to get their drivers more money — without breaking the bank.
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