And the most successful leechers are…Uber and Netflix

When a new digital service starts growing exponentially based on a very attractive offer I try to estimate how sustainable their business is. For example, as Netflix started growing with their $8 per month all you can eat offer, I estimated that even if every household in the USA joined, and they made $800m a month in revenue, those $800m would not be enough to pay for all the costs that are incurred in the USA in TV show and movie production. Hence Netflix was never going to be the only all you can eat video consumption platform. Netflix was a leecher of other platforms, especially the cable industry, which charges 8 times as much for similar content and funds most content creation.

Now let’s move on to Uber. Recently I have been asking Uber drivers how much they make in the Miami area, and this is what I have found. That if you account for the true cost of car ownership including depreciation Uber drivers think they make $13 an hour but they only make $9 per hour. This makes me conclude that the Uber model as it is is not sustainable. That as time goes by Uber drivers will realize that what looks to them like money in their pockets it’s really a depleted savings account when they go to repair or renew their cars. As in the case of Netflix this doesn’t mean that Uber is not viable. Just like Netflix leeches on high paying cable customers for video production, Uber leeches on people’s car ownership to make its model work. For example a driver may have already made the investment in a car and therefore the car is perceived as a sunk cost, and Uber as a way to amortize it. Uber is not sustainable as a full time occupation for drivers over the years.

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