Big news! Uber is going to bring 3,000 jobs to an office in the Epic, in Deep Ellum. The Morning News broke the story after getting a look at a briefing for Dallas County commissioners. Pretty cool, right? That’s almost as many jobs as Toyota promised Plano when it relocated. Time to party.
Well, not so fast. Uber is struggling. Last quarter, after its IPO generated some big expenses, the company lost $5.23 billion. You might be thinking, “Yeah, but all those big tech companies burn a bunch of cash to get big quickly, so Uber will turn a profit pretty soon.” Not so much, pal. Read this New York Magazine analysis of Uber’s business model and why it is flawed. The story was written prior to the IPO, but it still applies. Here’s a bit:
Uber has never presented a case as to why it will ever be profitable, let alone earn an adequate return on capital. Investors are pinning their hopes on a successful IPO, which means finding greater fools in sufficient numbers. Uber is a taxi company with an app attached. It bears almost no resemblance to internet superstars it claims to emulate. The app is not technically daunting and does not create a competitive barrier, as witnessed by the fact that many other players have copied it. Apps have been introduced for airlines, pizza delivery, and hundreds of other consumer services but have never generated market-share gains, much less tens of billions in corporate value. They do not create network effects. Unlike Facebook or eBay, having more Uber users does not improve the service.
Nor, after a certain point, does adding more drivers. Uber does regularly claim that its app creates economies of scale for drivers — but for that to be the case, adding more drivers would have to benefit drivers. It doesn’t. More drivers means more competition for available jobs, which means less utilization per driver. There is a trade-off between capacity and utilization in a transportation system, which you do not see in digital networks.
The article ends:
Uber has succeeded in getting the business press to treat its popularity as the same as commercial success. A few tech reporters, like Eric Newcomer of Bloomberg, have politely pointed out that Uber’s results fall well short of other tech illuminati prior to going public. The pitch that dominance would produce profits is demonstrably false and Uber seems unable to come up with a new story. There’s every reason to think that investors, not local cab companies, will wind up being Uber’s biggest roadkill.
As county commissioners vote on tax abatements, as downtown boosters get pumped about 3,000 high-paying jobs coming to town, as Deep Ellum landlords get ready to raise rents, everyone involved should keep an eye on Uber’s stock price. At this writing, midday Friday, it’s $39.89, down more than 7 percent.