Great App, Shit Business
“Until and unless Uber can find ways to overcome the numerous weaknesses in its business model, the company will never be profitable.” — Forbes mag.
Imagine if you and me start a new business, as follows: we convince every pizza joint in town to join our system — we develop an app where we can deliver a pizza to someone’s front door, for less than what they would pay if they went to the restaurant themselves. We do a lot of marketing, and have this cool application on the phone, that shows you how the pizza is traveling along the road, on its way to you … we link it to your credit card, which is so overloaded, that a bit more debt doesn’t matter. We refer to it as “disruption” and because we are so smart, and so energized, we have investors throw money at us. But, the business is shit. The app is great though, and what a fun and delicious story we have, and everyone loves us — well, the customers that is. Of course they do — they are getting pizzas for a whole lot less. We burn through all our cash, but we are “disrupters”, so we keep on going.
We manage to convince more people to invest, because, well, you know, we are disrupters. And hey, we are only interested in growth, not profits. This is cool language that VC types like to say. So we keep burning cash. And now, competitors have sprung up, because, as it turns out, our amazing tech and disruption is not so amazing after all. More like a cheap magic trick — not a Vegas show — think of a street vendor pop-up act, that you see there by Covent Garden. A lot of fun, sure, but not something that is going to shoot the lights out. A novelty can be a cool distraction, but it is probably not going to be life changing. Hang on, let’s not forget all those pizza lovers who are enjoying their fix at a bargain price. Yeah, we are all about the people.
I used to catch Ubers a lot last year, and the year before that, and the year before that. In South Africa it is so affordable, er, inexpensive, um, cheap. I would often chat with the Uber drivers and would feel so guilty most of the time that I would try tip them whatever I had in my wallet.
A forty Rand Uber ride … I would have to tip the guy another R50 because it is just insane — I would ask them if they made a living. Some of them would say they are earning a bit of money and that Uber is good. But how much are they earning? Some would hint towards R5,000 a month (less than $400). Some a bit more. Some a bit less. No one was earning enough to look after a family properly. And of course, what about the wear and tear on the car, the insurance, the petrol, etc. Excuse the pun, but many of us were getting a free ride.
Yes, Uber is the big “disrupter”. Again, yeah, the tech is cool, and what a story, but as a business, what have they actually created? if we were to be honest, all they have done was cut the prices of taxis. I know, I know, public transport in South Africa is not great, so yes, Uber was very welcome there, and I certainly find it very useful. But how on earth will this business ever make money? And if it can’t make money, how will it thrive in the long run? And how will the drivers survive?
I do understand and acknowledge that Uber has pioneered something and have helped a lot of people get from A to B, including me. And yes, it has been convenient and efficient, for the riders, but for the drivers, I am not so sure. Like with our new pizza idea, the public would certainly welcome rock bottom pricing for yummy pizza, but can the restaurants afford to do this? Uber is buying users, with low pricing. Any new venture can “disrupt” if it really all boils down to price. Stand on any high street, and shout out that you are offering products at lower prices than the stores — you will indeed disrupt any weekend shopping outing.
I have visited London and NY many times and the black cabs and yellow taxis are part of the landscape. Ask them what they think about Uber. #justsaying
This cannot be a good philosophy about business, that profit’s don’t matter. It is like saying that the fundamentals are not as important as printing money. As Jackie Mason once said “Put ’em on commission”.
Disruption has become an abused term, in my view. Of course, I could be wrong. Perhaps it is more a view into the world of VC’s than it is of cool tech — like a big pyramid scheme. As long as a start-up can convince investors that a profit will one day appear, they will keep finding money, for growth. And in the case of Uber, while this dance continues, let’s kill off all those pesky incumbent taxis.
Can it stand alone as a business? Yes, the app on the phone did capture the imagination, but in my view, Uber continues because VC’s are propping it up. Hype and financial engineering as a dark art form. But what do I know …
I once heard a comment that the world can be divided into two groups: those who drive Uber cars and those who ride in Uber cars. So yes, I have benefited from the convenient and inexpensive Uber rides in South Africa, and I would be sad if the service stopped. But I am sadder about the drivers, who make peanuts, in my view. Perhaps if all the drivers had Uber stock options … then they could all try drive the share price up together.
