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3 Ways Uber and Lyft Could Actually Become Profitable
Self-driving cars have to be part of both companies’ endgames
Uber is currently an unprofitable business. Lyft is too. Both have aspirations to become profitable businesses in the next one–two years, but right now, they aren’t even close. How can they achieve profitability, and what impact would that have on your fare to get from the airport to your Airbnb?
There are a few estimates on how much Uber loses per ride. It’s enough that, up until its initial public offering, your Uber ride was substantially subsidized by Uber’s investors. That means if Uber charged you $10 for your ride, Uber might pay the driver $6, earmark $6 for the costs of operating a business, and cover the $2 loss with some of the money they raised from venture capital (VC) funding.
For a while, everyone was okay with this. Uber and Lyft were happy because both sides of their marketplace (rider and driver) were growing, and one side (riders) was pretty happy. Users stayed happy because they kept getting cheap rides. VC firms were happy, too, because the companies’ ridiculous spending begat ridiculous growth. Drivers were not happy, but nobody seemed to care, save for a few cities and states.
As anybody who paid attention to the markets in the past two decades is well aware, this was a pretty common model, and it’s what led companies like WeWork to try to approach an IPO — growth first, profitability later. Amazon popularized this, as it was famously unprofitable for years — and the strategy worked because the company crushed its competition with lower prices and eventually founded high-margin, profitable businesses (like Amazon Web Services) to prop up its growth. WeWork was the most recent signifier to the markets that this model just wasn’t going to work any longer, unless you had profitability and monopolistic aces in the hole like Amazon. So far, Uber and Lyft don’t.
Many have accused Uber and Lyft of running businesses that only really work when their drivers are underpaid.
After a leadership change and a disappointing IPO last year, Uber revealed its finances to investment banks (and then the world) and showed that the…
