An Affordable Uber, But For How Long?

With Uber's rise in popularity it has gained a foothold as an alternate to mass transit for some, pushing out competitors such as Lyft in some markets with hard to beat prices. The Financial Times Alphaville blog takes a closer look at recently released financial data from the company, which shows a substantial subsidy of $2 billion from investors is helping to keep Uber's prices low. As noted in the report, Uber passengers are only paying 41 percent of the actual cost of their trips. Izabella Kaminska of Alphaville writes:

Silicon Valley elites justify the subsidies in the name of monopolistic growth expectations and the building of “eco-systems”*. They believe if monopoly status is achieved, profitability will follow naturally from that point.

Yet, as FT Alphaville has long maintained, there is no reason to assume Uber’s obliteration of local competition across the planet will create a sustainable business in the long term. Costs are costs, even if you’re a monopoly. As long as people have cheaper alternatives (public transport, legs), they will defect if the break-even price is higher than their inconvenience tolerance threshold.

Kaminska notes that the poor returns for the car-hailing aspect of Uber's business model may be why it is now "pivoting its way to viability" with expanded offerings, including Uber Eats.