I don’t quite understand, if even the contribution margin of an individual driver is negative (before fixed costs), then I don’t see how this model can become viable in the future.
The hope is that they’ll hit on something big like self-driving car technology that fundamentally improves Uber’s marginal profit.
I run a service busines with a financial model kind of similar to Uber’s, and I can tell you there’s not much qualitative difference between reporting −20% vs +20% “contribution margin”, because it depends on how much you decide to amortize all kinds of gray-area costs like marketing, new-driver incentives, non-driver employees, etc, into the calculation of what goes into “one ride”.
I use the ambiguous term “marginal profit” to mean “contribution margin with more overhead amortized in”, and I’m pretty sure Uber’s is quite negative right now, maybe in the ballpark of −20%.
The hope is that they’ll hit on something big like self-driving car technology that fundamentally improves Uber’s marginal profit.
I run a service busines with a financial model kind of similar to Uber’s, and I can tell you there’s not much qualitative difference between reporting −20% vs +20% “contribution margin”, because it depends on how much you decide to amortize all kinds of gray-area costs like marketing, new-driver incentives, non-driver employees, etc, into the calculation of what goes into “one ride”.
I use the ambiguous term “marginal profit” to mean “contribution margin with more overhead amortized in”, and I’m pretty sure Uber’s is quite negative right now, maybe in the ballpark of −20%.
Or the old fashioned thing where you kill off competition and then raise prices.