Any citizen living in a city or metropolis would be affected by the wave of “Uberfication”. The company needs no introduction; such is the reach of this platform. The company is headquartered in San Francisco and is currently operation in 66 countries and 191 cities across the globe. Uber is one of the new age start-ups which are heavily funded by investors and has managed to grow faster than many popular tech companies of the era.
Though the company has managed to become an online transportation giant, it still rakes in losses. Hard to believe but that is the ground reality (sounds a little unrealistic for those who have paid the surge prices).
Here is the number that does justification for the above said statements:
Uber’s losses in the first half of 2016 is 1.27 billion
Let’s look at the financial transactions that happen in Uber.
If a driver is making $10 from a ride Uber gets up to $2 to $3 which depends upon the place, competition and other factors, the rest is taken by the driver. However the cut range is said to oscillate between twenty to thirty percent as of now. The percentage is kept secret.
Other online market places like eBay, Amazon or Airbnb are similar in nature to Uber that is they serve the same basic function of putting the user in contact with the service provider or seller. They too take service charges similar to Uber for acting as a service medium. In case of Ebay it is 8 percent, Airbnb collects 9 to 15 percent, booking.com gets 11 cents for every dollar over a hotel booking.
On comparing with these rates Uber seems to a bit on the higher side. However one has to keep in mind that the functions of Uber and other mentioned companies differ.
Uber has to provide software for mapping, take care of transactions and insurances and other valuable chores. Uber is at present a private company so we know little about whether the company is having enough expenditure to charge such a rate of commission.
So what does this mean to Uber?
In theory the company has threat from other companies which offer lesser cut from the drivers. At present the drivers have no say about much the company should charge them or pricing structure. This gives very little choice to them which leave them disgruntled.
Time and again there have been legal issues and protests by drivers to provide them with benefits and also with the right to unionize. Uber treats drivers as contractors and not as employees, thus does not provide them any benefits and also denies the right to unionize.
Despite having them freedom to work at any tome drivers have been expecting benefits and union rights from the company. It is not that the company does not have any restrictions or conditions over the drivers; they have to maintain their car environment and other etiquettes in line with their instructions.
If another company can satisfy these aspects of the drivers Uber will have to face problems. The company at present has competitors in every country it is available in, so issues are at bay.
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Uber can neither cut down on its charges since it is already in loss. At present Uber has not been losing out any drivers but there is a possibility.
Uber’s revenue and losses have been growing steadily. Reason for losses:
Its aggressive expansion, stability comes with steady growth but not rapid growth. Uber is known to be an aggressive expander by moving into every country possible. The company is widely known for negotiating with lobbyists and government organizations to move into a country. It had to deal with regulatory issues, face ban in certain places.
This has cost a huge amount for the company apart from this everyone is aware of the amount of money Uber has been putting to build autonomous cars.
It has purchased cars from Ford to mount its technology over their cars and has a dedicated research and development team working to build it.
All this would take a toll on the company’s finances. They have also been taking up the best slot of employees from various companies like Google to its tech team.
Uber in china
Another place where Uber is continuously losing out is China. The country is famous for keeping foreign companies at bay. Even the search engine giant Google is not quite successful over there, eBay gave up long ago. But Uber has been trying steadily to mark its success as the first ever foreign company to be successful in China. This is also causing the company to lose out heavily as its fighting price wars with Didi Chuxing, china based online transportation network.
The company at present claims to be running at profits in USA its home market and they hold the top position there despite having a strong competition like Lyft which is backed by Soft Bank. They have to continue to do so in every other country to come out of the losses.
At the moment they have the backing from investors but sooner or latter profits have to be churned out for all the money that is being invested.
If everything goes well the company should be able to roll out autonomous cars first and eliminate the necessity of a driver and take away all the earning from a ride and become profitable.
One cannot guarantee what is the timeline for this process. It may be completed well within a decade or may take longer.
But one has to bear in mind it is not just Uber but dozen other companies in partnership with one or the other online transportation companies are working to bring out their autonomous cars.
How early Uber comes into play will decide how much monopoly it will gain over the market.
Apart from all this way the company can make up for its losses is Initial public offerings ( IPO). Uber has the name to make it huge out of IPO.
And the federal law does not oppose a company from going to IPO when in losses. All it needs to do is give a public statement about its earnings and losses. Uber’s 69 billion valuations will help in its public offerings.
This valuation will give Uber the 10 largest IPO of all time.
Anand Rajendran is the Co-Founder and CEO of Zuket. He is a writer and coffee lover. He has is a graduate in Computer Science and Post Graduate in Entrepreneurship and leadership from Ulyanovsk State University, Russia. He is a passionate blogger & SEO Specialist. Zuket is a Software Development company which has launched Taxily Script which is a Uber Clone Script with Android and iOS apps.