Oversimplified – To my friends on how and why a multibillion-dollar business is always bleeding money.

“What do they do? Huh? Tell me! They made the app already and it is just hanging there in their computers; so now all they do is sit in their big offices, waiting for money! But they still want to steal from us, the drivers?!”

– very upset friend and Uber driver, at about 5 pm, Thursday Dec 2020.

Now you might be wondering how me and the Uber driver became friends – or maybe not, so I'll let it float. But when he said this, I paused for a minute. I paused, not because I'm smart enough to take my time to carefully word my response, but because my brain stopped me from retorting, “I mean I don’t know about you, but I’m pretty sure that’s not how apps work!” My friends will tell you that I tend to be a delicate balance between very unpleasant and a little cocky, but they're still my friends because let's face it, do they really have a choice? (Oops. See what I mean? I'm sorry, you guys are the best!)

I was done with my finals the previous week, and while it is up for debate about whether I needed to uber around Fresno that many times or I was just trying to find new people to talk to after being locked up indoors for rather unusually long, I developed a talent for engaging Uber drivers in all sorts of conversation. This one was particularly bleak. The driver was cut up about Uber’s high fees when the company did not help maintain or fuel his car; about how Uber expects his vehicle to have high luxury standards which he had to pay for himself; and how the Uber people are “just sitting there in their offices doing nothing” and siphoning billions of dollars, which was more money than they needed, from drivers who were breaking their necks to put food on the table for their families with the marginal income they made. He even complained about how sometimes, it costs him to work for Uber.

You can see why my retort would have been a little insensitive.

Uber, like most of today’s big corporations, is massive and complex enough to be virtually inconceivable by the average person. Like my driver, many people can only speculate about the processes that make Uber possible. It is a case of what Christian Fuchs described in his book Internet and Society – Social Theory in the Informational Age, as most people not being able to cope with the increased complexity of the world because their lives are increasingly shaped by global alienated structures that, one, are out of their reach and two, they cannot participate in. So, when my driver then and my friend a little later hesitated to accept that Uber is hardly profitable, their doubt was justified. It is reasonable to assume that a multibillion-dollar business that operates in 83 countries makes billions of dollars, because that is what multinational multibillion-dollar businesses do. Now you might have noticed that perhaps one of the reasons for this confusing complexity lies within the semantics of the previous statement. "Making billions of dollars" does not really mean anything, but you have to care about corporate lingo like revenue, operating and net income, assets, and valuation to realize that a business can be valued at over 47 billion dollars and fail to have a successful IPO because it was bleeding hundreds of millions in losses and so on. In reality, however, most people don't care about this.

Nevertheless, Uber does lose billions of dollars; 8.5 billion in 2019, and 5.8 billion by September 2020. (You can read the 2019 Annual report here. I obviously did not read the whole thing! I very much prefer wasting time scrolling through my phone! I went looking for Operating losses, found it on page 79)

But how exactly does this happen?

Starting off, like so many other startups, Uber sacrificed short-term profit for rapid growth. The costs of starting and running a business are very high, so most startups that want control over large portions of their respective markets usually tend to give up early profitability for explosive expansion. It is a risk worth taking because massive scale almost always guarantees gigantic revenues. Amazon is a good example of this. However, Uber comes up against a traffic jam here. Where network effects usually increase the value of a company and hence the potential for high profitability, Uber’s business model that requires it to literally be on the ground means that the Regional Network Effects are arguably their biggest challenge. Fares vary greatly with geography: nearly similar rides between airport and hotel for an almost equal amount of time at nearly similar times during the day cost me $19 in San Francisco and about $5 in Nairobi. Because Uber is trying to stay ahead of the competition, they have to keep their prices low enough so that they can attract more customers (and avoid legal disputes in some places like India and Hawaii), yet high enough for them to stay in business. Maintaining this dynamic pricing framework is a complicated process that involves designing economic models based on a wide variety of statistics, and algorithms that determine the best ride-share prices at any given time for different customers in different locations. Evidently, Uber spends a lot of money on these operations, as well as on the rest of research and development, inching them ever closer to the red. Or more accurately, keeping them there.

There is more to the list of problems related to Uber’s expansion across the globe. It is expensive for Uber to navigate regulation and ensure their business runs in different locations, and their success primarily depends on how many drivers and customers want to use Uber in the respective cities. If Uber does not attract too many drivers and riders, they may not make enough money to mitigate the costs of sustaining their business in that location. Unfortunately, Uber is surrounded with controversy – although much less in Kenya than in the US – and this kind of negative publicity does not help their case much. As it were, Uber happens to spend millions of dollars to attract and keep people on the platform and polish its image, and an additional amount in Driver incentives.

One important thing to note is that Uber drivers (and Uber Boda riders in Nairobi) are contractors, not employees, and while I am yet to meet any contractor in Kenya who takes issue with this, Uber has fought to keep it that way in the US. One reason for this might be that employees are entitled to minimum wage (which I am not sure is a thing in Kenya), overtime pay, gas reimbursement, breaks, paid leaves, and health insurance, all of which would rip massive holes in Uber’s already torn pockets.

Uber has put a lot of focus on diversifying into bikes, scooters, Uber freight, air taxis, and autonomous driving over the years, requiring heavy investments and strangling their profitability. I personally find the idea of wanting to go fully autonomous very curious, because Uber wants to eliminate the driver so that they can get the full share of a rider’s fare. I, however, must wonder if they have thought about the implications of this initiative. When you look at the Math, drivers make very little money from their alleged 75% cut of the rider’s fare, because a lot of it goes into maintaining the vehicle even as it depreciates, and this does not even include the driver’s Sales Tax that Uber does not take responsibility for. When Uber gets rid of the driver, they also have to take responsibility of all these costs that the drivers are padding them against. I truly wonder whether this will be Uber’s crock at the end of the rainbow.

And so in conclusion I would very much like to know, why do all the drivers in Kenya always ask me where I am going after I get into the car!? Why!? Why?! Why?! For crying out loud, this is so frustrating, and I need to understand why they didn’t already know when they got there! They always ask, the lot of them!