The Business Of

Sharing | Uber | What Do They Do?

Morning All!

Hope you had a great weekend. Last week, in the first part of our The Business Of Sharing series, we explored the business model of Airbnb. And we looked at how the US company has become an absolute giant in connecting guests and hosts.

This week, we’re going one bigger. Because whilst Airbnb made $8bn in revenues in 2022, these guys made $30bn. And they’ve done it not by connecting guests with hosts, but by connecting drivers with people, restaurants, bars, and a whole lot more! Yup, it’s the ridesharing giant, Uber!

Now, Uber is the 140th largest company in the world, currently valued at $97 billion. But what’s incredible is that Uber has actually lost a cumulative ~$25bn since its inception.

Let me say that again. Uber has lost $25bn. Has only just started making a profit. But is valued at $97 BILLION and is the 140th largest company in the world! So, the question is - what on Earth is going on? Why is such a hugely loss-making company valued so highly?!

Well, that’s exactly what we’ll be uncovering over the course of this week! But for today, I just want to be very high-level and go through the 3 segments Uber operates in. So, without further ado, let’s crack on!

Sidecar, Where Did It Go Wrong?

Okay, so to start with, we’ve obviously got Uber’s ridesharing business – which Uber calls Mobility. And it seems so normal for everyone now. You need a cab. You either don’t have time for or can’t be bothered with public transport. What do you do? You open the Uber app (or Bolt, or Lyft)… obviously! But this wasn’t that obvious a few years ago. In fact, the market of ridesharing only came to existence as recently as 2011! And Uber wasn’t even the first one there!

Back in 2011, a company called Sidecar started their venture into ridesharing. Whilst Uber was founded in 2009, it was only connecting passengers to professional black cab drivers. It wasn’t really ridesharing. Sidecar were the first ones to allow average people to use their own vehicles to give people rides! To read more about the birth of ridesharing – and how Sidecar lost to Uber despite being first – I’d recommend this article.

Now, whilst most of us here will be familiar with Uber from the passenger point of view, Uber’s value isn’t in just giving people like us a convenient and cheaper ride. But the company also provides a source of income for several drivers around the world. And I was pretty astonished with just how many drivers! In 2022, a whopping ~5.4 million people made an income from being an Uber driver/courier!

To put that into context, the NHS is the largest employer in the UK, with ~1.5 million people employed by the organisation. So 5.4 million is pretty extraordinary. As you may know, there’s plenty of debate whether Uber’s drivers are actually their employees or not. But that’s something we’ll dive into later this week!

So, that’s pretty much the Mobility business. It’s not rocket science. But what is interesting is how the money is split up. How much of our fare does Uber keep? How much do they give to drivers? We’ll dig into these questions tomorrow!

Two’s A Crowd and Three’s A Party

Okay, so the second part of Uber’s business is another well-known segment – Uber Eats. And again, whilst it feels like Uber Eats has been around forever, it really hasn’t! With Uber entering the food delivery market only in 2014 – after JustEat (2000) and Deliveroo (2013).

Now, for this week, I won’t actually be diving too much into this food delivery segment. One, because we’ve already gone through The Business Of Deliveroo. And the Uber Eats business model is pretty much identical. But two, there’s so much to analyse in just Mobility that I think it makes sense to focus solely on that segment this week. But saying that, let’s briefly look at the graphic below and make a couple of observations…

The striking thing to note about Uber Eats is that unlike Airbnb and Uber’s Mobility business, food delivery isn’t just about connecting two parties. It’s about connecting three! The individual ordering. The restaurant receiving. And the rider delivering.

And on Wednesday, we’ll make mention of the importance of this difference. Because the addition of this third party does affect the profitability of this business model. More of that on Wednesday though!

Uber… For Goods

Okay, so we’ve looked at Uber and Uber Eats - brands I’m sure everyone’s familiar with. But I doubt many of us will be familiar with this third business segment. And that’s Uber Freight. Now, what on Earth is Uber Freight? That’s a great question!

Well, Uber Freight is like Uber Mobility - but instead of moving people, it’s about moving goods. So, when a company needs to transport goods from place A to place B, they can go on Uber Freight, and connect with truck drivers who are looking for jobs!

An example of this is Anheuser-Busch - the company that owns the Budweiser brand. They used Uber Freight to transport their beers from their breweries to their distributors (e.g. supermarkets). And even huge companies like Colgate and Nestle have previously been customers of Uber Freight.

Now, whilst this third segment is growing, it’s still fairly small relative to the size of Uber’s total business, so I’m not going to touch on Uber Freight much this week. We’ll keep our focus on Mobility. But who knows, if TBO is still (hopefully) going in a few years and Uber Freight is huge, we’ll revisit it for sure! Also, we’ll be going very deep into the freight/transportation industry when we do our The Business Of Transportation series in a few weeks!

Super Pumped

Final thing to wrap up. For anyone who’s super keen on startups and venture capital, and wants to learn about Uber’s past and how they became the giant they are now, I highly recommend the show – Super Pumped.

I think it’s still on Amazon Prime. But it really shows the amount of obstacles that a startup faces. And the win-at-all-costs mentality that Uber adopted to beat Sidecar and their other ridesharing peers!

9th Oct 2023

Nigel Jacob CFA