Instructor: David Schuff, Section 003

Uber’s Unsustainable Business Model May Be Banking on A.I.

Ride sharing apps like Uber and Lyft were so disruptive in nature and changed consumer behavior to such an extent that a new type of “sharing economy” seems to have formed around them and similar applications. The key features of the applications are their affordability and the access provided to this type of “on-demand transportation” that essentially became democratized. Despite the widespread use of these apps, their business models may prove unsustainable. According to the BloombergView, “Eighty percent of [Uber’s] $9.7 billion in quarterly revenue was eaten up by a combination of driver payouts and bonuses, along with discounts to riders. Toss in insurance costs, and you’re up to 90 percent—and that’s before spending on marketing, research and development, overhead and so on”. Without the aid of venture capitalists, Uber will be in huge financial distress in the future. However, the firm does not operate as one that is concerned about future financial uncertainties. In fact, Uber is one of the many firms conducting research on and testing autonomous vehicles. Could this be its long-term strategy that will make its business model viable? Will the firm be able to weather these challenges long enough to see its investments in A.I. pay off?

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3 Responses to Uber’s Unsustainable Business Model May Be Banking on A.I.

  • I find myself thinking about his a lot, I have always been curious about the future of autonomous cars. Financially this will be a good move for Uber. When autonomous cars eventually come out they will likely be too expensive for the average person to purchase, experts have expected people to get together and buy one to share amongst 3 or 4 people. Personally I think some people will be excited to use Uber if it means they may be picked up my an autonomous cars. Some people think it is risky to invest in. They think the legality of it will never be resolved. My gut says it will, simply because of all the companies investing. These companies have connections and can determine more than regular people the likelihood of autonomous cars in the future. I think That these cars could also be a big threat to Uber. Once they become affordable, and the average person can purchase their own, there will be no need for Uber, except when traveling to new areas. I think a business that will present itself in the future is an AirBnB style of renting your autonomous car to people like an Uber.

  • Hi Grisselle! I think it is safe to say that Uber is banking on autonomous drivers for their future business strategy. Personally, I think that a ride-sharing, transportation, or some other large company (or a collection of large companies) will lead the charge in investing in AI-powered riderless vehicles. I agree with Kevin in that most people will not be able to afford driver-less cars, and therefore it makes sense that large companies will be the earliest adopters of this technology. I also think that driver-less cars make more sense as a part of the service industry instead of a primarily consumer good. Lastly, I think there are many ethical and safety issues that need to be discussed and addressed before driver-less cars become commonplace.

  • When analyzing Uber’s business strategy, it is important to consider what brought the company to fame in the first place. There was aching demand for something better than Taxis, and Uber delivered. Cheaper rides, price guarantees, better driver-passenger relationships, and later on the ability to further discount your ride by pooling with other riders in the same direction; a new market disruptive innovation to the T. Automated cars are one way of cutting expenses, and while there is long-term reward potential, the upfront R&D costs are substantial. I would also be concerned about the drivers that will lose their jobs because of it, after all, one of Uber’s biggest selling points is the amount of jobs it provides. I think it would be wise for Uber to consider implementing AI in other parts of their business, such as for customer service or internally to boost employee productivity. Where I think Uber really fell short is that with all of the discounts it provided to customers, it created an unrealistic expectation for how much a private ride should cost to get from point A to point B. Recently, Uber introduced “UberPOOL Express,” which gives customers the ability to order a cheap ride that involves walking up to a block to and from their pickup and drop-off spot. Uber strategically raised the price of ordering a standard UberPOOL and UberX ride, which will help the company achieve profitability in the long run.

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