Tech Brew Ride Home - Uber, Lyft and Bird- The Economics of Sharing with QZ's Alison Griswold

Episode Date: April 20, 2019

Lyft has gone public. Uber will do so soon. So will Airbnb. Quartz’s Alison Griswold covers this stuff every day, and she has a great newsletter, covering this stuff every week. It’s called Oversharing, you can get it for free at oversharing.substack.com… Because she covers the sharing everything… we talk to her today about the ride sharing companies… but also about the deliver me something companies and especially, the e-scooter companies… the economics of all things sharing! Alison's newsletter: oversharing.substack.com Sponsors: Molekule.com checkout code: ride Stamps.com, click on the Microphone at the TOP of the homepage and type in RIDE Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to another weekend bonus episode of the Tech Meme Right Home. I'm Brian McCullough. Lyft has gone public.

Uber will do so soon. So will Airbnb. Quartz's Alison Griswold covers this stuff every day, and she has a great newsletter covering this stuff roughly every week. It's called Oversharing. You can get it for free at Oversharing.substack.com because she covers the sharing everything, the sharing economy, whatever. We talked to her today about the ride-sharing companies, but also about the Deliver Me Something companies, and especially the e-scooter companies.

The economics of all things sharing today. Please enjoy. You said over email that you were deep in the weeds of the Uber S-1, so I don't know if you've written a piece about that yet, but are there, without spoiling any piece that might be coming, are there any surprises? there or anything that jumps out at you that you weren't expecting? Yeah, so I am so deep in the weeds of the Ubers one that I actually printed the entire thing, three whole punched it and put it in a binder. How many pages is that? Much more difficult than you would think to do. I think these things are designed to not be printer-friendly.

It is 395 pages. I printed it double-sided, but probably still killed at least one tree. Yeah. Yeah. And so I would say there's sort of like two takeaways high level on the Uber S one. Like the first is just some of the financial stuff we already knew, which is that for the most part, they continue to lose truly massive amounts of money, with the exception that they did make a profit in 2018 due to this like one time offset from sales of their international businesses. And then the second thing is it's just very interesting to see how Uber has chosen to formally.

present its business to like the SEC. So one example I could give you is that if you start to get in the weeds on some of their metrics, it becomes clear that like the metrics they've devised to measure revenue around things like food delivery and trucking and these like other sort of less central businesses they've developed all came from the original Brides framework. So they've sort of been like, hmm, well, this is how we account Brides. So how do we apply this to food, which leads to some really interesting situations? There's a note at one point where they say that like historically amounts paid to drivers

for Uber Eats deliveries have exceeded fees paid by consumers for those deliveries, which is sort of funny to just read stated, right? Like they're almost losing money on every delivery to a driver, but then you have to remember that with eats, Uber thinks about money coming in from the restaurant, too. But because they've put it all in this framework of, like, rider and driver, it can read very oddly at times. Well, and it wasn't that accounting framework for the rides money. That was controversial originally, right? Mm-hmm. Yeah. So originally with rides, you just get into all these questions of, like,

so companies, obviously, in the sharing economy, love to give incentives. This is probably the easiest example. So one of the questions is like, you know, if I give you $5 off your ride, how do I account for that? So say you take a ride and it's $10 and I've given you $5 off, so you pay $5. Do I book that as $10 as the price of the ride or do I first deduct the $5 and then say like the revenue is $5? And there are different ways you can answer. that and they'll all sort of affect the revenue numbers that you're sharing with investors. So that can be controversial too. The, I mean, as we said, they're still losing a ton of money and like there's no,

there's no sort of accounting magic that at the end of the day can wipe that away. But are, what is, what's the trajectory? Like, are they on an upswing? Can you like see in the numbers? Well, if they do X, Y, and Z, I can see a path to profitability in a year, two years, three years, something like that? Yeah, it's a really good question. So one thing you definitely see is they start to break out trips and they break out

eats and gross bookings. And you can see that, you know, they've continued to grow. But so this is actually a good time to bring in Lyft because one of the things that Lyft pitched investors on during its roadshow before it ultimately went public was the idea that it had a better growth story than Uber and that it was growing faster. And that was true. There's a separate argument to be made about whether that was organic growth or if it's because Lyft was even more aggressive with its discounting and promotions than it had been. And that sort of, it won the spending battle in the last couple of months. So with Uber, I think, and Lyft, the question for both of them

is can they continue to grow and become profitable businesses without relying so much on these incentives for both riders and drivers? Because what Uber and Lyft have done and a lot of other companies in this space have done is they've essentially created a service and sold it below cost for a really long time. And everyone likes free money. If you come to me and you say, you can have this thing that usually costs $20 and I'll give it to you for 10, that's a pretty good deal. And that's sort of like an extreme example of what a lot of these companies are doing. And, you know, at some point, reality comes in. And I think

Uber and Lyft are both hoping that before they reach the point at which they have to raise the service to its true cost, they'll have some other development, whether it's autonomous cars or, you know, just being able to like shave away at various fees to make the price lower. So it's less of a shock to the consumer. But it's a really big question whether they'll be able to pull that off. Well, right, because I don't know that self-driving cars are five years around the corner, 10 years ever around the corner. So that seems to be a crazy gamble. But also, I think, you know, the calculation was maybe especially on Uber's part, but this is the game plan for everybody. It's like, well, if we can gain enough market share that we create a sort of quasi

I'm monopoly, then we'll have pricing power because we'll have knocked everyone out of the game. But now, you know, there have been people knocked out of the game, but that's not true. So is it just a question of when will the money run out? I think it is in some ways. And that's another thing you get out of reading this document is that it feels like one of Uber's best arguments for why you should invest in Uber is we're really big, almost on like a, we're too big to fail, that sort of argument. And it is a question, is that true?

Are they too big to fill? The infrastructure is not on the level of a bank, you know? Like, you can imagine a world in which there is no Uber and other people come in to replace it. Well, and also, that's kind of ironic for you to say, because that's also the pitch that the Ubers and Airbnbs of the world are. There's no real infrastructure. Like, we don't even have inventory. Right. And it's this double-sided sword.

And actually, one thing I found very funny was that Uber talks about its core values quite early in its prospectus. And one of the core values is we are owners. And it's talked about it's like, we are owners. We own up to our problems. We like own the area we're in. And I was like, that's hilarious because actually you own nothing. And your original pitch was we aren't owners. We don't own cars.

We don't have employees, and that's why we're such a great business. So it's very funny to turn that around and say we are owners, and that's one of our core values. Real quick about Lyft, because Lyft's stock price has been not doing well since the IPO. I mean, and you were just mentioning Uber's pitches, well, we're the biggest, and so that's obviously why Lyft raced to get out first. not to no one can get inside the mentality of the market but do you feel like that that's what's happening with investors is that they're comparing Lyft and Uber and it's just like well for whatever I thought Lyft was a good investment well Uber for all the metrics is a five times as good investment if I buy that thesis I think there's definitely some of that going on and

you know it was reported that Uber had trimmed down its goal for an IPO valuation based on how Lyft stock price had not been doing well since the filing. Like I think they're trading around $58 currently, which is down from what did they go public at 72. Right. Yeah. Something in there. Yeah.

Yeah. And, you know, shortly after Lyft went public, there was a pretty blunt note that came out from an analyst. And the analyst, you know, an equity research analyst who are, you know, a equity research analyst who are famously pretty optimistic on the cell side. And he just said, pretty point bank, point blank, we see four paths to profitability. You can cut pay to drivers. You can stop giving so many incentives out.

You can reduce insurance costs or you can move to self-driving cars. And we don't think you can do the first two because there's a lot of competition. We think the third one, which is reducing insurance costs, might not be like great enough savings. alone and we think self-driving cars is not a reality that's going to happen in the next decade. So basically you have this analyst saying, like, we don't see any way that Lyft can become a profitable company, which is really not a great welcome to the public markets. All right, let's shift gears real quick. The reason that I read you all the time is because you have this great newsletter called

Oversharing, look it up people, which talks about all of the very. sharing companies from the ubers and the lifts, Airbnbs or whatever. But you were also, and this is how I got turned on to your work, you were one of the first to look at the economics behind the e-scooter boom here, the unit economics in scooters. And my impression has been that at first, that's what drove all of this attention to the space and all of these huge investment rounds, is that the unit economics seemed to be really insanely good. And then all of a sudden, they weren't, and then all of a sudden I was hearing that actually they're kind of crappy. So where are we in our thinking on the profitability, the unit economics of being an e-squitter

company? Sure. So that's a great summary. Thank you. And I would say that I had a similar journey with this like you, which is that at face value, when you hear about a scooter, you think it's pretty good because people are paying, you know, a dollar plus some amount of cents per minute. and that seems good and there's way lower maintenance cost.

It's not like with an Uber where you have to pay the driver, right? Most of the revenue, it seems like the company is keeping. So it all seems good. And early on when I was meeting with these scooter companies, I would say, how long does a scooter last? And they wouldn't answer me. They would say, oh, we don't know. Oh, it's too early.

It depends. And that's always a red flag. When someone like insistently doesn't answer your question, it usually means they just don't want to tell you. So thankfully, a lot of cities in the U.S. have these public data sharing partnerships where they basically, scooters or other public transit companies have to provide certain data points, and then often the city will publish it, which is very nice for anyone who's interested in how these companies are doing. And so Louisville has really good data, and I took a look at that, which is the post you're referring to that I did for my newsletter.

And basically what I came up with after running it was that the typical median scooter there had a lifespan of about 28 days, which really is not great. And that becomes a very key number because then you can adjust all the other costs you know with in mind that like this original thing you're investing in, this scooter, you have 28 days. You have about a month to make it pay for itself and make money. Can I interrupt real quick? Sure. I think we either need to clarify this or even clarify it for me. So when we say 28 days, because I have had an electric scooter for a year and a half now,

It's not that the devices themselves just conk out over 288. It's that over, there's only so many rides that a given scooter will give you. You know, it's actually, it is unclear. And that's a great question. So I'm glad you clarified. So basically, if I get a little more in the weeds on this and tell me if it's too technical, the way we figured this out was we looked at the Louisville data. And in it, each scooter was assigned an ID.

So basically if you picture like your spreadsheet, there would be a data line and it would have a scooter ID, and then I would say like the start time and the end time of the trip. And each trip on that scooter is like a different line, right? And so then what you can do is you can sort of sort those scooters so that you're sorted for like a scooter ID, which is unique to each one. And then you can say like when did this ID appear in the dataset and when did it disappear in the data? Does that make sense? Yeah, yeah, yeah.

And so that's what we use to approach. approximate scooter lifespan. And so the question of why are these scooters disappearing after a median of about 28 days, that is a great question that we don't know the answer to. So it could be a bunch of things, right? It could be they're vandalized. It could be they just conk out. It could be maybe It could be that they're being left outside. I mean, I keep mine indoors charging when I'm not using it, right? And I'm not taking it out in the rain. Like, I've thought of that too. Like maybe it's just actual usage in all weather and things like that? Yeah, and it could even be something more benign.

It could be in some cases the company decides we don't need these scooters in the city anymore and we're going to move them to a different city. So there are like a lot of possibilities, but I think if you look at the data as a whole and subsequently a couple other people have looked at it in other cities, the data points all do seem to sort of coalesce around this like 20 to 30 day. window of how long a typical one is lasting, which is not great because it was previously reported by the information that Byrd, one of the leading scooter companies, was spending $550 on each scooter and was hoping to get the cost down to about $360. And if you just ran out all the numbers,

which were largely also reported by the information, then you came up with like after 28 days with all the local cost and the cost of operations and all these things. Bird was losing something like $290 per scooter. So, all right, there's two ways to fix that. The most obvious one is get someone to design a more durable scooter, which I believe they're working on, some of the companies even internally, I think. But then we were just talking about like the end of subsidies and pricing power for the right. hailing companies. You just recently had a newsletter where you talked about Byrd experimenting with actually raising the costs of, you know, per minute to ride a scooter. And that actually

makes the economics look pretty good with not really insane price increases. Yeah, exactly. So Bird historically had been charging, and most of the scooter companies had the same price model, which was that they would charge you basically a dollar just to unlock the scooter as like a starting cost. And then they would charge you another 15 cents per minute. And so that's what all the original numbers I ran were based on as the revenue. But they recently raised their prices in a lot of cities and they've rolled out like different rates.

And so you can sort of take those rates and apply it to like the Louisville model. And you see that somewhere. around like 42 cents per minute, the company starts to make more money than the cost of a $550 scooter that lasts for a month. And that before then, you know, they've at least cut their losses a lot. So you can make it look a lot better. The question then becomes, is that something people are going to pay? Which I think, you know, I'd be curious what you think of that.

Well, I've not been able to actually try any of the services because here in New York, they've always been banned. I have the same problem. Right, exactly. So I'd love to actually test one out. We can expense this. We'll take a trip to Paris. Apparently, they're all over Paris. Yeah, I don't know, except for the fact that, again, I can see that if there's no labor costs,

then it's got to be simpler to get the unit economics down. That's my theory. What I'd like to do real quick, because I know you have a heart out, let's hit two other things, just quick takes on two other companies that you cover. And one of them is one that I don't cover very often, because in theory I don't know how tech it really is, but just a quick take for me on WeWork, because, again, from what I read, the senses is that there's maybe some sort of ticking time

bomb here where it has to do with the rents, or the leases they've signed and things like that. Just a quick take on WeWork, or I guess now We. What do you think of their business model? Does that feel sustainable to you? Sure. We is also a great question. I would say that from reading about it, like, you have, it has many of the same questions as an Uber or a Lyme. which is that it does feel very much like a model that's built on the availability of venture capital money to fund the business. And also the land grab get big fast as long as we lock everything down, then that's our moat, right. They get big fast.

We were, you know, a couple months ago said at an event that based on their tenants in New York, they were like the same as the city's largest employer, which I thought was a bit of an absurd claim. but they're very big and they're also losing a lot of money. So the FT reported recently that WeWork had lost about $2 billion in 2018, and that was on revenue of about $1.8 billion. So, you know, their net loss was greater than their revenues. And they also, they have had some public, stumbles recently, I would say, they were in line to raise something like $16 billion,

like a truly astounding amount of money, even by today's standards where getting a billion dollars seems like you stand on a street corner and raise your hand, and I'm like, hey, I'm here, I have an idea. Anyway, so they were going to get $16 billion, and then SoftBank sort of at the last minute pulled out. Well, right. My read on that was that Masa wanted to give it to them, but his investors were like, wait a minute, wait a minute.

We've already given these guys enough, and we're not trusting their model, right? Right. And so to me, that is like a pretty strong reality check, right? If other people intervene to stop that investment, and if you think that that is money that we work was banking on, right? Like, imagine that you're running a business and you see the future of your business as getting another $16 billion in capital to keep it. going, right? Like, I think that's sort of a pertinent fact. And then in the meantime, the

FTA also reported that WeWork had held steady its infamous community-adjusted EBITA margin, which is a very fun made-up financial metric. Right. They have their own funny metrics and accounting games as well, right? Yes, they do. And so community-adjusted EBDA is basically, if you take the revenue we work makes from like membership and services and you subtract out almost all costs. Like they subtract out rent and tenancy costs and building expenses. Utilities. Yeah. If it's a cost, just take it out. And then after that they're like, look, we're making lots of money, which again is like a particular brand of whimsical thinking. But to me, if you're going to design a metric like that and like really engineer it,

You also want it to be the kind of thing that year over year is improving. So I saw it as not maybe a promising sign that they were not even to, they couldn't improve on their own specifically engineered measure from 2017 to 2018. Well, and then the ticking time bomb is, and I'm not the one saying this, I've read this a bunch of places, is that they've only existed in a real estate market that was healthy. Of course. recessions are always, they hit real estate hardest and first, and so if you have the flex to deal with that is the question.

All right, last one real quick, because I was not aware of this before reading your take on it, but quietly in the race and the game of Deliver Stuff to me, you pointed out that DoorDash is quietly maybe the real dark horse potential leader in this space. Yeah, so that came from some third-party credit card data from second measure. And they basically did this thing where they looked at online food delivery sales for a group of major companies. So to clarify, this is not all online food delivery sales that exist, but it's in this universe of companies. and they found that DoorDash had surpassed Uber Eats in terms of its share by month of online food delivery sales, which was maybe surprising if you'd been mostly paying attention to like the big growth story about Uber Eats recently

to hear that DoorDash had sort of not only crept up on them, but actually eclipsed them. Well, not only them, but it's postmates that sort of become the, you know how like Kleenex is, the brand name for it. I feel like Postmates has successfully branded themselves that way for this sort of a space. But DoorDash, according to those metrics, is way ahead of Postmates. Mm-hmm. It is. And that is a really interesting question, how two companies that basically started on the same track have separated out. Caviar, you could say the same thing for two. I don't think Caviar was ever quite as big as DoorDash or Postmates, but it has also remained fairly stagnant. well DoorDash has accelerated. Postmates, I think for a lot of these companies, their biggest market tends to be L.A.

Just because it's more conducive to food delivery, people drive. There are lots of reasons. New York remains a pretty strong grubhub, seamless area. But, yeah, I think DoorDash has been very smart. They're also, they, like everyone, have received a bunch of venture funding, and they've put it to good use. And, you know, as we've been talking about through this whole conversation, one question you always have to ask when you see these numbers

and you know the company has been raising money is how much of that growth will last and how much of that growth is because they had money and they've been giving a lot of discounts and it's pulled in a lot of people. Well, yes, DoorDash has Masasan behind them, and theoretically he has an unending pocketful of money as long as the Saudis don't get cold feet. All right, Allison, thank you so much. And once again, oversharing is your excellent newsletter, right?

Yes, thank you so much.