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Were Uber & Lyft Built on Venture Capital Subsidies?
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Were Uber & Lyft Built on Venture Capital Subsidies?

NY Times article "Farewell, Millennial Lifestyle Subsidy" poses interesting questions. Did investor subsidies deflate prices in unsustainable ways? If so, is that ethical and/or anti-competitive?

AutoMarketplace NYC
Jun 15, 2021
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Were Uber & Lyft Built on Venture Capital Subsidies?
automarketplace.substack.com

“A few years ago, while on a work trip in Los Angeles, I hailed an Uber for a crosstown ride during rush hour. I knew it would be a long trip, and I steeled myself to fork over $60 or $70.

Instead, the app spit out a price that made my jaw drop: $16. - Kevin Roose, NY Times

Most in the NYC for-hire transport industry (aka TLC industry) understand the dynamics that went on between roughly 2014 to 2019. The TLC industry has never experienced that much disruption, outside the Great Depression, then those five years. Uber, Lyft, Via and later Juno armed with billions of dollars in venture capital money were able to both pay drivers competitive wages and give passengers low fares via investor subsidies. In essence, the unit economics of their business model were likely negative, as Kevin Roose of the NY Times points out with a playful analogy of selling a $20 sandwich for $10.

“Imagine a deli that charged $10 for a sandwich whose ingredients cost $19.66, and then imagine how long that deli would stay in business.” - Kevin Roose, NY Times

Yellow cabs and traditional black car services handicapped both in technology and funding (plus debt) were not able to compete, severely impacting both industries (although the medallion story receives a lot of coverage, not a lot of attention is given to the impact Uber/Lyft had on the NYC black car/luxury limo industry). So, as stories about driver shortages and costly Uber trips make headlines, some are beginning to wonder whether these App empires were built on unsustainable subsidies? I think the answer to that is quite complex, but in short YES. Both Uber and Lyft were built on subsidies that allowed them to gain so much scale that now they are reaching a point where they no longer need subsidies (i.e. the training wheels coming off if you will). In addition, services such as UberPool and Lyft Line (both currently banned due to COVID) reimagined “taxi” utilization, so genuinely did drive down consumer prices in an innovative way (However, it made many TLC drivers into bus drivers effectively, which is a separate topic) .

In addition to AutoMarketplace, I run an investment company and write about markets and companies. In a recent piece, I outline why I believe Uber may become The Amazon of the On-Demand Economy. Uber, whether you hate, love or are indifferent towards them, changed the way we all live. Uber may become America’s first Super-App (i.e. food & grocery delivery, rides and more). As investor-backed consumer and driver subsidies fade away (post driver shortage) Uber, given its scale across multiple services, is now on the verge of achieving profitability. Uber maybe the next Amazon.

In conclusion, Uber and Lyft undoubtedly were built on investor subsidies, but those subsidies stood up companies that are likely to be self-sustaining and profitable. Today, Uber and Lyft are the disrupters, but I can almost guarantee you that one day they will face competition from new ideas and technologies (i.e. blockchain). The lasting lesson Uber and Lyft taught the taxi industry is never underestimate new ideas backed by new technologies and how quickly they can disrupt the status quo. Was it initially subsidized? Yes. Was it unfair? That’s a complicated question.

Link to NY Times article ‘Farewell, Millennial Lifestyle Subsidy’

AutoMarketplace NYC Newsletter is written by Dawood Mian, Founder of AutoMarketplace. He covers the NYC for-hire transportation industry and related news. Search AutoMarketplace for cars, parts, tires, technicians, body shops, reviews, jobs & more. Find great deals at TLCMKT.COM (new site AutoMarketplace.io to be launched soon, sign-up to the newsletter if you are interested to learn more ahead of launch)

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Were Uber & Lyft Built on Venture Capital Subsidies?
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