How long can Uber keep bleeding cash?

It is becoming increasingly popular to invest in money-bleeding technology giants in preparation of an inflection point in profits, but you have to wonder how long Uber will be able to hold on for.

Uber is a massive brand, an innovator and genuine disruptor to the status quo. There are few examples of a concept riding the wave of digital to create such a severe disturbance to the traditional world. And while Uber might be the biggest transportation brand in the digital era, it is haemorrhaging cash quarter-on-quarter. Other segments have demonstrated there will be an inflection point, the moment of glory horrendous losses are turned into monstrous profits, but that scenario might be a long-way off for Uber.

Looking at the quarterly results, revenues grew to $3.09 billion for the period, a 20% increase year-on-year, but net loss from operations was $1.03 billion. This is 116% more than it lost in the same period of 2018.

The losses are certainly starting to mount as well. In the final quarter of 2018, Uber reported a net loss of $865 million. In Q4, the loss was slightly worse at $939 million. In this period of 2018, the firm reported net loss of $478 million from operations.

In the digital economy, investors are seemingly happy to swallow negatives, Uber’s share price following the announcement of the financials is holding steady, though how long can the potential remain potential?

Encouraging these investors are companies like Amazon and Netflix. In both of these cases, the firm build a dominant position in the respective segments, scaled globally, attracted millions of customers and then turned attentions to profits. Uber might be able to do the same thing, it is following the same trends, though there are sceptical voices.

Some might suggest Uber will continue to be a loss-making company until autonomous vehicles emerge. The theory is sound, after all a company’s biggest overhead is staff. Uber will be able to free up billions once the technology is perfected, making it a very profitable company. However, it might be decades before autonomous vehicles are a realistic prospect on the streets.

The technology might not be far away, but there are so many other moving parts which need to be factored in. Firstly, will people trust handing control of vehicles to machines? Are regulations and legislation in place to facilitate the introduction of this technology? How long will it take parallel industries, such as insurance, to ready themselves? Is the infrastructure, both roads and mobile connectivity, ready for autonomous vehicles? Have safety concerns been appropriately addressed?

There are so many factors to consider, the progression of autonomous vehicles is much more than technology. It might be decades before self-driving cars hit the streets; can investors wait that long for the Uber inflection point?

There is also an interesting, and slightly nefarious, philosophical question to consider when it comes to programming the artificial intelligence component of the technology.

Let’s say a car is driving down the street, travelling at 20 mph when a child steps into the road. The child is within the braking distance of the car therefore it is physically impossible to stop the vehicle in time. There are three options for the AI to choose from:

  1. Continue driving forward and potentially kill the child
  2. Turn sharply left and potentially drive into pedestrians
  3. Turn sharply right and potentially drive into on-coming traffic

In each of these scenarios, there is the potential for a fatality. But here is the issue; the AI will have to make a ‘conscious’ choice, the outcome might mean death, and the software engineer will have to write the software deciding how the AI will react.

The reason why this is different to today’s driving condition is because a human reacts without thinking through the possible outcomes. We cannot assess the information fast enough and react with a logical action, but AI can.

This scenario is of course highly unlikely, sensors and cameras on street furniture might be able to warn the vehicle of the on-going hazard, but it is a possibility therefore the AI has to be programmed to decide. There is no right answer here, but the AI is flawed unless a decision on what course of action to take is made.

Some might suggest the option with the smallest percentage chance for a fatality should be taken, but the risk of a fatality is still there. Because the vehicle has made a decision, should someone be held accountable if someone dies as a result of the action? This is a very complicated area.

So, if autonomous vehicles are out of the question for years to come, Uber will have to think of other ways to make money.

Uber Eats is proving to be a profitable venture for the firm, while the management team has promised to cut back on promotions which might carve into profits. But will these side ventures compensate for the way the core business and R&D businesses are churning through cash. What is clear, Uber needs to stop bleeding cash in such a dramatic fashion or credibility with investors might start to run dry.

Uber sheds light on operations ahead of IPO

Uber is not a company which shares huge insights into its business traditionally, but a filing ahead of a planned IPO has unveiled some very interesting details.

In chasing its long-awaiting debut on the New York Stock Exchange, the curtain has been pulled aside and the cogs laid bare. $11.27 billion in revenue across 2018, 42% growth on 2017, net income of $997 million and 91 million active users around the world. This is a company which will attract some interest from the market, though an adjusted EBITDA loss of $1.85 billion might concern some.

“Building this platform has required a willingness to challenge orthodoxies and reinvent – sometimes even disrupt – ourselves,” said CEO Dara Khosrowshahi. “Over the last decade, as the needs and preferences of our customers have changed, we changed too. Now, we’re becoming different once again; a public company.”

With an IPO comes a lot more information on a company as executives attempt to woo potential shareholders. The S1 form filed with the Securities and Exchange Commission has unveiled some very interesting details.

Starting with the customer base. Uber currently has 91 million active users across 700 cities around the world, though this number also include Uber Eats. This is a 33% increase compared to the previous year as the numbers show increasing momentum over the last three years.

With a presence in 63 countries, Uber estimates it serves roughly 2% of the population across this footprint, clocking up 26 billion miles in journeys across the year. This might sound like a monstrous number, though it is in fact less than 1% of the total, with the team pointing to significant headroom for growth. In fact, Uber estimates the total addressable market is a $5.7 trillion opportunity in 175 countries.

On the R&D front, Uber has been very aggressive, investing $1.5 billion across 2018 in autonomous vehicles, flying cars, which is known as Uber Elevate, and other ‘technology programs’. The autonomous and flying cars portion of the pie was $457 million. Future tech will clearly play a significant role in the future of the business, with some suggesting the firm will not make a profit until autonomous vehicles have been integrated into operations.

At the end of the final quarter of 2018, Uber estimates there are roughly 3.9 million drivers on the platform, earning $78.2 billion since 2015. In 2018, Gross Bookings grew to $49.8 billion, up 45% from $34.4 billion in 2017, while revenues grew 42% to $11.3 billion. Clearly the drivers are the biggest expense of the business, though with autonomous vehicles there will major challenges alongside the profit gain.

“Along the way to a potential future autonomous vehicle world, we believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while Drivers continue to serve most consumer demand,” Uber stated in the filing. “As we solve specific autonomous use cases, we will deploy autonomous vehicles against them.

“Such situations may include trips along a standard, well-mapped route in a predictable environment in good weather. In other situations, such as those that involve substantial traffic, complex routes, or unusual weather conditions, we will continue to rely on Drivers.”

The future might be autonomous, but that dream is likely to be a very long-time away. For drivers that might be worried about becoming redundant, there are some glimmers of hope. Autonomous vehicles will take a long-time to be accepted across the mass market, some customers will refuse to use them in the first instance, while certain situations will continue to demand human intervention; the technology simply isn’t there yet.

While there are rumours about the total valuation of the company, some are suggesting a $100 billion target while others point closer to $120 billion, Uber executives are remaining quiet.

Uber feels sharp(ish) end of Dutch and British stick

Following a data breach which exposed personal information of roughly three million European customers, Uber has been fined over £900,000 by Dutch and British authorities.

£900,000 does sound like a lot of cash, but let’s just put it into perspective for the moment. In the Netherlands, details of 174,000 customers and drivers were hacked, resulting in a €600,000 (roughly £532,000) fine, while the punishment for leaking details of 2.7 million customers and drivers in the UK was £385,000. In the US, where the exposure was admittedly significantly higher, Uber had to fork out $148 million. The numbers aren’t exactly consistent.

Uber should certainly consider itself lucky the incident occurred prior to the implementation of GDPR, though the fines simply demonstrate how important the new rules are in enforcing data protection requirements. Under today’s rules, Uber could have potentially been fined 3% of global annual turnover, and we suspect the fact it tried to cover up the incident meant it would have been held fully accountable.

“This was not only a serious failure of data security on Uber’s part, but a complete disregard for the customers and drivers whose personal information was stolen,” said Information Commissioner’s Office Director of Investigations, Steve Eckersley. “At the time, no steps were taken to inform anyone affected by the breach, or to offer help and support. That left them vulnerable.

“Paying the attackers and then keeping quiet about it afterwards was not, in our view, an appropriate response to the cyber-attack. Although there was no legal duty to report data breaches under the old legislation, Uber’s poor data protection practices and subsequent decisions and conduct were likely to have compounded the distress of those affected.”

While many found the implementation of GDPR a nightmare, this is an incident which demonstrates why new data protection rules were completely necessary. In our opinion, Uber got off lightly considering the severity of the breach and subsequent efforts to cover up the hack with ‘hush-money’.

Once the breach was discovered, Uber tried to sweep the incident under the rug. Instead of reporting the breach to authorities, customers and drivers, $100,000 was paid to the hacker, with the promise the data would be deleted, it was downloaded from a cloud-based storage system operated by Uber’s US parent company, and the hacker would keep quiet. As with all of these incidents, the truth eventually emerged. Here, it took a full year.

In both the Dutch data protection authority’s and the ICO’s investigations it was found the breach could have been avoiding if basic and appropriate data protection protocols were followed. Under GDPR, Uber is obliged to inform the relevant data protection authorities within 72 hours of discovery, which can mean fines can be avoided. If a company co-operates and is able to demonstrate it has put in place acceptable protections, authorities will not punish in the strictest of terms.

This is an aspect of GDPR which we like. Rule makers have accepted there is no such thing as 100% secure, and has created a framework which has in-built sympathy for those cases which cannot be avoided. As long as a company is proactive and honest, authorities are willing to work alongside industry to make customers and employees more secure.

This is not an example of this perfect scenario however. Uber acted completely irresponsibly and is incredibly fortunate the incident occurred during a time when data protection rules and punishments were woefully outdated. The whole incident does leave two questions remaining however…

Firstly, how many more incidents have there been which have been swept under the carpet, as we can almost guarantee there will be a few, and secondly, will the EU hold the guilty parties fully accountable to GDPR punishments? We need to know whether authorities are prepared to swing the very sharp stick GDPR hands them.

Toyota invests half a billion dollars in Uber to save both companies

Japanese car maker Toyota has invested $500 million dollars to expand its collaboration with ride-sharing company Uber in autonomous driving cars.

After putting a brake on its self-driving car tests earlier this year, Uber has entered a new phase of collaborating with car makers as exemplified by this venture. Both companies will contribute their respective auto-driving technologies, as well as Uber’s ridesharing and Toyota’s car making expertise, to a new purpose-built Toyota Sienna Minivan. The new fleet produced out of this collaboration will not be owned by either company. Instead, according to the press releases, “the mass-produced autonomous vehicles will be owned and operated by mutually agreed upon third party autonomous fleet operators.”

This is not the first auto-driving partnership with car makers Uber has entered. Daimler, Volvo and others are also on its roster. It is not even the first time it worked with Toyota, but it is the first time that the collaboration is taking the such a form, so that the venture becomes a supplier to other service providers.

This may not amount to an outright divestiture of the autonomous driving business that Uber investors have been crying for, it nonetheless will help alleviate the financial pressure on the Uber management in the run-up to the planned IPO, without pulling out of one of the most important long-term, strategic areas in the automobile industry.

“The deal is the first of its kind for Uber, and signals our commitment to bringing world-class technologies to the Uber network,” said Dara Khosrowshahi, Uber’s CEO. “Uber’s advanced technology and Toyota’s commitment to safety and its renowned manufacturing prowess make this partnership a natural fit.”

This sentiment is echoed by Toyota. “This agreement and investment marks an important milestone in our transformation to a mobility company as we help provide a path for safe and secure expansion of mobility services like ride-sharing that includes Toyota vehicles and technologies,” said Shigeki Tomoyama, president of Toyota Connected Company, and executive vice president of Toyota Motor Corporation.

This is more than a symbolic move, as neither Uber nor Toyota is leading in autonomous driving. Actually neither of them is leading in either of the two strategic growth areas in the car industries, the other being electric vehicles (EV). While Tesla makes all the headlines in EV, it is the Chinese car makers that are selling far more EV and hybrid cars than anyone else.

When it comes autonomous driving, the disruption actually came from outside the automobile industry, with Waymo (owned by Google’s parent company Alphabet) being the leader (with whom Uber settled a dispute earlier this year). Tesla and Uber are following closely, though the traditional car makers have also heeded the wake-up call.

This kind of disruption from other than the usual suspects is nothing new to those of us who have followed the mobile telecom industry. Smartphones were introduced by companies traditionally associated the computer industry (Apple) and Internet (Google), which ultimately rendered names like SonyEricsson, Motorola, HTC, and Nokia obsolete.

In another interesting development, Finland’s Technical Research Centre (VTT) recently joined forces with Nokia to invest in a driverless “robot car” using the 5G network to be rolled out. It looks the once disrupted mobile telecom company is aiming to bring disruption to the automobile industry. The first targets are reporting weather conditions on the road as well as real-time road maintenance data analytics. Longer term, with a fleet of “robot cars” on the road under a well rolled out 5G network, VTT’s “5G-Safe” project, which “robot car” being part of, will aim to deliver a new use case of 5G to the transport industry.

The road to autonomous driving is quickly getting crowded and noisy.

Uber urged to sell self-driving unit; are investors stupid or greedy?

Just as transportation disruptor Uber unveils its financials for the latest quarter, investors have reportedly been pressing the management team to sell-off its self-driving unit, a move that’s either short-sighted or short-termist.

According to The Information, with losses piling high in the self-driving unit, reportedly $125-200 million a quarter for the last 18 months, investors are recommending the management team sell off assets and focus on the here and now. It doesn’t matter that self-driving cars are the future, or that the potential to kill Uber as a business lies in technology, investors don’t want the losses on the spreadsheets anymore.

In terms of the cash being spent on developments in the self-driving unit, it is a notable hole to fill. Even with Uber increasing revenues 51% year-on-year for the quarter to $2.7 billion, it is a lot. However, those who are suggesting the firm ignore the self-driving euphoria clearly don’t understand this is not a choice; for Uber to survive in the long-run, self-driving cars have to be a priority.

Uber exists today because it was a major disruptor to a long-time established area of society. It made taxis accessible once again, using technology to address pain-points, firstly, the complications of finding a car at 2am and, secondly, the price. Those who benefited from the status quo protested the presence of Uber, though the consumer was thrilled. In a cash-conscious society, offering a good service for less will always be a popular idea.

This is why investments in self-driving vehicles is imperative at Uber. If it doesn’t nail the self-driving experience, someone will come along and disrupt the market. Uber and similar services will soon become the status quo in Western societies, and self-driving cars will become the norm at some point in the future. This point might not be for five or ten or even twenty years, there are a lot of parallel hurdles, but if Uber is not ready with its own proposition, it will decline in popularity quickly.

Removing drivers is the next step to make the taxi service industry cheaper and more attractive to the consumer; it will happen, the only question which remains is when. For Uber, it is a case of disrupt or be disrupted. It has benefitted from a technology revolution in the taxi segment, and the next one is clear.

The investors who are calling for the sale of the self-driving unit are either short-sighted, unable to recognise trends in the industry, or short-termist, simply seeking a pay-out over the next couple of quarters with no eye on long-term interests. Neither is a particularly attractive description.

Deregulation in Finland: Uber Black may be back, but UberPOP is popped, again

Finland’s new Act on Transport Services has opened its taxi market to competition. 90 per cent of taxi rides in the future are expected to be booked on mobile apps, estimated the authorities.

To call Finland an expensive country to live in is a fair comment. To say hiring taxi in Finland is expensive is an understatement. The country had rigid restrictions on cab fare and high entry barriers which have fended off competition. Uber was banned from operating in 2017. Uber drivers’ earnings were confiscated, and its country manager’s assets were seized by Helsinki district court.

This all changed on Sunday 1 July, when the new Act on Transport Services came into effect. It did away with regulated fares, lifted the cap on the number of taxi licences to be issued, and loosened requirements on cab driver qualification. Trafi, the traffic safety agency told the media that its online platform received more than 700 applications for permits to operate taxi service on the first day the new law became effictive. The authorities are taking on additional staff to process the applications and permits will be granted within a day or two.

All this may spell good news for Uber. Drivers holding a permit will be able to take business on the Uber app, providing the so-called Uber Black service. However, because the law specifically requires drivers to apply for permit, UberPOP, which enables unlicensed drivers to provide rides, and has been at the heart of Uber’s legal issues with authorities in different parts of the world, will continue to be banned.

The direct beneficiaries of the new law are the customers, who will have more choices and will likely enjoy more competitive fares. But the deregulated market also opens a new business opportunity for the technology industry. There are more than a dozen taxi hiring apps in Finland now, including Uber, and more are expected to be launched. This is not sustainable. It would not be too much of a stretch to see aggregation and price comparison apps coming to the market. They will be the customer facing front end, and can take a cut from every ride booked on the platform, similar to what Skyscanner does for air travel and Booking.com does for hotels.

Uber sets sights on emerging markets

Uber has launched a more data-friendly version of its popular ride-sharing app to target emerging markets, starting in India.

Uber Lite is a reduced version of application, which works on any network and any android device, which is only 5MB the equivalent of three selfies. The core functionality of the app has been retained, though many of the bells and whistles (which we try our best to ignore) have been removed during the efficiency mission.

“We continue to see exponential growth outside of the U.S., and are thinking a lot about building for the next hundreds of millions of riders who we hope will choose Uber to get around,” said Shirish Andhare, ‎Head of Product for Emerging Markets. “That’s why today, we’re introducing Uber Lite: built in India, designed for the world. Uber Lite is a simple version of the rider app that saves space, works on any network, and on any Android phone.”

Part of the challenges with the app will be adapted the service for those in areas with spotty connectivity. One solution is for the app to decide where the driver picks you up, with a number of designated pick up points. Popular destinations are also cached, while the team is also boasting about machine learning capabilities which should personalise the service, both of which could streamline the process of booking a ride but the practicalities remain to be seen. The map function has also been removed, which is an interesting idea.

The pilot will be launched over the next couple of months, with new markets being targeted later in the year.

Uber says driving in Arizona is too dangerous but flying in France is fine

On one side of the Atlantic Uber is pumping R&D funds into making flying taxis a reality, but on the other an internal memo states it is shutting down testing of self-driving cars following the death of a pedestrian in March.

Starting in France, the team has announced plans to open a new Advanced Technologies Center in Paris, which will focus on bringing flying taxis into the world. UberAir is the business unit working to build a network of Vertical take-off and landing (VTOL) aircraft, and while it might sound incredibly exciting for adrenaline commuters, it might be a few years until we are soaring. First and foremost, the process begins with building artificial intelligence and airspace management systems to support uberAIR at scale.

Paris will be the centre of development for the moment, capturing a $20 million investment to make the dream a reality, but Uber has said it would like to demonstrate the technology in Dallas, Los Angeles, and a third, international city by 2020. The Advanced Technologies Center Paris (ATCP) will open will opened in the Autumn, with the recruitment drive for engineering, machine learning, and computer vision talent currently underway. Research will focus on capabilities across airspace management, autonomy, real-time communication networks, energy storage, and charging systems.

Aside from being a demonstration of how rapidly the technology industry is evolving, it also supports the idea of France surging up the technology global rankings. The research centre will certainly be something for President Macron to boast about, as will yesterday’s announcement which saw IBM pumping cash into the French technology scene. Macron has made it a priority to drive France forward as a centre of technology excellence, ultimately aiming to stimulate the start-up community across the country, and the presence of two technology heavyweights certainly adds credibility to the mission.

Elsewhere in the Uber world, the story is not as promising. Following the death of a pedestrian in an incident involving one of Uber’s self-driving vehicles, the team suspended operations, however an internal memo seen by ARS Technica this week confirms Arizona operations will be permanently shut down.

“We’ve made the tough call to wind down operations in Phoenix,” Eric Meyhofer, Head of Uber’s Advanced Technologies Group, wrote in the memo. “As you know, there’s been a public call for the suspension of our self-driving program on Arizona’s public roads and we have decided to refocus the bulk of our efforts in our engineering hubs in San Francisco and Pittsburgh. This is the best path forward as we work to get back on the road as soon as possible.”

As Meyhofer states, this is not the end of the self-driving programme, the team are focusing on talks with officials in Pittsburgh about resuming operations, as well as with California Governor Jerry Brown, the California DMV and the cities of San Francisco and Sacramento. Future tests will be scaled back, taking a more considered approach to development, the memo also notes.

Looking at the financial side of the business, Uber has been briefing investors on its Q1 performance which brought in $2.6 billion, according to Reuters, an 8% sequential increase and a 73% boost from the same period in 2017. When sales of its Southeast Asia business to Grab and its Russia business to Yandex, the company lost $312 million, down from $775 million in the previous quarter and $598 million 12 months ago. How attractive spreadsheets will look in a couple of months’ time remain to be seen, the team are battling various governments around the world over working conditions and employee holiday pay for example, but Uber is starting to look like a company which could actually make money.

Arizona suspends Uber autonomous car testing indefinitely

Following the recent fatality caused by a self-driving vehicle being tested by Uber in Arizona, the state Governor has suspended his permission to do that sort of thing.

Governor Doug Ducey has a fair bit of political capital on the line over this, having rolled out the red carpet to autonomous vehicle testing in 2016. The Associated Press seems to have been the first to report on Ducey’s decision but 12 News managed to get hold of his letter to Uber CEO Dara Khosrowshahi, which you can see below.

 

 

This seems to be a simple piece of damage limitation, in which a politician that had previously positioned himself as pro-technology is now wary of being associated with a negative turn of events.

The more interesting development may be a more general distrust of autonomous vehicles seeping into the broader technological and regulatory environments. Intel, for example, immediately moved to blog about how important to sort this stuff out and many AV stakeholders will be keen to limit the reputational damage to their industry.

Uber suspends self-driving projects after fatality in Arizona

Uber has put all activities involving self-driving vehicles on-hold after one of its vehicles reportedly failed to stop or slow enough before hitting and fatally injuring a 49 year-old pedestrian.

The incident occurred at around 10pm local time on Sunday night in Tempe, Arizona, according to ABC15. The vehicle was in self-drive mode with a safety operator behind the wheel when it struck a woman walking with her bicycle on the pavement, several yards away from a crossing point. The local police force has said the driver was not impaired and is co-operating with the investigation.

“Our investigation at this time did not show at this time that there were significant signs of the vehicle slowing down,” an officer said to local press.

This is not the first time Uber has had to pause it self-driving efforts. During March last year, a Uber vehicle was struck pulling out of a junction after an on-coming vehicle failed to slow. This vehicle, which ended up on its side, was also in self-driving mode bringing into question the hazard-perception decision making capabilities of Uber’s AI components.

With this incident perhaps the most worrying aspect is the fact there was no reaction from the vehicle. It should be worth noting these are early days of the investigation, but early evidence indicates the vehicle was not doing enough to slow itself down. Considering this Volvo SUV has two dozen cameras, sensors and radar devices, all of which contribute to building a 3D map of the surrounding environment, something has gone seriously wrong.

The National Transportation Safety Board (NTSB) has confirmed it will be handling the investigation, which could have a wider impact on the development of the technology. The investigation will address the vehicle’s interaction with the environment, other vehicles and vulnerable road users such as pedestrians and bicyclists, led by Investigator-in-Charge Jennifer Morrison and three investigators.

While safety and efficiency are the long-term objectives of the technology you have to question whether we’re moving a bit too quickly. In October, Waymo said that it was not far away from figuring out the last challenges, but there was a problem with the vehicle turning left into oncoming traffic safely. At the time little was thought of such reports, but now the inability to perform basic tasks questions whether the vehicles should be on the road in the first place.

Governor Doug Ducey is another who has been facing criticism from local media after signing an Executive Order in August 2015 to allow testing of the autonomous vehicles on the roads of Arizona, though part of this might be a bit of scapegoating. The order states that ‘an operator shall have the ability to direct the vehicle’s movement if assistance is required’, therefore the bigger question should probably be around what went wrong in the vehicle as opposed to legislation to allow for the testing of new technology.

Last month at Mobile World Congress in Barcelona there was another step-up in the number of self-driving demonstrations perhaps indicating the industry was progressing. Incidents like this simply show the technology is still in the early days and we should not expect autonomous vehicles on the roads in the near future.