Lyft, Uber, and Any Other Ride Share Company Will Eventually Die by the Same Sword they Killed Taxicabs

Someone forwarded me this in an email. I am not sure who the author is.

Lyft, Uber, and Any Other Ride Share Company Will Eventually Die by the Same Sword they Killed Taxicabs 

Here is why I think so:

I am about to share with you something I learned from a very reputable economics professor in college. However, those of you that have been in a cab business for a while, will know exactly what I'm talking about. You don't need to read a research paper for it to make sense to you because you know how it works. For those that really need to see the research paper - I'm sorry, I don't know where it is. I'm sure it is there somewhere, but you don't really need it because what I will share with you will make total sense to you (I hope). But the research is out there. It has to be.

It's important to establish that the profit margins in the cab or ride share business are very low because for the most part everyone just wants to get from point A to point B and most aren't willing to pay any premiums for differentiation (anything extra like a nicer car, in-ride entertainment, college-degreed drivers, etc.). (Shoot, most of them don't even want to tip.) Many have tried to bring differentiation to the cab business but failed. So, if the costs of operation increase, then the profit margins decrease. Hence, this type of business has to be operated with minimum costs and investments must be minimal. That is, you have to put in the cheapest car you can find into the service which also costs the least to maintain and the driver has to be an individual that is willing to work 6-7 days a week and 16 hours per day for the minimum wage or lower. However, i…

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Someone forwarded me this in an email. I am not sure who the author is.

Lyft, Uber, and Any Other Ride Share Company Will Eventually Die by the Same Sword they Killed Taxicabs 

Here is why I think so:

I am about to share with you something I learned from a very reputable economics professor in college. However, those of you that have been in a cab business for a while, will know exactly what I'm talking about. You don't need to read a research paper for it to make sense to you because you know how it works. For those that really need to see the research paper - I'm sorry, I don't know where it is. I'm sure it is there somewhere, but you don't really need it because what I will share with you will make total sense to you (I hope). But the research is out there. It has to be.

It's important to establish that the profit margins in the cab or ride share business are very low because for the most part everyone just wants to get from point A to point B and most aren't willing to pay any premiums for differentiation (anything extra like a nicer car, in-ride entertainment, college-degreed drivers, etc.). (Shoot, most of them don't even want to tip.) Many have tried to bring differentiation to the cab business but failed. So, if the costs of operation increase, then the profit margins decrease. Hence, this type of business has to be operated with minimum costs and investments must be minimal. That is, you have to put in the cheapest car you can find into the service which also costs the least to maintain and the driver has to be an individual that is willing to work 6-7 days a week and 16 hours per day for the minimum wage or lower. However, if there exists a competition from other companies that keep lowering the cost of rides to passengers, this makes the profit margins even lower and the risks start to increase. Eventually, nobody is making money and everyone is going bankrupt. In addition, the service quality approaches the "horrible" mark. Up until early 60's, there was a free-for-all in the cab business until the free-for-all got eliminated in 1963.

The elimination of the free-for-all brought in the limits on the number of taxicabs on the streets. It became a regulated monopoly. The cab companies were allowed to make a certain amount of money and grow yearly by a certain percentage. In return, they were to provide a better service, like cars that aren't too old, passenger bill of rights, etc. This went on until Uber came on the scene, claiming that it is going to provide a better service and shake-up the entrenched industry. This created a free-for-all again. After Uber came Lyft, Ola, Via, Taxify, etc. They are now going through the exact same thing that was bankrupting the cab companies. They are not going to be profitable ever. The service quality will start to decline and will be horrible at some point. Here is why.

Uber believes that its platform drivers need to maintain a rating of 4.6 or higher. Otherwise drivers get deactivated. So, a driver who puts a cheap car into the service, will be getting 4's all day and will be deactivated. But if the driver will put an expensive car into the service so that he can get 5's, he is assuming huge risks, which usually bankrupt the driver. Putting expensive cars into the ride share service is not justified. So, eventually, Uber, Lyft, and others will struggle to maintain drivers with good cars and will be forced to lower the deactivation mark to 3.9 or something. But by then, rides will need to be even cheaper because of the competition and the deactivation mark will be 2-something, and so on and so forth, which will be Uber's average, which is what it was for taxicabs as well before the free-for-all got eliminated.

Uber, Lyft, and others will then cry for regulation of the ride share industry, but I hope no one gives them that privilege and I hope they die by the same sword they killed the taxicab business.

Those that don't know their history are doomed to repeat it. If you're an investor, I would stay as far away as possible. Your best bet is to short their IPOs.

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