Uber is not having a good week.
Yesterday, the ride-sharing firm told the Wall Street Journal it had suffered a quarterly loss of $708 million. And while Uber clarified that it retains a $7.2 billion cash base, $708 million clearly isn't chump change. The sums speak to something bigger. Investing for future growth is sometimes necessary, but Uber is spending a lot of money without measurable returns.
And that hints at Uber's biggest problem. The issue is not that Uber isn't yet returning profits, but that it's hard to see how Uber will ever make sustainable profits.
For one, Uber has a huge leadership deficit. According to The New York Times, the firm has lost at least nine senior executives so far this year. Some were fired; some simply quit. Regardless, the effect of this executive vacuum is twofold. First, it suggests to prospective investors that Uber is dysfunctional, thus discouraging their investment. Second, it limits Uber's ability to develop and implement new programs. Both of those concerns were empitomized on Tuesday, when the head of Uber's driverless-car program was fired. Under CEO Travis Kalanick, the ride-sharing ship is distinctly unsteady.
And Uber's difficulties are only set to get worse. After all, the competitive environment in which Uber operates is far from relaxed. Uber's main U.S. challenger, Lyft, is raising more and more capital every day, while prioritizing customer and driver service. And over the horizon, companies like Alphabet Inc. (Google's parent company) and Apple (which has hired ex-NASA officials to support its research) are rushing forward with their own driverless car programs.
If Google and Apple can get reliable driverless cars on the road first, they will leave Uber spinning on a deserted road. It's economics 101: Uber's major cost is its drivers. But if a firm can offer a passenger a safe, driverless ride, it can also offer that rider a far cheaper journey than Uber.
Uber could do a lot more to help itself. At present, rendered arrogant by its dominant control of the ride-sharing market, Uber has deprioritized customer service. When a rider complains to Uber about an issue, he or she typically receives a generic reply that ignores the stated concern. Uber drivers tell me that they face a similar challenge: that when they raise an issue with Uber, company officials are not terribly interested. Speaking to Lyft drivers, compliments about customer service are far more abundant.
So why is Uber acting this way? Because it believes it has no effective competitors.
While that might be true today, it's the ultimate short-term strategic assessment. Ride-sharing competition is only set to grow. Again, as the driverless revolutionaries enter center stage, they'll challenge Uber for riders and for drivers who would prefer to act as emergency backups rather than dedicated chauffeurs (in the advent years of driverless cars, drivers will be employed to reassure nervous passengers who fear a computer breakdown!).
Ultimately, all of this means that Uber faces a simple choice. Its remaining leaders can continue gazing in the mirror of fleeting glory, or they can recognize and address their increasingly stark vulnerabilities. But time is running out. The market economy is, in the end, the servant of the people. And we want the best deal at the cheapest price.
Unreformed, Uber will soon render itself the ride-sharing antique.