How Uber’s business model might be unsustainable

alright guys the big story of the day while the market easily it's a waiting Birds debut on the New York Stock Exchange tomorrow what can we expect from the tech unicorn further down the road we have Howard u lego professor of management innovation at the IMD Business School joining us now in Howard before we get to your thesis The Wall Street Journal and others reporting that uber may price to the mid to low range of the price are you here between just around forty five dollars to share the fact that we are seeing goober may be likely at a price at the low end do you think that this is just strictly a result of what we saw when lift went public back in March yeah there's probably the long-term vulnerability of their business model as well as the short-term sentiment right we see the strike is coming and all these negative news coming up but eventually what we need to look at is a company that are not making any money and also their core business is slowing down and that's a really bad position to go after IPO at this moment so when you look at at uber and lyft right now I think some analysts have made the case that there are quite different businesses because uber has the food delivery business uber is trying to do a ton of this trucking I think they bought auto right for 600 million dollars couple years ago but are they I guess in your view kind of just getting people from one place to another and they're really not so different and then the follow up would be does one company have to win the whole market exactly right I mean you're looking at ask one fowling what is really distracting is they try to paint a rosy picture around uber Eid Boober fried and all this jump on the electric scooters and all these new businesses trying to distract our attention to this new sexy thing meanwhile their core business is still relying so much on the top five cities the top five city delivering something like twenty four percent of their overall revenue that's an overly reliance on just a handful of cities and meanwhile you seeing all these strike it really displayed a vulnerability of their business model but do you think there would be a world in which Hoover could double down on those top five cities I think they probably have a lot more pricing power in New York than they're currently exercising would that be a sustainable strategy or do they have to have a win in every part every market that they're trying to play in what depending on the valuation we're talking about right because the valuation we're talking about here is really a playbook back into four years ago we thought you became write an app garnering all this user data build a smart algorithm and rolling out across the world when I'm in Singapore two weeks ago I saw a graph is the major play in that market when you travel to the Middle East that's Karim when you're in China is that that's didi so every single market you see this Lake hammer this copycat really be thrown over its leading position and what it display is that's whole idea you be one single platform dominate the world has coming to an end huge implication for valuation perspective given that greater conscious given the competition they are seeing how our value do you think uber is well you know if you're thinking about what uber going forward would look like probably would continue to win in US market in an oligopoly position against left maybe in London they still have a secure base but all these fast-growing region except they had a minority share in one of these local players they really don't have a major operation so you know give and take maybe have a quarter of the valuation we're talking about because of the growth prospect so it kind of sounds like when we're looking at uber as current model and I think it's very interesting looking at that global piece that's falling apart I mean as it exists right now do you think this is a sustainable way for uber to operate or something gonna have to change if they want to continue as a going concern now this is the real big problem that I have with right it's almost like in order for them to achieve the path of profitability they need to go down the whole idea of autonomous vehicle but we know that any big company to shift that technological base from menu drivers to autonomous vehicle it's gonna sink in and a lot whole way for money it's almost like a money pit that we don't even see a way out and and that's the fundamental issue I have with this particular IPO Howard are you convinced that a ride-hailing company will be able to be profitable down the road now this is kind of interesting right let's look at what uber have been spending compared to other previous company Amazon makes very little profit in the past but they spend money on building infrastructure the logistic network the cloud server and an already service delivery uber all their spending is by market share they give incentive to draw Ivor's they give this counter rider this is almost like a money pit there's never a return and there's no limit and and so time will tell but but in in a way that traditional playbook or platform strategy that winner-take-all is beginning to unravel all right how are you professor of management and innovation in IMD Business School and thanks for joining us - thank you thanks Howard

Channel: Howard Yu

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Length: 4min 49sec (289 seconds)

Published: Thu May 09 2019