This video is sponsored by Skillshare. The first 200 people to use the link in the
description get their first two months free. Uber is the highest-valued private company
in the world, More than Airbnb, SpaceX, and Lyft combined. Every day, 15 million rides are taken across
600 cities in 78 countries - Everywhere from the Southern Tip of Africa
to the tiny town of Gridley, California - home of the Red Suspenders Festival, I’m sure
you’re familiar. Uber is so successful because it’s so convenient. Open the app and choose a ride - standard,
or luxury, or, in India, rickshaw. Soon, even flying taxi. Afterwards, you rate the driver, and they
rate you. 1 through 4 stars being the worst experience
of your life. And five stars, anywhere from Mostly Tolerable
to Absolutely amazing. I’m only slightly kidding: a 4.6 average
can get a driver deactivated. Still better than Netflix’s thumbs up or
down, which is 80% sure I’ll like The Emoji Movie, To which, I say: Finally, Uber calculates the price, it’s
really very simple: Start with the regular base fare, add the
per minute rate multiplied by time spent in car, plus distance times the per mile rate,
all of which depend on the city. A $40 ride in Tokyo costs $1.62 in Cairo. Then add the booking fee, and possibly airport,
toll, cancellation, cleaning, and lost item fees. UNLESS there are too many riders and not enough
drivers, in which case multiply by a surge price, 2, 3, or, on New Years Eve Two-Thousand-Eleven,
seven times the normal price. And as YoutUBERs have shown, algorithms can
be manipulated: If drivers log out at the same time, they
create a shortage and trigger a surge. Oh, it also uses machine learning to predict
how much you’re willing to pay based on route, so maybe don’t call an Uber from the Burj
Khalifa to The Bellagio, besides the fact that you… can’t. Even despite this, Uber is almost always cheaper,
faster, and easier. It took the most outdated, inefficient industry, sprinkled in something called “Technology” and completely reinvented the wheel. Oh, come on, you should know by now, there’s
always a twist… In the 1930’s, The Great Depression… happened. It wasn’t great, but it was depressing. Every fourth American was unemployed and desperate
for work. Especially low-skill, low barrier-to-entry
jobs, But, YouTube hadn’t been invented, so, they
drove taxis - lots and lots of taxis. Meanwhile, fewer people could afford a ride. And, as I was taught by a monopoly educating
me about the danger of monopolies, When this line goes up, and this ones goes down, prices
fall and drivers get angry. Like, violent protests in the street angry. So New York City wrote the Haas Act. Now, to legally operate a taxi, you’d need
one of 17,000 licenses called medallions. But 81 years later, with a million more people,
it’s only 13,000. You can see the problem. The number of medallions issued is more political
than it is practical. Before, extreme competition made prices unsustainably
low. Good for riders, bad for drivers. And then, the pendulum reversed - too little
competition made taxis expensive and inefficient - bad for riders, good for drivers. One medallion, the right to operate a single
taxi, was once worth over a million dollars. But advice like this hasn’t aged so well. Because: Uber happened. Its drivers flood the market by not requiring
medallions, draining their value. High competition, low prices, and angry calls
for regulation - Sound familiar? This time, we aren’t in an economic depression,
but many households are, which means lots of drivers. For you and I, Uber is revolutionary - the
low prices of last century plus the magic of these things. And for drivers, well, yes and no… If you ask Uber what the average driver makes
an hour, they point you to this study: $19.19. Another says 21. Not too bad - unless, you look under the hood. What they don’t include are the car, its
depreciation, maintenance, gas, and some of the insurance. Adjust for these and things aren’t so rosy
- This study estimates the median hourly profit
is eight fifty five before taxes, less than minimum wage for 54% of drivers. 8% actually lose money. You might say: But Uber is supplementary - a
quick way to make extra cash between jobs. And, that’s mostly true, about 60% have
another primary income. Plus, unlike taxis, who are even legally required
to wear black socks in LA, with Uber, you have some freedom. But the reason people don’t drive more might
only be they can’t. Because Uber considers its drivers not employees,
but independent contractors. Employees are entitled to minimum wage, gas
reimbursement, overtime, breaks, collective bargaining, paid leave, and health insurance, Which would cost the company about 4 billion
dollars a year. So they’re extremely careful to call drivers
“partners”, and itself, not a transportation company, but a “platform” - Simply connecting riders to drivers, who decide
when to work, what to wear, and so on. But, Uber controls the prices. And that’s the catch - if drivers are just
independent businesses, Uber setting their fares could be considered price fixing. So, which are they? That depends on who you ask and when, and
the answer will shape the future of the industry. But something doesn’t add up, The golden
age for drivers came from regulating competition, the same regulation Uber spends millions of
dollars fighting. Going back to the days of high competition
and low prices. But …why? If Uber takes a cut from drivers, their interests
should be the same. Regulation, of course, slows its growth, but
there’s also another reason: Drivers compete - but Uber makes the same
commission regardless of who picks you up. Uber makes more money with more drivers. But drivers want the opposite - less competition. They look like other platform-vendor relationships
- Amazon and its sellers, Apple and app developers, Both of which need their vendors - if YouTube
leaves the app store, Apple can’t replace it. But drivers are drivers - Uber needs them
- but no one in particular; they’re disposable. Something like 96% stop driving for the company
in their first year. The two seem economically intertwined, but
as long as Uber can find more drivers, they can keep fares unsustainably competitive with
rivals. The real winners of the Haas Act weren’t
cabdrivers, who couldn’t afford million dollar medallions, but their owners. Instead of drivers giving away their first
$100 a day to rent a medallion, now it’s 25% all day. For many drivers, it’s still a very welcome
and useful opportunity, but it isn’t quite the groundbreaking revolution promised. And it may not last… On paper, Uber has the perfect business model: Its huge network of drivers dominate the globe, but it need not buy a single car or gallon
of fuel. All perk, and no work. Something thousands of startups desperately
try to emulate. Most of which belong on Flopstarter, with
products like the TIMELESS watch, which… doesn’t tell the time. So how did Uber lose four and a half billion
dollars last year? That’s 12 million dollars a day! Many startups sacrifice profit for growth,
But Uber is nine years old. Facebook made money after two. The company’s biggest problem may not be
its legality, or controversy although there’s plenty of that, but basic holes in its business
model. The magic of so many companies is the network
effect. Every new customer makes it that much easier
to get another. You join Facebook because Steve is on it,
Kim joins Facebook because you are, and so on. For Uber though, this is only regional. More drivers in New York does nothing for
Beijing. In fact, it failed in all of China. Every city is a new chicken-and-egg problem: Drivers need riders before they’ll drive,
and riders need drivers before they’ll ride, I do not like them, Sam-I-Am. I do not like green eggs and - oh. This helps keep prices low, and profits, nonexistent. It’s inescapable and leaves only one path
for Uber: self-driving cars. Remove the driver, remove the money-eating
machine. But it means competing with the technology
of Google and the auto-expertise of GM. Either it’ll transform into one of the biggest
transportation companies in the world, or, it’ll be the end of the road. It plans to go public next year. which’ll be fascinating to watch, doubly
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1:45 CGP Grey's bot detected!
One thought I think he's missed is how Uber changes the long term price based on the supply/demand curves to make them meet. This means it will be unprofitable for drivers to drive if there are too many, and too expensive for riders if there's not enough drivers. The model is perfect, it's exactly invisible hand economics played out to find the most efficient position for both drivers and riders.
The reason so many drivers lose money or don't get paid enough is they enter a market already flooded with drivers and don't consider their total operating costs such as car depreciation and fuel. If they did they would realise it's a losing game. They essentially break the model for everyone. Perhaps uber could help drivers understand this in order to maximise the value of their existing drivers?
Great video as always, but you also talked about the idea of AirBnB and other similar products, just different marketing stands. (Uber goes for drivers and rides, but AirBnB goes for owners and tourists). How is Uber one of the highest priced companies, when you compared it at the start of the video, but also say that they have lost over 14 billion in a year? And don't companies such as AirBnB also suffer from the same problem of the 'chicken-and-the-egg' dilemna, where you need riders to get drivers, but drivers to get riders?
5:26 - What are you doing scanning a QR code in 2018?
French flag at 3:30...ISWYDT