The Student Newspaper of Mississippi State University

The Reflector

The Student Newspaper of Mississippi State University

The Reflector

The Student Newspaper of Mississippi State University

The Reflector

Why Uber could go under

Last week, Uber’s president, Jeff Jones, resigned from his position. According to NBC News, Jones’ reason for resigning was the recent onslaught of controversies inside Uber, which included a number of sexual harassment allegations. 

Uber has endured several public-relation shocks in the past year, including a recorded argument CEO Travis Kalanick had with a driver, and the #DeleteUber social media campaign. While these revelations might seem only to point to some unfortunate but survivable public relations issues, Uber has been facing real challenges outside of this area as well. 

Many Americans, especially college students, have found Uber to be an incredibly helpful and efficient ride-sharing service since its founding in 2009. However, 2016 was a pretty bad year for the company, on several fronts. 

According to an article by Ryan Felton on Jalopnik, recent findings have indicated that rider fares only pay around 40 percent of the cost for one ride, and the rest is effectively subsidized by venture capital firms. 

While it is certainly common in Silicon Valley to have venture capitalists swallow a lot of the costs for infant businesses, the fact that Uber has failed to turn a profit in their market points to a variety of problems with the way the upper management has run the company. Over the past few years, Kalanick and the other members of the senior management team have greenlit projects such as UberX, UberEats, and self-driving cars. 

While none of those ventures were terrible ideas, they have become distractions from Uber’s original goal, which was to become an innovative taxi company for the digital age. 

That point actually underlies what was different about Uber from the very beginning of the company: they were not just focused on building a market for themselves, they were actively working to force incumbents out of the market. This essentially meant that if Uber was going to be truly successful they would have to move in and replace the other companies and taxi services. 

The Felton article also mentions some analytical pieces by a transportation industry analyst named Hubert Huran on the Naked Capitalist website. 

In his analysis, Huran notes that according to published financial data from Uber, the enterprise has had an operating loss of $2 billion a year, which is paid back in annual investor subsidies. 

These numbers mean that Uber maintains higher losses than any large-scale startup in recent years, and it shows the company is not following in the path of many other digitally based startups, which moved from early losses to profits within their first couple of years. 

Amazon, e-Bay and Google are all listed in Huran’s writings as startups that became profitable quickly because marginal cost of expanded operations—the cost of expanding their business by one unit—was quite low for those companies, which is not the case with Uber. 

As pointed out previously, Uber faces higher costs of expansion since they are attempting to replace existing industries.

In summation, while Uber has been growing significantly in popularity since its founding, recent public relations issues and disappointing financial reports paint a worrisome picture for the startup. 

Of course, it would be far beyond the abilities of this writer to speculate when or how Uber could find itself in a nosedive, and to be clear, there is a chance that Uber finds a way to dig itself out of the rut in which they currently find themselves. 

However, in the future, it would not be a surprise to me to see more indicators of Uber’s falling prestige and power in the American marketplace. 

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Why Uber could go under