Uber has a fundamentally flawed business model
ASSOCIATED PRESS
Khosrowshahi’s candor was admirable, but his appraisal could hardly be reassuring to thousands of employees whose stock options are under water, and who now find themselves working for a company that is neither profitable nor growing. Uber's asset-light business model and strong network effects would yield huge economies of scale and an unassailable first mover advantage in each of the markets it entered.
Product line extensions would provide profitable growth opportunities to offset lingering losses in the core ridesharing business With Softbank’s $9 billion investment, Khosrowshahi was able to reconstitute and unite his board, preempt the threat of a Softbank investment in archenemy Lyft, and gain the breathing room needed to instill new cultural values. In return, Uber promised to reward early investors by allocating the vast majority of Softbank’s cash to buying back existing shares, while mollifying remaining shareholders with a commitment to take the company public in 2019.
Regulatory threats concerned with recouping the costs of Uber’s negative externalities and/or to ensure adequate compensation for a growing body of city workforces.Uber has not been able to achieve advantaged economies of scale or network effects, despite its massive size. With respect to scale economies, in Uber’s asset-light business model, the vast majority of gross bookings must be paid out to drivers, whether it delivers one trip, or 10 billion.
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