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On Demand Businesses 101

WHY UBER CANNOT EMULATE AMAZON’S SUCCESS?

Uber has already become a case study for many business journalists. Every other day, there is news unveiling interesting details about the taxi giant. To put a stop on turmoils that had been coming up from this year’s beginning, Uber released its financial reports recently. With net revenue of $6.5 billion, it incurred losses of $2.8 billion, greatest of all losses faced by any startup in the history. To indicate that it is growing, Uber revealed to Bloomberg that it has doubled its gross bookings to $20 billion. Apparently, Travis Kalanick is using all these financial figures as a cover up for turmoils Uber is going through. However, looking at the bigger picture makes you realise that it is growing while bearing extra-ordinary losses. Following this unsustainable business model, Uber will soon burn all the cash.

Uber has been frequently compared to Amazon on grounds of its hyper-growth similar to Amazon. In its initial years, Amazon lost a lot of money consistently. It held the record for bearing the greatest loss of $1.4 billion in a single financial year. However, post IPO in 1997, investor vigilance forced it back on the course of profitability. Its losses were narrowed down to $567.3 million in 2001 and it soon turned profitable by early 2002. Much has changed in these twenty years since 1997 including easy access to private equity and VC funding. Uber is one of the beneficiaries of this change in financial landscape and a public offering for Uber does not seem to be on the cards any time soon. Not having the constraints of financial accountability of a public firm certainly differentiates Uber from Amazon’s early years. This is one of the reasons that even after 7 years of operation, Uber recorded a loss of $2.8 billion in 2016 which was twice as huge as Amazon’s worst financial years.

The difference in business and financial models also does not help Uber. Amazon has always had significant fixed costs whereas Uber has 85% of its costs as variable, as mentioned by Horan. This adds a variability that poses a high financial risk to Uber’s financial results. Secondly, Amazon has the profit machine, Amazon Web Services or its Cloud solution to go back to. Uber on the other hand diversified into loss making ventures and its recent acknowledgement of this fact is its decision on closing down UberRush.

While Amazon has a successful R&D arm which is evident from the fact that both drone deliveries and Amazon Go are considered successful inventions, Uber has a long way to go in this regard. Uber’s weak R&D was exposed when they suspended the operation of self driving cars after the Arizona crash in March,2017. While Amazon has over 5000 patents to its credit, Uber has a mere 126 as per United States Patent and Trademark office.

Adding to the woes, the continuous knack for being in the news for all controversial reasons has dented the belief that Uber is fast moving towards monopolizing the on demand business. While they might have become ubiquitous when it comes to booking a Taxi, the question is how sustainable is their discount driven business model. The end of UberRush might just be the start of the slide and an opportune time for competition to break into the on demand taxi and delivery markets. We, at Tookan are witnessing a surge in demand for traditional business to move on demand and this has a lot to do with Uber going weak. Tookan’s SaaS based customer app provides the framework to take traditional businesses on demand in shortest amount of time. Many ground transportation businesses are making use of our Tookan taxi solution to move their taxi business online and create inroads in the void created by Uber.

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