Uber made headlines again last week, when it posted a huge loss and reported poor sales growth. As technology leaders, it’s important for us to pause a moment and to consider the potentially deeper significance of Uber’s woes. Here’s the basic situation:
“Uber Technologies Inc. failed to reassure investors of its growth potential, or that it can turn a profit anytime soon. The ride-hailing company reported second-quarter adjusted sales that fell short of estimates and posted a net loss of $5.24 billion, by far the largest ever for the business, writes Eric Newcomer in Bloomberg. “Most of the loss reported Thursday was attributed to stock-based compensation associated with the initial public offering in May, a routine expense for newly public companies. The adjusted loss—a more commonly used metric for ride-hailing companies, which excludes interest, tax and other expenses—more than doubled to $656 million, but it wasn’t as large as the $979.1 million analysts expected. What really raised concerns, though, was Uber’s disappointing sales growth.”
Uber isn’t the only ride-hailing company with problems, however. Lyft faces similar challenges and also has disclosed steep losses.
“The ride-hailing industry has faced scrutiny in recent months for the way its businesses burn money with no imminent likelihood of profits. Companies must constantly spend freely for incentives to attract passengers and drivers and to fend off competition. Both Uber and its rival Lyft were questioned by investors this year about their business models as they prepared to list on the stock market,” writes Kate Conger in The New York Times. “Lyft has also reported a series of deep losses. (Last) week, it said it lost $644.2 million in the second quarter, though it added that it expected that amount to abate. Several months earlier, Lyft had also posted a particularly steep loss related to stock-based compensation payouts to its employees.”
From my perspective, the problems confronting Uber and Lyft stem from their highly innovative strategies of blending tech and finance. Their strategies are unquestionably audacious and impressive. Yet they are also new and unproven. In other words, there’s no track record for the kinds of new business models they have invented. In a very real sense, they are testing their models on the fly, in real time.
This gets us to the larger question: Are novel experiments such as Uber and Lyft good or bad for the wider economy? Ride-hailing companies are already under fire for increasing traffic in many cities, a result that falls under the category of “unintended consequences.”
My overarching concern, however, is that Uber and Lyft may cast a shadow on the tech industry, making it more difficult for innovative tech startups to find capital and grow their businesses.
The long-term impact of companies such as Uber and Lyft is unclear. As technology leaders, we need to be mindful and pay attention to the consequences of combining high tech with big money.