There has been a lot of justified shock at the tax the Uber to pay the Taxi’s law in Massachusetts:
This is … words fail. No, literally. I have just spent 20 minutes staring at my screen, trying to come up with something to say other than the blindingly obvious: This is a shamelessly unjustifiable giveaway to a special interest, paid for by taxing a competitor that’s eating their lunch. If our 19th-century forbears had tried to run the economy this way, I would be writing out this column longhand, by the light of a whale-oil lamp.
Reason was not happy, not happy at all
The state’s “MassDevelopment” agency—a crony-corporatist sinkhole of misappropriated funds, if ever there was one—will be responsible for figuring out how to spend the money to best help the taxi industry. One idea is to help taxis “adopt new technologies,” which probably means using an app to hail a cab. So Massachusetts is robbing Peter to pay Paul so that Paul can learn how to do the thing Peter already does.
Ride-sharing services have little choice but to accept the fee: indeed, they practically have to thank the government for going easy on them. The new law is apparently some sort of compromise—taxi lobbyists wanted Uber banned outright.
We can all speculate why GOP governor Baker signed this into law (I presume that as Democrats could override any veto easily he went along to get along) but amidst all the online outrage was a paragraph from Megan McArdle’s piece worth a 2nd look
Now, to be sure, a fee of 20 cents is probably not going to put Uber and Lyft out of business. On the other hand, such fees have a way of metastasizing over time. They start out as a tiny fee that no one could possibly object to, and then, when no one’s looking, they’re raised a little bit. And then a little bit more. And then you eventually find they’re hefty enough to make the new service expensive and inefficient — as expensive and inefficient as the old service that it replaced.
In other words it’s designed to slowly kill Uber by bleeding their profits.
It’s a cunning plan except it’s based on a fallacy that can be expressed in two words:
The ride-hailing giant Uber Technologies Inc. is not a public company, but every three months, dozens of shareholders get on a conference call to hear the latest details on its business performance from its head of finance, Gautam Gupta.
On Friday, Gupta told investors that Uber’s losses mounted in the second quarter. Even in the U.S., where Uber had turned a profit during its first quarter, the company was once again losing money.
In the first quarter of this year, Uber lost about $520 million before interest, taxes, depreciation and amortization, according to people familiar with the matter. In the second quarter the losses significantly exceeded $750 million, including a roughly $100 million shortfall in the U.S., those people said. That means Uber’s losses in the first half of 2016 totaled at least $1.27 billion.
$100 million in US losses? over $750 million worldwide on a service designed to have basically administrative & labor costs? Cripes who’s in charge of this company Tina Brown?
Subsidies for Uber’s drivers are responsible for the majority of the company’s losses globally, Gupta told investors, according to people familiar with the matter. An Uber spokesman declined to comment.
Or to put it another way, at the price point Uber charges for rides apparently it is not possible to attract drivers willing to drive therefore it’s necessary to “subsidize” said drivers to keep the service going.
Moreover these losses aren’t all that new:
Uber’s losses and revenue have generally grown in lockstep as the company’s global ambitions have expanded. Uber has lost money quarter after quarter. In 2015, Uber lost at least $2 billion before interest, taxes, depreciation and amortization. Uber, which is seven years old, has lost at least $4 billion in the history of the company.
It’s hard to find much of a precedent for Uber’s losses. Webvan and Kozmo.com—two now-defunct phantoms of the original dot-com boom—lost just over $1 billion combined in their short lifetimes. Amazon.com Inc. is famous for losing money while increasing its market value, but its biggest loss ever totaled $1.4 billion in 2000. Uber exceeded that number in 2015 and is on pace to do it again this year.
Maybe it’s just me but If you’re competing with a company that’s losing this much money on a service designed to have minimal overhead that runs off an app then you aren’t going to need taxes and regulation to make it go away.
But I guess the Taxi Lobby figured they might as well get their share while there’s still a share to get.