This is not a business plan

See updates through September 22, 2021, at end of post.


The story, pretty consistently since April, has been that there aren’t enough Uber and Lyft drivers on the road,[1] resulting in sky-high fare increases that aren’t very much being passed on to drivers.[2] And so Uber and Lyft continue to have difficulty getting drivers back on the road[3] even as they foresaw a problem clear back in March.[4] A project led by Dr. Julia Ticona, at the University of Pennsylvania’s Annenberg School for Communication has been exploring why and basically what emerges is that drivers are fed up[5] with the disingenuous games that Uber and Lyft have been playing with drivers, largely on pay,[6] certainly as long as I’ve been driving for these companies.

Something that I think shows up in a number of ways is that the rich capitalists who run these companies fail to fully take in that their drivers are poor, not middle class. They have an imagination, for example, that we’re all going to run out and buy electric vehicles,[7] an imagination that is manifestly failing to conform with reality[8] in large part because nobody who’s middle class would even consider driving for these companies, but also really, even if nobody is paying attention, due to a persistent and impossible-to-ignore impracticality of operating these vehicles, especially for folks who live in apartment complexes that lack charging facilities.[9] Middle class folks may own their homes and might have a place to plug in their cars; the poor mostly will not.

But the companies act as if pay doesn’t really matter, as they keep cutting it, despite the toll this job takes on physical and mental health and despite the not-at-all insignificant costs of operating a vehicle under these conditions[10] and despite the fact that a human being needs to actually earn a living.[11]

For all of it, there’s still no apparent path to profitability for these companies. They thought they were going to get there with self-driving cars,[12] but it’s increasingly clear that that technology is a long ways off[13] and the companies have sold off their autonomous vehicle development units.[14] Yet they cling desperately, expensively, and sleazily to the “independent contractor” scam, otherwise known as worker misclassification,[15] despite its evident failure to attract and retain drivers who have any other options at all.[16]

Way back in the late 1970s, when I was a Business Data Processing major at American River College in Sacramento (this is my Associate in Arts degree), I learned about something called a “business plan.” This is where an aspiring business person had to realistically look at the market demand for a product or service and what it would take to provide that product or service, and then to actually devise a serious plan for doing it, profitably.

This, of course, had been entirely forgotten by the time of the dot-com boom, where hype took the place of planning, hence the dot-com crash in 2001, a crash from which I have never recovered despite returning to school and finishing all the way up through a Ph.D. Uber and Lyft are plainly products of that dot-com mentality and their drivers have paid an extreme price:

[D]rivers said the coronavirus pandemic provided the first glimpse in years at what a life after Uber could look like. For many of them, it was a meaningful reset that gave them a better understanding of the toll the gigs had taken on their bodies, their mental health and their vehicles. It was the push they needed to finally begin their lives after Uber.

Some of the drivers said they realized the ride-hailing gigs were not the same jobs they signed up for in the early days of the apps. In the early days, they were incentivized with promotions and what they regarded as sustainable wages, taking more than $1,000 in pay from a full workweek. But as the apps took off, pay models changed and earnings slowly dwindled as drivers saw their weekly pay fall into the hundreds.[17]

It took a long time for these companies to relinquish[18] their delusion that self-driving cars would solve their problems anytime in the foreseeable future.[19] And it’s really only been this year that they’ve faced pushback at the federal level for their treatment of drivers,[20] an exploitation that they had to spend exorbitantly to defend sleazily in California[21] and that’s now failing to deliver.[22]

Uber and Lyft executives cling to a capitalist libertarian and neoliberal ideology that insists that people should be grateful (the “work ethic”) to work for nothing.[23] But delusion is not actually a business plan.


Update, July 8, 2021: Whizy Kim is only the latest[24] to raise doubts about Uber’s (and, really, Lyft’s) path to profitability.[25] As Kim notes, however, the business model depends on treating drivers like shit.[26] What’s apparent is that even that isn’t enough.[27]


Update, August 24, 2021: Something Laura Forman does, without being explicit about it, is suggest that the writing is on the wall for the “independent contractor” scam, otherwise known as worker misclassification. She writes a lot about California’s Proposition 22 and how investors react[28] to a recent court decision striking it down,[29] but also points out a number of places where attempts are being made to force or have already been successful in forcing gig economy companies to classify their workers as employees.[30] Intelligent corporate executives would recognize that this scam isn’t flying, but it’s clear these companies don’t actually have a business plan,[31] and at least two smart writers have labeled Uber a ‘bezzle,’[32] “John Kenneth Galbraith’s coinage for an investment swindle where the losses have yet to be recognized,”[33] as serious analysts continue to doubt Uber’s potential for profit.[34] And whatever can be said about Uber generally also applies to Lyft; it’s just that the bigger company gets more attention.

So assuming these companies’ executives aren’t idiots—yes, I know, a dubious assumption—one then has to assume that they are fully aware of what they are doing and are simply trying to stretch out their highly-paid jobs as long as they can. ’Cause you know their names will all be mud when this comes crashing down.


Update, September 17, 2021: Either yesterday or the day before, a passenger, who claims to investigate money laundering for a living, explained that Uber is a legal money laundering operation for Softbank, which is a major investor in the firm.[35] The mechanics of finance get pretty rapidly mysterious to me but my expectation is that this is consistent with the description of Uber as a ‘bezzle.’[36]


Update, September 22, 2021: Uber reports and flaunts adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The list of exclusions is considerably longer:

We define Adjusted EBITDA as net income (loss), excluding (i) income (loss) from discontinued operations, net of income taxes, (ii) net income (loss) attributable to non-controlling interests, net of tax, (iii) provision for (benefit from) income taxes, (iv) income (loss) from equity method investments, (v) interest expense, (vi) other income (expense), net, (vii) depreciation and amortization, (viii) stock-based compensation expense, (ix) certain legal, tax, and regulatory reserve changes and settlements, (x) goodwill and asset impairments/loss on sale of assets, (xi) acquisition and financing related expenses, (xii) restructuring and related charges and (xiii) other items not indicative of our ongoing operating performance, including COVID-19 response initiative related payments for financial assistance to Drivers personally impacted by COVID-19, the cost of personal protective equipment distributed to Drivers, Driver reimbursement for their cost of purchasing personal protective equipment, the costs related to free rides and food deliveries to healthcare workers, seniors, and others in need as well as charitable donations.[37]

Hubert Horan, in Naked Capitalism, wrote in 2020:

For many years this series has argued that the market is fundamentally unwilling to pay prices that would cover Uber’s actual costs, that after ten years it has demonstrated that it cannot “grow into profitability” and that there is no evidence that Uber’s business model is capable of achieving the massive, multi-billion dollar improvements that would be required to achieve sustainable profitability anytime soon. There is no data in Uber’s 2019 Annual Report that would cast any doubt on these arguments.[38]

That the numbers fundamentally fail to come out in any humane way has always been the story. It was even the story with the taxi industry long before Uber and Lyft, even when I was a taxi driver in San Francisco in the dot-com era (I got sucked into Linuxcare as a technical writer about a year before it, both the era and the company, went bust) where restaurants were desperate for (and successfully lobbied for) more cabs to cover peak times, which meant drivers on ten-hour shifts suffered on non-peak times, but still, as so-called “independent contractors” (you didn’t really think Uber invented the worker misclassification scam, did you?) had to pay to work, whether they worked their entire shifts or not, whether they made any money or not.

At that time, I thought no reputable business person would touch the taxi business with a ten-foot pole. That was before I learned how capitalism works, that capitalism fundamentally relies on labor exploitation and depends on human misery and human desperation to enforce that exploitation.[39] It’s a little less often that capitalism targets investors as well, but Horan explains the adjusted EBITDA bullshit:

Since its GAAP profitability results are so awful, Uber’s financial releases and Dara Khosrowshahi’s public statements have come to almost exclusively emphasize EBITDA measures. The problem is that none of these honestly measure EBITDA, and Uber aggressively misrepresents EBITDA as “profit.”

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is a non-GAAP intermediate contribution measure that has no obvious relevance to Uber, and even if accurately calculated should be ignored by investors. EBITDA is sometimes used by companies with very large fixed assets, large intangible assets (such as goodwill acquired after a major merger) or significant debt financing to give outsiders a crude sense of a company’s ability to meet its outstanding financial obligations. Uber has none of these characteristics.

More importantly, Uber’s reported “EBITDA” numbers exclude billions of expenses other than interest, taxes, depreciation and amortization. Its primary EBITDA measure excludes the $5 billion in stock-based employee compensation. Its “Segment Adjusted EBITDA” measure also excludes all of the IT expense supporting the Uber platform, and the corporate expenses (accounting, lobbying, etc.) directly supporting all of its current operations.[40]

In short, this is a scam, and Horan stops just short of calling it one, observing how the EBITDA narrative is used to entice investors who don’t read or understand footnotes.[41] Yet it is only by the dint of those footnotes, that Uber avoids the accusation of deception.

Who wins? “[E]xecutives and investors who cash out during its many stock fluctuations.[42]

  1. [1]Jessica Bursztynsky, “Uber CEO is ‘not happy’ with how long it’s taking to pick riders up or prices being charged,” CNBC, May 25, 2021, https://www.cnbc.com/2021/05/25/uber-ceo-is-not-happy-with-driver-supply-pricing.html; Laura Forman, “Uber and Lyft Need a Sharper Turn,” Wall Street Journal, April 13, 2021, https://www.wsj.com/articles/uber-and-lyft-need-a-sharper-turn-11618311794; Michael Hiltzik, “Uber reneges on the ‘flexibility’ it gave drivers to win their support for Prop. 22,” Los Angeles Times, May 28, 2021, https://www.latimes.com/business/story/2021-05-28/uber-flexibility-prop-22; Mariella Moon, “Uber and Lyft rides are pricier due to a lack of drivers (and the waits are longer, too),” Engadget, June 1, 2021, https://www.engadget.com/uber-lyft-surge-pricing-lack-of-drivers-035835230.html; Faiz Siddiqui, “Where have all the Uber drivers gone?” Washington Post, May 7, 2021, https://www.washingtonpost.com/technology/2021/05/07/uber-lyft-drivers/; Alissa Walker, “Why Your Uber Ride Is Suddenly Costing a Fortune,” New York, June 4, 2021, https://www.curbed.com/2021/06/uber-lyft-expensive-new-york-city.html
  2. [2]Faiz Siddiqui, “You may be paying more for Uber, but drivers aren’t getting their cut of the fare hike,” Washington Post, June 9, 2021, https://www.washingtonpost.com/technology/2021/06/09/uber-lyft-drivers-price-hike/
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  13. [13]Christopher Mims, “Self-Driving Cars Have a Problem: Safer Human-Driven Ones,” Wall Street Journal, June 15, 2019, https://www.wsj.com/articles/self-driving-cars-have-a-problem-safer-human-driven-ones-11560571203; Christopher Mims, “Self-Driving Cars Could Be Decades Away, No Matter What Elon Musk Said,” Wall Street Journal, June 5, 2021, https://www.wsj.com/articles/self-driving-cars-could-be-decades-away-no-matter-what-elon-musk-said-11622865615; Levi Sumagaysay, “Aurora, Toyota team up to bring self-driving cars to ride-hailing and the masses,” MarketWatch, February 9, 2021, https://www.marketwatch.com/story/aurora-toyota-team-up-to-bring-self-driving-cars-to-ride-hailing-and-the-masses-11612893367
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  15. [15]David Benfell, “The corruption of the nonprofits,” Not Housebroken, June 19, 2021, https://disunitedstates.org/2021/06/19/the-corruption-of-the-nonprofits/
  16. [16]Jessica Bursztynsky, “Uber CEO is ‘not happy’ with how long it’s taking to pick riders up or prices being charged,” CNBC, May 25, 2021, https://www.cnbc.com/2021/05/25/uber-ceo-is-not-happy-with-driver-supply-pricing.html; Laura Forman, “Uber and Lyft Need a Sharper Turn,” Wall Street Journal, April 13, 2021, https://www.wsj.com/articles/uber-and-lyft-need-a-sharper-turn-11618311794; Michael Hiltzik, “Uber reneges on the ‘flexibility’ it gave drivers to win their support for Prop. 22,” Los Angeles Times, May 28, 2021, https://www.latimes.com/business/story/2021-05-28/uber-flexibility-prop-22; Mariella Moon, “Uber and Lyft rides are pricier due to a lack of drivers (and the waits are longer, too),” Engadget, June 1, 2021, https://www.engadget.com/uber-lyft-surge-pricing-lack-of-drivers-035835230.html; Faiz Siddiqui, “Where have all the Uber drivers gone?” Washington Post, May 7, 2021, https://www.washingtonpost.com/technology/2021/05/07/uber-lyft-drivers/; Alissa Walker, “Why Your Uber Ride Is Suddenly Costing a Fortune,” New York, June 4, 2021, https://www.curbed.com/2021/06/uber-lyft-expensive-new-york-city.html
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