What Uber & Saudi Arabia’s Relationship Means

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Last week, Uber received an investment of $3.5 billion from Saudi Arabia. While it is bigger than Uber’s previous fundraising rounds, Uber has raised a sequence of $1 billion investments over the last few years. However, in the political view, Uber’s decision to take money from Saudi Arabia is a big deal. Aside from a 5 percent stake in the company, Saudi Arabia also gets a seat on Uber’s board.

For people worried about issues like gender equality, customer privacy, and human rights, it’s hard to imagine a worse choice for Uber’s newest board member. The Saudi regime is notorious for its unequal treatment of women, whom aren’t even allowed to drive in the Saudi kingdom, as well as its disrespect for human rights in general.

According to Human Rights Watch, “Authorities subjected hundreds of people to unfair trials and arbitrary detention.” The Saudi government persecutes human rights activists, subjecting them to decade-long prison sentences for advocating political reforms and talking to foreign reporters. There’s every reason to expect the Saudi government to continue its repressive policies in the coming years. And now when the Saudi government violates human rights, Uber will get bad press for it.

The biggest issue for Uber will be Saudi Arabia’s treatment of women. Saudi Arabia is infamous for refusing to allow women to drive and for limiting their ability to go out in public without a male chaperone. Uber is likely to face awkward questions about whether its partnership with the Saudi government amounts to an endorsement of these policies.

Uber CEO, Travis Kalanick is making it clear that he intends to run Uber as an amoral profit-maximizing machine. This could be a huge problem in terms of long-term success. Monopolies inevitably face public scrutiny and pressure for regulation and it will be much more difficult for Uber to resist that pressure if regulators and customers do not have trust and respect for them.

Over the past few years, Uber has faced accusations that it has spied on its customers and suggested digging up dirt on journalists. It has also generated a lot of backlash with massive surge pricing increases on busy nights.

When a new startup shows that they are willing to do anything to win, it is appealing. However, Uber has exploded past the underdog that it used to be. The difference now is that the “take no prisoners” approach to business seems hostile.

What is Uber Doing in India?

Uber has been having a rough time in India, but how bad is it?

Economics of the Uber Drivers:

  • Drivers are intelligent. They are aware of the economics and the politics of auto drivers
  • They are honest and call each trip a duty. However, they are prone to “abusing the system” which I will get to later.
  • The current economic situation is not normal and they are scared of things changing
  • Most of them are on other networks like Ola and TaxiForSure, there is no loyalty to Uber other than the money
  • They will tell you they’re being mercenary. They know that if you pay X, they get 3X and Uber pays for the rest.Uber-Pune-Car-Fleet

Economics of the Uber Business:

Uber is often preffered because it is cashless through PayTM or credit card. Ola’s cashless system uses Ola Money, which is a waste of time because you can’t use it anywhere else. Drivers might even cancel your trip if you say you’re using it. PayTM offers cash backs on purchases that you can use towards Uber.

Uber says that it has the lowest fare in Bangalore at Rs. 7 per km, but they actually charge Rs. 13.5 per kilometer.

So, should you just get a car instead? The annual costs of having a car are much smaller now. If your car gives you 12 kms to a liter of petrol at Rs. 1 per kilometer, you are still paying only Rs. 5.5 per km for petrol and maybe Rs. 1 for parking. There is also the convenience of owning a car – getting groceries from hypermarkets that won’t deliver and driving your kids to school.

There is another reason why a car is better. Uber cars are not always available when you need them. Wait times are over 10 minutes most of the time unless you are in a very popular area. There are also a lot of surge prices, which Uber is known for.

So let’s go back to the driver. For 12 rides a day, he gets Rs. 1200, plus a Rs. 100 per ride incentive, plus Rs. 100 per ride as fare which equals almost Rs. 1800. Then he pays Uber 25%. That comes out to Rs. 3500 per day. However, most drivers claim to make about Rs. 2,000 per day so that’s around Rs. 45,000 per month. After the EMI, fuel costs and service, he is left with Rs. 20,000.

uber-e1409187758464Economics of Uber’s Marketing Expense:

  • Uber only gets what you pay, which is about Rs. 150 per ride.
  • After my calculations, Uber still have Rs. 1,200 per day of net losses
  • For 12,000 drivers, that’s Rs. 15 million per day or $250,000.
  • That’s a los of $7.5 million per month in Bangalore alone.

In my opinion, Uber needs to reduce incentives and increase charges. They need to increase them by at least 2.5 times just to break even. Will the Indian market pay that much?