Tag: Uber

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3 CEOs That Keep Their Hands Dirty For Hard-earned Insights

by MQDuong1 Comment on 3 CEOs That Keep Their Hands Dirty For Hard-earned Insights

I am not talking about startup CEOs. Those guys are supposed to get their hands dirty to scale. What I am talking about are CEOs that still keep their feet and ears on the ground to find the truth, even when their companies are already mature.

Uber

As the world was returning to normal after the historic pandemic, Dara Khosrowshahi, CEO of Uber, realized that his company had a driver supply shortage that could threaten the future of his company. Due to stay-at-home orders, drivers needed to find another way to maximize their earnings. Without drivers, the whole experience on Uber app would have deteriorated and Uber’s business would have suffered. In addition to offering financial incentives to lure back drivers, Dara signed up as a courier himself and ferried folks and delivery orders around San Francisco. The goal? To understand what else the company could do for drivers. The plan worked as the CEO uncovered the following shortcomings:

  • The old onboarding process for drivers was clunky and unfriendly.
  • Drivers were punished for not taking the trip whose destination and fare were uncertain.
  • Drivers were at times confused about where to pick up food at partner merchants.
  • The app combined two separate deliveries at one merchant, but didn’t inform the assigned courier

Naturally, no competent CEO would have let these issues go unaddressed. Dara instructed his team to introduce fixes with urgency. As a result, Uber is now friendlier to drivers, recovered faster post-pandemic and is in a much stronger position than its rival Lyft. Per WSJ:

Driver Danny Jacob dumped Lyft after Uber introduced pay and destinations disclosure in Chicago in September. He said the ability to see where he was going and the value of the ride was liberating, and Uber kept him busier because he could switch between rides and food delivery. 

Driver engagement at Lyft dropped after Uber’s summer rollout, according to people close to Lyft. The company’s product managers scrambled to match Uber’s changes, replicating many features months later. 

I recently took a ride to Omaha Airport with a Somalian driver. I asked him about two features recently introduced lately by Uber: Reserve rides and the ability to see the route and fare of a trip in advance. The driver said that while the former wasn’t as particularly helpful, the latter was the best feature that Uber has ever introduced and made his life so much better. Dara pushed his team to move up the timeline on the feature. Had he not had that frustrating experience himself as a driver, who is to say when Uber would have had that rollout.

Fun fact: Dara has completed over 100 trips himself so far.

Starbucks

Laxman Narasimhan officially took over the CEO role of Starbucks in March this year. He and his predecessor, Howard Schultz, spent a lot of time discussing future priorities for the iconic company. They agreed that Starbucks must be more disciplined in cost management and efficient if they are to expand the store network.

To that end, Laxman dedicated months to familiarizing himself with the operations by becoming a certified barista and working for several hours a month at different stores. His goal is to understand better the pain points of baristas and how to streamline the ship. The new CEO already identified two issues. One is that Starbucks has a variety of cups and lids; which makes the job of a barista difficult and supply chain more complex and expensive. The other is that baristas are usually overwhelmed by the rush hours in the morning.

Dick’s Sporting Goods

Ed Stack, former CEO of Dick’s Sporting Goods, is the son of Dick Stack, the founder of the company. Ed’s father used to tell him:

“If you had a visitor there, you wouldn’t keep doing what you’re doing. You’d drop it to say hello and make him feel at home.”

Source: It’s how we play the game

Ed carried that mentality throughout his career. He made a habit of walking the stores every month and talking to store managers. His goal was to listen to the managers’ concerns as well as to learn what customers saw and said.

From one of those store visits, a manager in Baltimore mentioned to Ed that kids went to his store asking about a brand called Under Armour. Ed had never heard about this brand before, but decided to place an order and run a test in a few stores. Under Armour merchandise flew off the shelves, prompting the retailer to move the apparel brand to more prominent sections. From there, the relationship blossomed as Under Armour contributed meaningfully to Dick’s bottom line. Had there not been the fateful visit, who’s to tell that Under Armour would have ended up in Dick’s stores?

Weekly readings

Weekly reading – 11th March 2023

by MQDuongLeave a Comment on Weekly reading – 11th March 2023

What I wrote last week

Book review: Twelve years of turbulence

Business

Google execs tell employees in testy all-hands meeting that Bard A.I. isn’t just about search. Leadership is about providing vision and belief. If you are paid to think of big pictures, instead of doing the dirty work every day, wouldn’t it be disappointing to provide ambiguity and inconsistent answers to a high-profile product like Bard? I get that it’s difficult to know what to do with an experiment like Bard. But a rushed announcement, followed by ambiguity and a botched demo, erodes trust in the leadership of Google.

Buffett ❤️ Apple: Case Study. I often see folks go out of their ways to be contrarian and find whatever reasons they can to justify buying other stocks than Apple. But as Buffett said: you get paid to be right, why wouldn’t anyone consider Apple as an investment? I am not saying that it’s THE best investment choice out there as any given time. I am saying that Apple and the boring index fund are a lot better than many stocks out there.

($) How Chili’s Is Prepping for Tough Times, Starting With the Fries. The article offered a couple of good examples on what CEOs can do to increase productivity and save costs. Chili’s CEO considered the practice of counting shrimps a time-waster. By ending that practice, the company estimated cost savings at $6 million a year. The changes made at Chili’s restaurants aren’t popular with everybody, proven by comments cited in the article. However, the stock price rebounded handsomely this year and same-store sales increased despite declining traffic. At least there is that.

Amazon’s big dreams for Alexa fall short. Alexa is an interesting innovation in that it enabled the birth of many smart devices; which offers value to consumers (I am one of those), while lacking a way to monetize its value. Amazon has not been able to prove that Alex is additive to sales on its platform and I am not surprised. How many shoppers call Alexa when they want to discover something? If it’s a routine purchase, there is already Subscribe and Save. I don’t believe that Amazon staff lacks the effort to prove Alexa’s worth. I do believe that they couldn’t find it because there likely isn’t any

Business Breakdowns on Wise. A really interesting Business Breakdowns episode on Wise. Wise is my go-to platform whenever I want to send money back home to Vietnam. There are two factors that affect the net amount that my family receives: exchange rates and platform fees. Accounting for these factors, Wise usually beats other alternatives such as Xoom or Western Union. Hence, it’s really fascinating to learn about Wise’s origin, how it works in general and what competitive advantages the company enjoys

Other stuff I find interesting

($) The Surprising Ways Walking Delivers a High-Intensity Workout. “Walking with more intensity can burn as many calories as higher-impact activities such as running or even HIIT classes, experts say. That could mean incorporating weights, hills, intervals or a faster pace without breaking into a jog. Taking an 11-minute brisk walk daily will also lower your risk of stroke, heart disease and a number of cancers, according to a study from the University of Cambridge published in February.”

This website collects many dark patterns on the Web

The tech workers exiled from Europe’s last dictatorship. It’s always disturbing to learn about a dictator suppressing citizens’ wishes. It’s equally sad that some good folks have their lives turned upside down and must live away from their family & friends, just because they have the courage to do something.

In Scramble for Clean Energy, Europe Is Turning to North Africa. “Solar panels in sun-rich North Africa generate up to three times more energy than in Europe. And North Africa has a lot more room for them than densely populated Europe. Result: Europe’s drive to end its reliance on Russian natural gas supplies, triggered by the Ukraine conflict, is resulting in a rush to install giant solar energy farms and lay underwater cables to tap into North Africa’s abundant renewable energy.“

A lack of water leaves Vietnam’s coffee farmers high and dry. Another example of unsustainable growth.

Stats

Uber CEO revealed at Morgan Stanley Technology, Media & Telecom Conference that New York makes up 2% of its global delivery bookings

2.1 million people visited Kentucky Bourbon Trail in 2022

U.S. solar and storage manufacturing jobs expected to grow to 115,000 by 2030

Weekly readings

Weekly reading – 18th February 2023

by MQDuongLeave a Comment on Weekly reading – 18th February 2023

What I wrote last week

Updates on Uber

Business

Exploring ALDI’s Unlimited Success With Limited Assortments. If I could buy shares of a privately held company, that’d be Aldi. I wrote about Aldi here

($) Louis Vuitton’s Formula for World Domination. “Even as it took steps to broaden its appeal, the brand put in place measures to manage the risks associated with becoming too widespread and easy to get. Its number of stores has changed little over the past 10 years, closing some as it opens others. Vuitton doesn’t sell through wholesalers and it doesn’t license its designs. There are no end-of-season sales. Its perfume production is limited to small batches, available only at Louis Vuitton retailers and on the brand’s website. Its fragrances aren’t available in the LVMH-owned retailer Sephora. Louis Vuitton has also intentionally limited supply to retain a sense of exclusivity. The brand makes small production runs for products in each collection. The idea is to always make slightly less than demand.“

How Spotify’s podcast bet went wrong. Growth at all costs and through M&A is usually not the answer for sustainability.

($) Goldman Sachs Steps Back From Bidding for New Credit Card Programs. The move to scale back consumer credit card ambitions of Goldman Sachs is surprising to me. First, they abandoned plans to have Goldman-Sachs-branded credit cards. Then, they don’t bid for co-branded portfolios. The infrastructure that they built for Apple Card (which I suspect involves a lot of concessions) only makes sense economically if it’s used for many other portfolios. I can understand if the bank is being more conservative now than it used to be, but this type of retreat seems like an over-correction at best or at worst the beginning of the end for consumer banking ambition.

Inside Flipkart, the Indian giant beating Amazon. “Krishnamurthy had a simple approach for the sale: Go all-in on smartphones. The company offered customers interest-free loans and Krishnamurthy personally visited the offices of phone brands to make exclusive sales deals. One Flipkart executive who worked with him at the time recalled him pleading with a phone manufacturer, “Give me a chance.” His strategy worked. In terms of gross merchandise value (GMV) — the total value of goods sold — Flipkart achieved a 50% market share during the sale, compared to Amazon’s 32%, according to market research firm RedSeer. Amazon was rattled. One former executive in Amazon’s payments unit told Rest of World that within the company, some leaders still regard this period as a missed opportunity to kill off Flipkart.”

Other stuff I find interesting

($) For Remote Workers, These U.S. Cities Are Great Places to Live. I am more of an office or hybrid guy myself as I believe in the value of separating work from home as well as human interaction in an office. But if remote working is your thing, this list can be valuable. I’d throw the city of Omaha to the mix as well.

Milled is a great tool to search for email newsletters by brands

The maze is in the mouse. While there are some criticisms over parts of the article, the consensus is that it reflects the culture and inner workings at Google. As a result, Google has a big problem at hand. Given the hiring frenzy, the layoff and the botched launch of Bard, one must wonder if Sundar is the right man to help Google fix these problems and once again roar in the future.

Why cash is still king in Iraq. It makes one reflect on how much banking regulations in the US protect consumers and create trust. And how often we tend to take it for granted.

Amsterdam’s airport was brutally honest about its ‘poor’ 2022 performance. How often have you read something this refreshingly honest from a company?

Why African EV startups are struggling. “Two years on, however, industry advocates believe the company’s goals are too ambitious given the high EV prices, unfriendly government policies, lack of charging infrastructure, high customs duties, and bad roads in African countries.”

Stats

Three-in-ten U.S. adults say they have ever used a dating site or app

US Credit card balances reached $986 billion at the end of 2022, a record high

Number of active monthly users of major social media platforms in Europe. Source: Politico
Business

Updates on Uber

by MQDuongLeave a Comment on Updates on Uber

If there is one long-term (the keyword here is long-term) Covid beneficiary, that’s Uber. The company looks to be in a better shape than ever. Here is why

Bookings & revenue skyrocketed

At the end of 2018, Uber generated about $50 billion in bookings and $10.3 billion in revenue every four quarters. Fast forward to the end of 2022, they reached $115 billion in bookings and $32 billion in revenue. In other words, bookings more than doubled and revenue more than tripled between 2018 and 2022. That’s some serious growth. To put it in perspective, Lyft made $4.1 billion in revenue in 2022, only 14% higher than what they recorded in 2019 (earliest year Lyft reported results publicly). The stock plummeted after a disappointing earnings call and a weak guidance early this week. What a stunning different the last few years made! Before Dara took over, Uber took one PR thumping after another. Hashtag #DeleteUber trended on social media a few times. Lyft became a serious threat. Nowadays, the pink company is barely hanging on while Uber is stronger strategically than ever.

Uber's Rolling 4-Quarter Bookings & Revenue
Uber’s Rolling 4-Quarter Bookings & Revenue

Used to rely on Mobility, Uber now has two equal businesses

Everyone knew Uber as a ride-hailing company. Its whole business used to revolve around transporting folks from one place to another. In 2014, Uber Eats was launched, but it was tiny compared to the cash cow Mobility. Covid-19 changed everything. While Mobility took a dive as folks limited their movement to the outside world, Delivery rose and, as of December 2022, rivals Mobility in Bookings. Having Delivery is absolutely crucial to the company’s survival and growth for the following reasons:

  • Delivery brings more earning opportunities to drivers and as a consequence, Uber attracts more drivers and retains them better. In fact, Uber just posted monthly active drivers at all-time high. More drivers mean shorter waiting time and higher customer satisfaction.
  • A bigger driver pool also means that merchants see more deliveries out of the door and get to consumers faster. More merchants make the whole Uber ecosystem healthier and more robust.
  • I don’t wish to ever see another pandemic like Covid again, but nobody can dismiss that possibility completely. Having a business like Delivery reduces the overall risk exposure for Uber. Just ask Lyft about it.
Uber Mobility & Delivery Bookings
Uber Mobility & Delivery Bookings
Unlike Lyft, Uber can provide more earning opportunities throughout the day to drivers
Unlike Lyft, Uber can provide more earning opportunities throughout the day to drivers

Uber has not yet made money, but it’s getting there

One major criticism of Uber, mostly deservedly, is that the company has not delivered profits. Which business gets to $33 billion in annual revenue with zero profit? To be fair to Uber, the task is exceedingly difficult given the circumstances. Dara stepped into the CEO’s shoes with the mandate to restore Uber’s public image and bring adult leadership. Then, Covid happened, decimating the cash cow Mobility service. Then, he had to deal with the post-Covid consequences: driver supply & inflation. And let’s not forget about competition from the likes of DoorDash, GrubHub and Instacart. Navigating through all those challenges with a global operation is not easy.

Hence, it’s encouraging to see the transformation of Uber’s business and the stride it took towards profitability. For the past four quarters, on an adjusted EBITDA basis, both Delivery and Mobility were in the black. I understand the gripes (again deservedly so) that many have about EBITDA metrics, but the point lies in the intent and execution that Uber’s executive showed. Here is Nelson Chai, the CFO, on the topic:

Our call to action moment was actually in 2020. And if you recall back then, our Mobility business was over 85% of the company’s gross bookings. And as we sat here in April of 2020, that business was down 80%. So as you recall, we acted pretty decisively during that time, we took over $1 billion of costs out of our infrastructure. We shuttered down a bunch of businesses. And unfortunately, we did have to let go over 20% of our headcount.

So we’ve been really focused on efficiency since then. I think you’ve heard us lay out our plans, and I think Dara mentioned on CNBC, in 2021, we wanted to really push hard for EBITDA profitability, and again, we achieved that metric in 2021. Last year, we talked about being free cash flow positive at some point in the year. And again, we achieved that metric. And now, we’re talking about being GAAP operating profit at some point later in the year. And we expect to continue to achieve that metric.

Now we’ve done this — and you mentioned incremental margins, we’ve done this because we focused efficiently on cost, and we’ve been laser-focused on it. So our headcount will largely be relatively flat this year. And even if you go back to the build that the many companies had over the past few years, we’ve grown our headcount about 10%, excluding the Freight business, over the period of time. And our gross bookings went from $62 billion in 2019 to $115 billion last year. So just think about that growth and efficiency. Where we’ve hired heads has been in some areas of tax, selectively, as well as some sales folks on the Delivery business. 

Uber Mobility & Delivery Adjusted EBITDA
Uber Mobility & Delivery Adjusted EBITDA

Uber was one of the notable tech companies that haven’t announced a layoff. What the executive team told analysts and investors about EBITDA profitability and free cash flow in 2022, they delivered. Growth looks the exact opposite of rival Lyft. These instances have earned Uber’s management team some benefit of the doubt in their quest to reach unquestionable profitability.

Other updates

  • Advertising: As of December 2022, 35% of merchants have become advertisers on the platform. The ads business has annualized run rate of $500 million, only half way to the target of $1 billion by FY2024. Given the high margin of the ads business, Uber would love to scale it as much as they can. However, they will have to be mindful of the detrimental impact that high ads load can do to user experience.
  • The flagship subscription Uber One as of December 2022 had 12 million. The company reported that members spent 4.1 times more than non-members and were 15% more likely to stick around. This type of users with their concrete intent to purchase will be something that merchants covet.
  • Freight generated almost $7 billion in revenue and was profitable on adjusted EBITDA basis from Q1 to Q3 this year

In short, I believe Uber is in the strongest position than ever. It managed to not only survive the pandemic, but also took advantage of the unique opportunity offered. Talk about never letting a crisis go to waste! The company still has a long way to go towards its long term goals, but the foundational blocks are there. The opportunity is there. All it takes now is disciplined execution. To that end, the management team has demonstrated that they can.

Disclaimer: I own Uber in my personal portfolio.

Weekly readings

Weekly reading – 29th October 2022

by MQDuongLeave a Comment on Weekly reading – 29th October 2022

What I wrote last week

Uber plans to advertise to riders based on destination data

Business

Forget Netflix and Disney: a local streaming service is king in Indonesia. Vidio is winning because it understands the local audience and what they want from a streaming service.

ESPN, Formula 1 Extend Track With New Rights Deal. Formula 1 has seen its popularity soar high across the globe and in the US in the past two years. Some say that Netflix’s Drive To Survive elevated the sport’s standing. Others say that being one of a few sports organized during the pandemic to entertain folks at home helped too. Whatever the reason is, it’s undeniable that more American viewers know about Formula 1 than ever before. Viewership has never been this high. Next year, the country will host races in Las Vegas, Miami and Texas. There is a strong chance that an American driver, Logan Sergeant, will be on the grid too. The stars seem to be aligned well for the sport I love

($) The Fantasy of Instant Delivery Is Imploding. Some venture capitalists are poised to book millions of dollars in losses. “Along with entering too many markets, they overspent on marketing, with billboards in Times Square and European soccer and Formula One team sponsorships, former finance executives say. During Gopuff’s billion-dollar funding rounds, the co-CEOs had also sold portions of their stock to investors. (Rank-and-file Gopuffers were not allowed to sell shares unless approved by the company.) After they became multimillionaires, they purchased a Gulfstream jet and mansions five minutes from each other along the Intracoastal Waterway in Miami’s Golden Beach. Gola also bought Joe the Jeweler a home in Cherry Hill to replace the one he’d lost when his cash-for-gold business went bust.“

Exclusive: YouTube’s new redesign is built to feel more like TV. Some insights into how YouTube redesigned its User Experience. It must have been a massive undertaking and I’d love to be a fly on a wall of the meetings that led to decisions being made on the new design.

Square sells access to your inbox. No one seems to know if the law cares. Read how Block (Square) collects your email and sells access to said email to hundreds of sellers. The company also goes to great length to circumvent regulations pertaining to consumer privacy.

Apple on iPhones, Chips, Privacy, Working From Home and More | WSJ Tech Live 2022. I like Joanna Stern as a journalist and a tech reviewer. She is smart, funny and knows her stuff. This interview was really good and featured some hard-hitting questions that, unfortunately yet unsurprisingly, Craig and Joz evaded. Their response to Joanna’s question regarding EU mandate on USB-C was more nuanced than what was widely reported on the news. Their opposition to the Metaverse, a concept that Facebook/Meta champions, was noteworthy. Plus, I found it good Joz’s brief explanation on why ATT was introduced. Overall, if you have 30 minutes to spare, you really should check out this interview.

White House hammers economic issues with attack on ‘junk fees’ two weeks out from Election Day. While they are at it, they should talk to AirBnb CEO Brian Chesky on the outrageous fees that hosts on his platform charge to guests.

Other stuff I find interesting

Little rules about big things. Morgan Housel is one of my favorite writers and he struck gold again. “Most financial mistakes come when you try to force things to happen faster than is required. Compounding doesn’t like when you try to use a cheat code. Risk’s greatest fuels are leverage, overconfidence, ego, and impatience. Its greatest antidote is having options, humility, and other people’s trust.”

Voyage of the Gross Even though every other option is better, most of New York’s trash still goes into a hole in the ground. A fascinating piece that describes the journey of…trash in New York

($) The World’s Biggest Source of Clean Energy Is Evaporating Fast. “The water woes of China’s iconic mega-dam are part of a global hydropower crisis that is being made worse by global warming. From California to Germany, heatwaves and droughts have shrunk rivers that feed reservoirs. Hydroelectricity output fell by 75 terrawatt-hours in Europe this year through September — more than the annual consumption of Greece — and fell 30% across China last month. In the US, generation is expected to fall to the lowest level in six years in September and October. It’s a cruel irony that’s forcing utilities to reconsider the traditional role of hydropower as a reliable and instant source of green energy. Dams are the world’s largest source of clean energy, yet extreme weather is making them less effective in the battle against climate change.“

Stats

84% of maternal deaths in the US are preventable

“Only five percent of plastic waste generated by US households actually gets recycled”

One out of four US adults under 30 gets news on TikTok

The FDIC’s 2021 National Survey of Unbanked and Underbanked Households also found an estimated 4.5 percent of U.S. households were unbanked

Online spending in Southeast Asia is forecast to reach $200 billion in 2022 and $330 billion by 2025

Source: Reddit
Business

Uber plans to advertise to riders based on destination data

by MQDuong1 Comment on Uber plans to advertise to riders based on destination data

Uber users, get ready to see more ads!

This week, Uber announced the formation of its advertising division and a few new ads formats. Per Uber:

With the addition of Journey Ads, Uber has created an engaging model that enables brands to share strategic campaigns across Uber’s mobility and delivery businesses, while connecting with consumers in brand-safe and captivating ways. Journey Ads place relevant brand content and offers in front of purchase-minded audiences as they transact throughout their journey – while waiting for their driver and during their trip

  • Journey Ads that capture consumers’ attention during their trip with ad units that drive purchases and brand awareness as they move with purpose.
  • Prominently placed Sponsored Listings across Uber Eats to get brands ahead of the competition and capture the attention of ready-to-purchase consumers, with clients such as Shake Shack already seeing increased engagement, ROI and customer acquisition.
  • Sponsored Emails that enable brands to promote exclusive offers to Uber and Uber Eats consumers through email delivery directly into their inboxes.
  • Homepage Billboards that give brands the ability to prominently display messaging on the homepage of Uber Eats, the world’s most-downloaded food delivery app.
  • Post-checkout Ads which allow brands to promote to purchase-minded consumers as they await updates on their order.
  • Storefront Ads where CPG brands can enjoy prominent placement of their products at the top of a digital storefront. PepsiCo has been a pilot partner of storefront ad offerings.
  • In Menu Ads that enable restaurants to feature their seasonal or specially priced menu item to entice consumers to take advantage of the promotional offer. Chipotle has been a pilot partner on this effort.
  • Highly visible digital out-of-home Car Top Ads whichenable brands to reach consumers based on location and time of day across top U.S. cities.
  • Tablet Advertising pilot which will see strategic partners pilot in-car tablets in LA and S

Uber has one of the richest data on consumers on the market. It knows when, where and how often consumers go as well as what they order for food, from where and the frequency. Which other company can make the same boast? Uber also stores your payment details; which is important to run ads optimized for conversions. Facebook would kill to have your payment details stored on their platform! In addition, the company is one of the most recognized consumer brands. Therefore, it’s natural that Uber decides to invest in leveraging this rich asset, especially given the high margin of advertising and the premium that investors put on profitability these days.

23% of Uber Delivery merchants are already active advertisers on the platform. I am sure many of them will be interested in, at least, learning what the new ads types such as In-Menu Ads, Storefront Ads or Homepage Billboards can do for their business. On the Mobility side, Uber wasn’t able to monetize ads before. While this week’s announcement is a sensible inevitable step, I have doubt over how effective advertising will be on Uber rides. Let me explain.

Uber Eats users often take time to research what food to order and where to order it on the platform. During that process, they pay attention to what is on their screen and are more likely to interact if a relevant ads shows up. For instance, if someone is looking for Vietnamese food for dinner tonight and a local Vietnamese diner runs a promotion, of course they will be more likely to explore what the promotion is about. The intention to purchase is established.

The user experience is; however, very different on the Mobility side. When a user wants to order a ride, they open the Uber app, type in an address or choose a bookmarked destination, wait for the screen to load, connect to a driver, book a trip, leave the app to do something else, meet the driver, get to the destination and leave the car. It’s rare that a user will look for a destination on Uber. That’s not how people use it. Hence, there will be no spare time or attention during the booking process. The intention to buy is not as established as it is on the Delivery side. Consequently, ads will be ignored more often.

That’s not to say ads broadcast during trips has no potential. Leveraging geolocation data for real-time ads is a gold mine. For instance, if somebody is in an Uber car to a big shopping mall, retailers at that mall can and should run sponsored promotions to target that person. The question is in what format. I’d argue that a notification on the phone or in-car tablet ads would be the most effective. Imagine that you are going to Times Square and Macy’s blasts a 30% off promotion on a tablet attached to the back of the driver or passenger seat upfront or in a notification on your phone, chances are that you’d interact with the ads. The possibilities are truly endless in this scenario.

To realize the potential of their advertising business, Uber has a lot of work to do. First, there is a huge privacy concern. People do not feel comfortable that their trips to sensitive places like hospitals or abortion clinics are used for targeting ads. Uber already forbids ads targeting based on certain types of destinations, but will users trust the company and take them on their words? That brings us to the second issue: Uber’s image as a brand that consumers can trust. Credit to Dara and his team that since he took over, Uber’s image has been much better-received than it was under the original founder. With that being said, Uber has a long way to go to achieve the level of trust that the likes of Amazon or Apple have. It doesn’t help the cause when the company had missteps in handling users’ data before, the most recent of which was a hack by an 18-year-old. Last but not least, how would Uber ensure an enjoyable experience on their app with an increase in ads load? Nobody likes being shoved ads in the face. Uber has every incentive to lengthen the wait time and put ads in front of eyeballs. But at what cost? Numerous competitors are more than happy to take users away from Uber due to privacy concern and a compromised user experience.

Uber’s latest development is a sensible business move. There is plenty of potential to unlock, but nothing worth having comes without risks. This move is no exception. Uber has the ingredients in place, but whether they can bring everything together is a true test for Dara and his team.

This week’s Formula 1 Grand Prix in Texas saw McLaren introduce on-demand digital ads on their two cars. Imagine if Uber could do this on their fleet, show ads on-demand and share revenue with drivers. That would benefit both the company and its carriers. We are a long way from that vision, but it’s not impossible.

Business

Decoupling – A Great Tool To Analyze Business Strategies & Disruption

by MQDuong1 Comment on Decoupling – A Great Tool To Analyze Business Strategies & Disruption

What is Decoupling? In an insightful working paper, Thales Teixeira and Peter Jamieson described Decoupling as “the separation of two or more activities ordinarily done in conjunction by consumers”. The separation’s purpose is to increase value for consumers by focusing on the value-creating activity while reducing exposure to the value-capturing or value-destroying one.

Breaking down a business’ success or failure is not a straightforward exercise. There are so many factors at play. The same goes for disruption. However, I believe Decoupling offers a simply yet powerful tool to analyze business strategies and disruption.

Below are a few examples of how I use Decoupling to look at companies:

  • Uber: consumers have a transportation need to go from A to B. That’s the value-creating piece. However, before Uber, there were several non-value-creating activities. If someone wanted to drive themselves, they had to physically and mentally stay alert for some time and look for a parking slot. If riders used a taxi, they had to somehow manage to get a cab and in some cases, suffer from an unhygienic car/driver. Uber decoupled the act of going from A to B in a comfortable manner from all other noises by providing consumers a way to book a decent car with just a few taps on a phone and a driver that is already vetted.
  • Aldi: at grocery stores, consumers want to buy groceries that they deem worth their money & time. That’s the value consumers need. Some stores; however, sell many more items, stack different variations for one item (cereal, milk or ground coffee, for example) and, as a consequence, have bigger stores that take time for consumers to navigate. Aldi competes and, dare I say, wins over consumers by focusing on selling good groceries on the cheap by 1/ leveraging private labels which are cheaper than national brands; 2/ eliminating activities like market research, advertising or unnecessary expenses; 3/ keeping their stores small and just acceptably decorated. They decouple affordable groceries from everything that threatens to increase costs.
  • Venmo/CashApp/PayPal: Consumers always need to send money to and receive money from other folks as quickly, cheaply and seamlessly as possible. Before the likes of Venmo, CashApp or PayPal, it was either cash on hand which necessitated an actual time-consuming meet or a check which took some time to settle. These apps decoupled the money exchange activity from the time wasters. Consumers can exchange money in almost real time.
  • AWS: every company needs IT infrastructure to operate and compete in this day and age. What they don’t need is to go out, scrap all the components, stand up an IT stack and maintain it over time, including hardware replacement and software update. AWS decouples the use of IT resources from the act of acquiring and maintaining it. Because of AWS, startups can get going quickly without saddling themselves in high expenses while big companies can leverage the cloud and scale down IT workforce.
  • AirBnb: ordinary hosts that don’t operate a resort or hotel have three essential activities: hosting, finding guests and verifying that such guests are trustworthy enough to let into their homes. Guests, on the other hand, have to travel and find a place where they can feel safe. AirBnb functions as the decoupler that allows hosts to focus on hosting and guests to focus on traveling. The brand name of AirBnb and the network effect bring one party to the other. Their review mechanism fosters the trust in the ecosystem.
  • TSMC: the production of computer chips involves design, manufacturing and assembly of chips. Each step requires different expertise and cost structure. Semiconductor shops in the past used to do everything. Then, companies like TSMC decoupled from the value chain. The Taiwan-based firm focuses on building the best fabs in the world and manufacturing chips, leaving the design and assembly to somebody else. The result is that TSMC is now the market leader in the chip manufacturing market and the indispensable player in this industry.

Decoupling works because it reduces costs for both the decouplers and consumers. From the consumer perspective, the more activities, the more costs. And I am not merely talking about monetary costs. Time spent on non-creating activities is also a significant cost. From the decoupler perspective, focusing on one link in the value chain deepens expertise, reaches economies of scale and lowers unit economics. Aldi is still one of the most affordable and best grocers out there. Remember when Uber and AirBnb used to be cheap when they had their breakthrough?

Decoupling, in my opinion, is a useful concept and powerful tool to look at businesses. Thales’ book will have more details. If you are interested in learning more, I’d recommend that you read it.

Weekly readings

Weekly reading – 6th August 2022

by MQDuongLeave a Comment on Weekly reading – 6th August 2022

What I wrote last week

Apple Q3 FY2022 Earnings

AWS, what a business!

Even with a loss of $2.6 billion, Uber had a great quarter

Business

($) America’s New Energy Crisis. A worrying report on the state of the energy supply in the US. Demand continues rise and unfortunately, so do oil prices. Projects to produce green alternatives take a long time to be completed and integrated into the national grid. “As U.S. power supplies tighten, developers are struggling to build these projects quickly enough to offset closures of older plants, in part because of supply-chain snarls. Another reason: It takes longer to approve their connections to the existing electricity grid. Such new requests neared 3,500 last year compared with roughly 1,000 in 2015, according to research from the Lawrence Berkeley National Laboratory. Typical time needed to complete technical studies needed for that grid approval is now more than three years, up from less than two in 2015. One renewable-energy developer, Recurrent Energy, filed more than 20 of these grid-connection requests last year in California, a state that needs more clean power to replace several gas-fired power plants as well as a nuclear plant slated for retirement in the coming years. It took the company seven years to get approval and construct a separate battery storage project in that state.”

($) JPMorgan Is Building a Giant Travel Agency. “It bought a booking system, a restaurant review company and a luxury travel agent. It is building its own airport lounges and a force of thousands of travel agents. A new website will launch in the coming months. JPMorgan estimates that its customers account for one of every three dollars spent on leisure travel in the U.S., though those customers book only a tiny amount on the Ultimate Rewards website. With the new offerings, JPMorgan executives believe the bank could capture $15 billion in bookings in 2025, five times what it handled before the recent buildup. That would make it the third-biggest travel agent in the country, based on 2021 volumes, according to industry publication Travel Weekly. The plan has risks. Travel-rewards giveaways have proved expensive for JPMorgan and other banks, and they haven’t always led to the lasting relationships the banks hoped for. JPMorgan also has important corporate partnerships with airlines and hotels that expect the bank to send customers their way. Some of those partners have already complained about the success of Sapphire taking away customers from their cards. The bank is already seeing early signs of that luxury demand. The average price Chase customers are paying for hotels is more than double the industry average, the bank said.”

From legroom to airfare: How JetBlue’s takeover of Spirit could change air travel. If you don’t know how expensive it is to travel domestically in the US, take a trip to Europe and try to fly within the continent. I was really shocked the first time I booked a domestic flight here. I am still shocked sometimes nowadays. There is competition between major airlines, but prices are still high because there is no regulatory pressure on a handful of airlines that fly customers. I don’t know if this merger will help anything. Having another major may drive air fares down. But it could as well join the fun and charge a lot.

US, Japan reaching for a 2-nm chip breakthrough. The race to secure semiconductor supply for the future amidst the political threat from China is more intense than ever. I don’t think China, regardless of whether Xi will be in charge, will give up Taiwan, home to TSMC. It’s not only because TSMC is THE fab of the most advanced chips in the world, but it’s also because China believes Taiwan belongs to them and has no rights to independence. Any nation’s leader will not fulfill their duty if they don’t think about hedging this risk. US and Japan are doing the right thing here. Better late than never.

Ad tracking rules could become much stricter in Europe; Apple’s ATT vindicated. Companies that rely on ads dollars should really pay attention. “This is the single, most important, unambiguous interpretation of GDPR so far. It backs up the approach of Apple.”

($) Netflix Is Scrambling to Learn the Ad Business It Long Disdained. “One of Netflix’s goals was to secure a big “minimum guarantee”—a promise that it would get a large influx of ad revenue to limit its financial risk, say people familiar with the discussions. Netflix also hunted for a senior leader with advertising expertise, mindful that it knew little about the business of selling ads. The company approached at least two top Comcast executives for a senior role while the partnership negotiations were continuing with their employer, angering the top brass at the cable giant, some of the people said. Mr. Hastings has set lofty financial ambitions for the ad business. He and other company executives have told investors and ad industry executives privately in recent months that Netflix will eventually be able to charge advertisers about $80 for every 1,000 views of an ad by helping them target specific audience segments, people familiar with the discussions said. That would put Netflix among the most expensive destinations for ads, alongside top NFL television programming. Creating an advertising-supported tier isn’t the only about-face the company is making in its quest to revive growth. After years of treating password-sharing by customers as a marginal problem—Mr. Hastings said in 2016 he loved the practice—Netflix plans to begin charging households a sharing fee sometime in 2023.“

Chip Makers Have a Message for Car Makers: Your Turn to Pay. The ever-growing demand for chips turns the negotiation tables around. Chip manufacturers now command more bargaining power than they ever have. Car producers have no choice but either put up or shut up. As every car company is now racing to bring electric vehicles and trucks to the market, they won’t shut up.

Other stuff I find interesting

Some wonderful photos of my country taken by an award-winning photographer

US regulators will certify first small nuclear reactor design. I understand that there are concerns over safety and nuclear waste, but nuclear is perhaps the best tool at our disposal to generate clean energy at scale to accommodate the ever increasing demand. I wonder how and/or if this step would help increase the use of nuclear power

Who Is Collecting Data from Your Car? An eye-opening read on the vehicle data world

Tails, You Win. Now that I think about it. Love is just pure dumb luck. The person that you fall in love with happen to love you back. If you manage to fall in love and spend the rest of your life with the same person, creating happy moments and sharing wonderful children and grandchildren, that’s as taily as tails get.

Biden wants an industrial renaissance. He can’t do it without immigration reform. As an immigrant myself, I can tell you that if I had known what I do now, I would not have come to the US. The immigration process here is very talent-unfriendly. The country pours billions of investments into technology, yet the immigration system is antiquated and undoes all the good that such investments bring. To secure the future of the US, the government needs to massively and quickly reform its immigration

Hidden menace: Massive methane leaks speed up climate change. It’s horrifying to learn that we are pumping an incredible amount of this polluter into the air while knowing that it can speed up climate change significantly.

The U.S. made a breakthrough battery discovery — then gave the technology to China. I could hardly believe what I read. A promising battery technology took a dozen US scientists, 6 years and millions of taxpayers’ money to be developed. Then, the Department of Energy transferred the technology to a company based in China where it is currently further developed and produced

Stats

HALF of the nation’s clean power is generated by nuclear energy

Gen Z has led all generations in terms of 30-59 day credit card delinquency this year, according to Vantage Score

OnlyFans has 200 million registered users

Globally, only 9% of plastic waste is recycled while 22% is mismanaged

Business

Even with a loss of $2.6 billion, Uber had a great quarter

by MQDuong2 Comments on Even with a loss of $2.6 billion, Uber had a great quarter

Uber lost $2.6 billion in the last 90 days!

However, that headline-grabbing figure doesn’t fully tell the whole picture. The fact that Uber stocks went up by more than 10% after hours indicates investors were pleased with what they saw and heard from management. There are reasons to that.

Total Gross Bookings (GB) grew by 33% amidst a challenging environment when inflation was the highest in decades. Revenue went up by 105%, although that included contribution from the acquisition of Transplace. Without the acquisition, my estimate is that Revenue would still be up by at least 30-40%. The number of monthly active platform users hit an all-time high record of 122 million while the number of trips increased by 24% to 1.87 billion, just a tad shy of the all-time record of 1.9 billion set in Q4 FY2019, right before Covid.

More importantly, Uber became a free cash flow generator for the first time in history. All three main businesses, including Mobility, Delivery and Freight, were all profitable on an adjusted-EBITDA basis. I understand that some folks have a bone to pick with the adjusted-EBITDA numbers, but Free Cash Flow doesn’t lie and it indicates Uber is on the right track. The giant net loss quoted above included $1.7 billion of unrealized losses related to Uber investments in Zomato, Aurora and Grab, as well as $470 million in stock-based compensation expense.

Back in my review of Uber Q3 FY2021 earnings, I wrote that Covid created a golden opportunity to transform itself. The latest results were further proof of that. Before Covid, Uber was all about Mobility, both in terms of gross bookings and revenue. The pandemic hit Mobility hard, but gave Delivery a great momentum that has not been relinquished since. In the last quarter, both segments notched the second-highest gross bookings in history in Q2 FY2022 while each recorded the highest revenue ever, albeit with some benefits from the model changes in some markets. Without Covid, I doubt that Uber could turbocharge its Delivery business that quickly. Now, instead of relying on Mobility, Uber has two weapons that complement each other well.

Uber Mobility and Delivery's Gross Bookings and Revenue
Figure 1 – Mobility and Delivery’s Gross Bookings and Revenue
Uber Delivery Gross Bookings and Basket Size
Figure 2 – Uber Delivery Gross Bookings and Basket Size

In A look at Uber after it acquired Postmates and Drizly, I wrote:

The way I think about Uber as a business is that it connects end users, partners and drivers altogether. The more end users Uber can present to its partners, the more partners it is likely going to sign. In turn, that means Uber’s end users can have a bigger selection at their finger tips, raising Uber’s value proposition. On the other hand, a bigger end-user pool helps the company sign up drivers. Drivers have limited resources in their vehicles and time, as even the most dedicated drivers can’t drive for more than 24 hours a day. Nobody wants to drive around needlessly all day without getting paid while having to pay for vehicle expenses and gas. As a result, the more business opportunity Uber can bring to drivers, helping them better leverage their time and resources, the more drivers will sign up.

The rise of Delivery does wonders for Uber as it can bring more businesses to drivers. At times, when there is no rider to transport, couriers can deliver food or other items to better utilize the one resource that we can’t get back: time! Now that consumers are back on the road to office and travel, drivers have more opportunity to earn. On the call, the executives bragged that drivers in the US earned $30 per hour on average. That’s pretty competitive. Thanks to its scale, Uber believes it is best positioned to attract and retain drivers. The company has consistently talked about being more efficient with their operations and relying less on incentives. Such self-sustained growth is reflected by the fact that Delivery has had positive adjusted EBITDA for three quarters in a row.

Uber Delivery Net Revenue and Adjusted EBITDA
Figure 3 – Uber Delivery Net Revenue and Adjusted EBITDA

Uber is a multi-sided network, dealing with consumers, drivers and merchants. They co-exist together and each cannot without the other two. Retaining drivers is crucial to retaining merchants and riders. In addition to the $30+ per hour income, Uber recently introduced some new features to support drivers. Soon, for the first time ever, drivers will be able to see in advance where the trip will end and how much they will earn for that trip. Drivers can compare multiple trips at once and decide what works best for them. Then, Uber will offer drivers a chance to earn 2-6% cash back at gas stations with Uber Pro Card. Gas is arguably one of the biggest expenses for drivers. The cash back is a nice gesture that will go a long way to retain this important class of stakeholders.

When delivery companies such as Getir or GoPuff are forced to shrink operations, the scale that Uber is operating on provides a great deal of advantages. If they can maintain that scale, other competitors will find it highly challenging to take share from Uber without near-term damage to profitability. And in case you haven’t noticed, profitability and sustainable growth is the tune that Wall Street wants companies to sing, not growth at all cost.

Sustainable growth is one area where Uber has been much better since Dara became CEO. Back in 2020, in Uber’s latest chess moves, I wrote about the downside of Uber operating in many markets and praised Uber’s effort to withdraw from countries where it was not competitive. Yesterday, in a conversation with Bloomberg, Dara reiterated that stance by saying that Uber is still operating Mobility in India, but will shut down Delivery because they don’t think they can be the market leader. This type of strategic thinking and discipline can only benefit a company like Uber in the eyes of investors.

Moving forward, there are several levers that Uber can pull to stimulate growth and profitability. The first is Uber One. As of Q2 FY2022, Uber One has 10 million paid subscribers. That’s a respectable figure, compared to the 6 million reported in Q3 FY2021. However, considering that the company has 122 million monthly active platform customers, Uber One’s penetration is less than 10%. Once that number increases, it will boost the company’s top and bottom line meaningfully.

The second lever is advertising. Every company wants those high-margin ads dollars and Uber is no exception. Since its launch in Q3 2020, advertising on Uber has been used by 27% of all active Delivery merchants. Though Uber should be mindful of how a litany of ads can adversely affect customer experience, I don’t see any reason why the share of active advertising merchants cannot reach 40%.

Uber Active Delivery Merchants and Share of Active Advertising Merchants
Figure 4 – Uber Active Delivery Merchants and Share of Active Advertising Merchants

Then, there are New Verticals in Delivery (groceries and non-food items) and Uber 4 Business. Combined, these two levers make up less than 10% of Uber’s Gross Bookings, indicating that there is room to grow in the future. The management team mentioned that they are still hiring for Uber 4 Business, a strong signal that they consider it important to the company’s future. New Verticals, like the partnership with Albertsons, plays a key role in increasing the utility of the Uber apps to consumers. Here is what Uber had to say:

As far as new verticals go, we’re quite satisfied in terms of the growth of that team. It’s at about a $4.5 billion run rate in terms of gross bookings. We are investing in this business. And despite investing in this business and it’s in the hundreds of millions of dollars, you can see the profitability that we’ve been able to drive with the delivery business overall. It’s really because of the scale and efficiency that we’re bringing to bear.

What we’re seeing with new verticals customers is that Uber Eats customers who also order from new verticals tend to stay with us, tend to have higher frequency. And it’s really a part of the power of the platform that we’re having. If you ride with us, if you eat with us, if you drink with us, if you order groceries with us, we just become an everyday part of your life. You top that off with the membership program. And we think we have a relationship with customers that really can’t be duplicated in industry on a global basis. That’s what the strategy is all about and we’re quite optimistic about our progress to-date

Source: Alphastreet

Overall, I am pleased with what Uber reported this quarter. Even though the stock is still down significantly, the business is in a stronger position now than it was before and during Covid. That is not to say that the company can afford to take its foot off the gas pedal and to lose discipline. What is gained today will be easily lost in 90 days. The macro economic situations remain chaotic and unpredictable. Consumers may have to cut back on non-essential spending and Uber, whether they like it or not, often falls into that category. Regulatory threats are always there. Formidable rivals such as DoorDash and Instacart are still competing hard. Hence, they need to stay focused and relentlessly execute. But with this result, I think at least they gained some investors’ confidence, including mine.

Weekly readings

Weekly reading – 14th May 2022

by MQDuongLeave a Comment on Weekly reading – 14th May 2022

What I wrote last week

Uber Q1 FY2022 Results

Book Review – After Steve: How Apple Became A Trillion-Dollar Company And Lost Its Soul

Business

Newest trend in delivery apps: move from cars to e-bikes. Micromobility is great for short-distance deliveries in a busy city like San Francisco. This is how Grab Food, Shopee Food and others manage deliveries in Ho Chi Minh City. Consumers order food within 3-4 kms most of the time. Traffic jam is a feature of the city. If couriers used cars for deliveries, there wouldn’t be any food delivery business! eBikes are also environmentally friendly. I hope to see more innovation and governmental subsidies in this space

John Gruber on the European Commission’s calling Apple Pay an illegal monopoly. I like John’s takes on Apple-related things. He is experienced and more importantly nuanced and fair. “This passage, as well as much of the rest of the E.C.’s “statement of objections”, seeks to dismiss the hard work Apple has done to make Apple Pay successful. Yes, NFC is an industry standard, and Apple Pay is, in part, built on top of that. But before Apple Pay, NFC was hardly used, even though Android had supported it since 2011. When Apple Pay launched in late 2014, its support for the existing NFC infrastructure was so good, it worked with many credit card terminals that had no explicit support for “Apple Pay” specifically. Apple Pay was so easy to use people were using it at retailers who weren’t even Apple Pay partners. That’s not a credit to NFC, which had been in place for years. That’s a credit to Apple. I honestly don’t understand where the E.C. sees anticompetitive behavior with Apple Pay. What I see is market share dominance stemming from the hard work of designing better integration into iOS and iPhones and educating users about the feature. How else could the iPhone’s share of NFC payments so far exceed the iPhone’s share of mobile phone sales? I’m not saying Samsung and Google suck at this, per se, but Jennifer Bailey’s team at Apple is really good, and perhaps just as importantly, really diligent about this sort of thing.”

Congress is ‘moving too slowly’ on semiconductor supply crunch, Commerce Secretary says. The dysfunction and ineffectiveness of Congress, especially in this matter, will cost America a lot both in the short and long term.

Buy Now, Pain Later? An interesting read on BNPL and specifically Affirm

Don’t forget Microsoft. Business schools around the world should teach students about Microsoft and its revival by Satya Nadella.

Business Travel Rebounds as Execs Choose (Real) Face Time Over Zoom. I, for one, am curious about whether business travel will come back to the pre-pandemic levels and how it will come back. During the pandemic, articles were written on how business travel would never be the same. Anecdotally, my colleagues at work traveled to Omaha, Nebraska for monthly meetings and quarterly department reviews as if nothing had happened in the past two years. China remains a question mark. Because they remain persistent on the zero-Covid strategy, they are not a viable destination at the moment. And I hope that the prolonged fight with Covid does not give other variants a chance to spring up. I think we have enough of a pandemic for, let’s say, the next few decades.

Inside the Collapse of CNN+, the News Channel’s ‘Apollo Mission’. The launch of CNN+ seems rushed and more like a political move by some executives than a savvy business initiative

How Gillette Embraced the Beard to Win Over Scruffy Millennials. Gillette went from demonizing beards to embracing them. After years of fruitless resistance and declining sales, they finally realized that their bread and butter product is no longer what men want. More than half of the men in the world don beard, including two-thirds of millennial men. Sensing that the tide they were going against was too strong, Gillette launched new beard-friendly products rolled into a line named King C. Gillette. A deviation from what the company is always known for, but a good strategic shift, I think.

Other stuff I found interesting

Could solar power solve Puerto Rico’s energy nightmare? I can’t imagine living in this day and age without electricity. Especially when that happens in a U.S territory.

Moon soil used to grow plants for first time in breakthrough test. This discovery inspires a lot of questions, possibilities and dreams

Cat Litter Could Be Antidote for Climate Change. I don’t know about you, but I don’t have “cat litter could absorb methane before it goes up in the air” in my 2022 bingo card. But it’s a nice surprise and discovery.

Stats

NYC subway ridership as of March 2022 is 60% of the pre-pandemic levels

Germany has 9% of all bitcoin nodes

“In 2021, U.S. podcast advertising revenues rose to $1.4 billion”

Only 50% of the time when a PayPayer user goes to a site that has PayPal does that user use PayPal