Uber has a reputation for spending money incautiously in order to scale big. A new case study shows that strategy may not be terribly effective. The ride-hailing giant dropped $6 million between 2014 and 2015 to get Uber Pool running right, reports BuzzFeed, in a heavily subsidized effort to attract users. Uber doesn’t make money on the product unless it’s able to match what it called “masters,” the initial Uber Pool rider, with multiple “minions,” additional riders.
When it started Uber Pool, it had a low match rate—only 3,600 of the 35,000 trips taken in its first week carried matched riders. Nine months later, it had a match rate of 60%. However, and this is a big however, Uber found that when it tried to make the service profitable and got rid of the subsidies, ridership plunged. People switched to other, cheaper services. This is Uber’s inherent challenge. With so much competition, riders and drivers will go where the best deal is—always. There’s no loyalty in the ride-hailing business and that means Uber’s big spending may not pay off.RR