Kutsuplus’s aspiration was to be the Uber of public transport:
it operated a network of minibuses that would pick up and drop passengers
anywhere in Helsinki, with smartphones, algorithms and the cloud deployed to
maximise efficiency, cut costs and provide a slick public service. Being a
spinoff of a local university that operated on a shoestring budget, Kutsuplus
did not have rich venture capitalists behind it. This, perhaps, is what
contributed to its demise: the local transport authority found it too
expensive, despite impressive year-on-year growth of 60%.
On the other hand, “expensive” is everything that Uber is not. While you
might be tempted to ascribe the low costs of the service to its ingenuity and
global scale – is it the Walmart of transport? – its affordability has a more
banal provenance: sitting on tons of investor cash, Uber can afford to burn
billions in order to knock out any competitors, be they old-school taxi
companies or startups like Kutsuplus.
A recent article in The Information, a tech news site, suggests
that during the first three quarters of 2015 Uber lost $1.7bn while booking
$1.2bn in revenue. The company has so much money that, in at least some North
American locations, it has been offering rides at rates so low that they didn’t
even cover the combined cost of fuel and vehicle depreciation.
Uber’s game plan is simple: it wants to drive the rates so low as to
increase demand – by luring some of the customers who would otherwise have used
their own car or public transport. And to do that, it is willing to burn a lot
of cash, while rapidly expanding into adjacent industries, from food to package
delivery.
An obvious but rarely asked question is: whose cash is Uber burning? With
investors like Google, Amazon’s Jeff Bezos and Goldman Sachs behind it, Uber is
a perfect example of a company whose global expansion has been facilitated by
the inability of governments to tax profits made by hi-tech and financial
giants.
To put it bluntly: the reason why Uber has so much cash is because, well,
governments no longer do. Instead, this money is parked in the offshore
accounts of Silicon Valley and Wall Street firms. Look at Apple, which has
recently announced that it sits on $200bn of potentially taxable overseas cash,
or Facebook, which has just posted record profits of $3.69bn for 2015.
Some of these firms do choose to share their largesse with governments –
both Apple and Google have agreed to pay tax bills far smaller than what they
owe, in Italy and the UK respectively – but such moves aim at legitimising the
questionable tax arrangements they have been using rather than paying their
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