funded much of its growth through cash
flow from its global online store and then
a marketplace matching buyers and
sellers, with high fees for fulfillment services and advertising. Still, most of Amazon’s profit (nearly 60% in 2019) comes
from a highly profitable digital service
and innovation platform: Amazon Web
Services (see “The Cloud as an Innovation Platform for Software Development,” Communications, October 2019).
Transporting food is slightly more profitable than transporting people.
Amazon tried and failed to make money
in food transport and recently closed
down Amazon Restaurants.
is the market leader in the U.K. and Europe but it also has failed to earn a profit
in food transport.
Another option for Uber is to get rid
of drivers (its main cost) by investing in
driverless vehicles. This strategy may
work someday in some locations. But
Uber will most likely run out of cash long
before driverless vehicles become safe
and commonplace. Moreover, someone
still has to own the vehicles. Let’s say
Uber buys two million vehicles to replace
its three to four million drivers. Even at
$50,000 per vehicle, that would be a massive expense of $100 billion. Then there
are maintenance, recharging, replacement, or leasing costs. The economics
may still be better than constantly subsidizing drivers and riders. However, there
will also likely be more competition.
Every major automaker in the world, as
well as Lyft and Google Waymo, are in or
planning to enter the markets for ride-sharing and driverless vehicles, with the
goal of “selling miles, not cars.”
Uber and Lyft should stay with the
platform strategy rather than own or
lease their vehicles, but their ongoing
losses may force them to get smaller
before they can get bigger again. Ride-sharing platforms should focus on the
few cities where taxis and transportation options are expensive and in short
supply, and then expand gradually into
other geographies and transportation
segments, such as partnerships with
public transportation authorities to
bring people from their homes to mass-transit facilities. Uber already is exploring such partnerships, and it has sold
several unprofitable overseas subsidiaries. It also seems to be making some
money matching shippers with truckers
in a new marketplace venture. However,
there is nothing to stop more companies and entrepreneurs from entering the transportation business. Taxi
companies can also develop their own
smartphone apps and expand their operations and partnerships (see “How
Traditional Firms Must Compete in
the Sharing Economy,”
Communications, January 2015). As for WeWork, it
must raise prices much more to cover
its costs, and that will depress demand.
Landlords are also now hesitant to lease
properties to We Work, putting the whole
business at risk.
8 Meanwhile, Airbnb
is likely to continue its strong business
model, although there is nothing to stop
traditional hotel companies from aggressively entering roomsharing—if it is
a “good” (that is, profitable) business.
1. Bond, S. Uber aims to be the ‘Amazon of
transportation.’ Financial Times (Oct. 25, 2018).
2. CB Insights. How Uber makes money. (2018), 6–23.
3. Clark, K. Uber lost more than $5B last quarter.
Techcrunch (Aug. 8, 2019).
4. Conger, K. Lyft’s first results after I.P.O. show $1.14
billion loss. New York Times (May 7, 2019).
5. Cusumano, M.A., Gawer, A., and Yoffie, D. B. The
Business of Platforms: Strategy in the Age of Digital
Competition, Innovation, and Power (2019), 18–20.
6. Farrell, M. We Work IPO filing reveals huge revenue
and losses. Wall Street Journal (Aug. 14, 2019).
7. Gindrat, R. Automakers envision a business model for
AVs: Selling miles, not cars. Axios.com (Apr. 17, 2019).
8. Grant, P. and Morris, K. Virtually no one will lease to
We Work. That’s a drag on NYC’s office market. Wall
Street Journal (Sept. 29, 2019).
9. Prang, A. Airbnb plans to go public next year. Wall
Street Journal (Sept. 19, 2019).
10. Satariano, A. Deliveroo takes a kitchen sink approach
to food apps. Bloomberg.com (Jan. 15, 2018).
11. Soper, T. Amazon to shut down its Amazon restaurants
business in the U. S. Geekwire (June 10, 2019).
12. Uber Technologies, Inc. Form 10-Q (June 30, 2019).
13. Weed, J. Blurring lines, hotels get into the home-sharing business. New York Times (July 2, 2018).
Michael A. Cusumano ( email@example.com) is a
professor at the MIT Sloan School of Management
doing research on computing platforms for business and
coauthor of The Business of Platforms: Strategy in the
Age of Digital Competition, Innovation, and Power (Harper
Copyright held by author.
Expansion into more
simply means the
bigger the platform
gets, the more money
it will lose.
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