Why Companies like Lyft, Uber, Postmates, Instacart etc Will Never Be Profitable.

The Pony Express
In 1860, the Pony Express moved mail between St Joseph’s, Missouri and Sacramento, California. Utilizing 200 relief horses along the route, the Pony Express delivered Lincoln’s first inaugural address from Nebraska to California in seven days and 17 hours. It was the company’s and the worlds fastest ever delivery of mail and it ushered in the era of high speed mail delivery. The horse riders who delivered the mail had a weight limit, between 100 to 125 pounds, to ensure they did not overburden the horses. One rider claimed he was 11 years old when he joined the Pony Express. The rider needed to be the size of an 11yr old, the weight limit was that strict!

Unfortunately, a mere 19 months after it launched, the company owners, William H. Russell, William B. Waddell and Alexander Majors, shut down the Pony Express. The company lost ~$200k (~$5M in 2017) for the period the business existed. While the financial losses crippled the business, it was the transcontinental telegraph that truly killed the Pony Express. After delivering 35,000 pieces of mail and traveling half a million miles, what disrupted the then-disruptive Pony Express was a new technology. A technology that looked nothing like the horses it disrupted and cost a lot cheaper than the resources required to provide the same service, deliver messages between people.

Mooching off The Pony Express
It’s 2017 and Lyft, Uber, Postmates and Instacart (I’ll call them LUPIs for ease) all promise to get us something — a cab, our groceries, our restaurant orders — faster than the current technology! But their model is inherently flawed. While the Pony Express owned its horses, and still lost money, LUPIs claim all they own is technology; the horse in this analogy just so happens to be the cab driver, pickers or cyclists who are activated by LUPI technology. LUPIs are truly just brokers masquerading as convenience providers.

The Pony Express, which owned the assets required to deliver the mail, controlled more of the value and, consequently, captured more of the value. Yet it still lost money. The cab drivers (or grocery stores), who own the physical assets, capture more of the value for the same reason. Before the LUPIs came into the picture these asset owners were not making huge margins (even if the cab companies or dispatchers were). When LUPIs insert themselves into the process they take a cut of the value the asset owner used to own 100% of. All the while promising the customer convenience. These firms provide convenience without increasing the size of the proverbial pie. And we know what happens to brokers when all they do is extract value…

Let us use Instacart as an example; two value reducing possibilities exist when a customer uses the app for their regular grocery shopping
There is no increase in revenue for the grocery store since customers maintain their regular shopping patterns.
the grocery store loses the increased revenue from those unplanned purchases almost all customers make in the grocery store. Those products by the checkout line are high margin products that the grocery store wants customers to buy on a whim!