Invest Like the Best with Patrick O'Shaughnessy
00:42:45 · Dara Khosrowshahi
[00:42:45] S2: We've been at it for a while. The ideal membership program is one where essentially you have a fixed cost base. So a Netflix is investing a certain amount in programming, and the cost of selling a membership is customer acquisition, And there is no cost for the services that you render. There's no variable cost for the services you render. The benefits of membership programs, travel membership programs are often upgrades to rooms that were empty anyway, or upgrades to seats that were empty anyway. So those membership programs are ideal and that's why membership started in the travel business and entertainment, for example, as well. Cable was a membership program if you want to call it that. It becomes much more challenging if the cost to serve is a variable cost. I think Amazon is the first one that took that on, which is the cost of an Amazon Prime membership is higher the more you use that membership. And Amazon was able to walk through this valley of despair as many people in the public markets didn't understand what it was doing and the losses kept increasing, but they understood the unit economics of membership and they stuck with it and they were able to brave through those early days. And I took a lot of inspiration from that example in the early days of Uber One. And when we acquire a member, you're less profitable. We're essentially trading. We're making a prediction, which is you're going to spend more on our platform, even though your first transaction, second transaction, third transaction is going to be much less profitable because we're giving you back a bunch of money. Over the lifetime, you will be more profitable. And we're seeing that. So the membership program took some time to get up to speed. It is solidly profitable now, but the first year of membership is a year where we lose money on you, but we're going to make money on you two, three, four years from now.
00:44:33 · Patrick O'Shaughnessy
[00:44:33] S0: The next leg of hooking this platform up to the entire world is hotels. It's so interesting that you've gone full circle. Walk us through the decision logic here. I have a question behind the question, which is how you decide to do these big things in the first place. We started the conversation with you to have this bet sport at Spotify. There's all these different ways that capital allocators decide what to bet on. I'd like to
00:44:53 · Dara Khosrowshahi
[00:44:53] S2: talk about that strategy as well. But starting with hotels, why do it in the first place? What was your thinking? We tend to be pretty data oriented. What we've seen, and it's relatively obvious, is that people who travel a lot tend to use Uber a lot. We're available in over 70 countries. What's the first thing that you do when you land at an airport often is you open up your Uber app. Just last year, we completed 1,500,000,000 trips for people outside of their home city. About 15% of our trips are to and from airports. So we can identify travelers. It was a use case that was a headline use case. Can we start thinking to ourselves, hey, what more can we do for the travelers? And what differentiates Uber from some of the other places, again, it's not just about the booking experience, but it's about delivering that experience in a reliable way in the real world. We also go much deeper into the fulfillment stack than let's say the typical online travel agent. We decided as you're able to target more, etc, let's look at other travel products. We started with trains. We've launched it in The UK and Spain. And we saw the same thing that we've seen over and over again, which is the more you interact with our platform, the more services you have, the more you interact with those services, the more you come back. So more content meant more retention. And so we said, well, what content can we find in travel? It was very natural for us to go into hotels. It's a high value decision that you're making. We went out there and talked to the various travel companies to make sure that we had the best supply in the business, and we happened to make a deal with Expedia, my old company. And we're essentially giving the vast majority of the economics of that deal back to Uber One members. The design spec of hotels is, again, how can I make sure that as a person, life is more deeply integrated with our services? 10% off hotels, 20% off, 10,000 hotels. That's a great deal that you're not going to find elsewhere. It's another reason for you to join Uber One.
00:46:52 · Patrick O'Shaughnessy, Dara Khosrowshahi
[00:46:52] S0: What's the idealized end state of that part of your business, five years hence or ten years hence? [00:46:57] S2: For me, the idealized end state is obviously we want to bring a lot of value to you as it relates to the booking experience. But I want the value to carry into the market. You book a hotel in San Francisco. We go through your email if you open up for us, we already collect your information on your flight. We pre book an Uber to the airport. We pre book an Uber from the airport to your hotel because we already know where you're staying. And ideally, when you get to the hotel, we know you're approaching the hotel. Either we give the front desk a heads up that you're going to be there. Patrick is going to be there and know you. Or we allow you to completely bypass the front desk, go to your room, maybe you can use your Uber app as a key. I want to bring some in market magic to you as part of your travel experience. We're already part of your experience in city. The richer we can make that experience, the better. We're starting with a booking. We've got to start someplace. But that's the uber magic I want to bring to you. [00:47:54] S0: I have the same pre mortem question, which was if this doesn't work, why would that be the case? It would have to go wrong.
00:47:59 · Dara Khosrowshahi
[00:47:59] S2: I'd say two things. One is we have debated in the past whether or not people's interaction models with our service can change from on demand to planned. People get very wet. Like our brand has always been known as on demand. Push a button, get a car, push a button, get your delivery. There was a question mark. Could we go from on demand to planned? And we started moving in that direction with actually Uber Reserve. In the olden days, Uber Reserve, actually, we allowed you to reserve a car, but it was kind of an on demand dispatch to try to get you that car when you expected it to be there. We have changed the back end to really drive reliability 99 plus percent. So we're pre booking with the driver. The driver accepts, makes sure the driver is there before reserve, etcetera. And reserve now is over $5,000,000,000 run rate. It didn't exist five, six years ago. If we gave a tangible benefit, in this case, higher reliability for higher price, clearly we were able to move both demand and supply. Drivers want to pre commit to your trip. That gave us the opening to say, wow, this pre commit thing is another angle that we can explore and travel became natural for us. So I think the question is, is reserving your ride just fundamentally different from thinking about your vacation two or three months from now? Can we stretch that pre commit and can we stretch your brand in that temporal direction? I think it's an open question. I think we can. We're giving you great deals to make that plan on Uber, but it's not a slam dunk.
00:49:36 · Patrick O'Shaughnessy, Dara Khosrowshahi
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