How Uber Wasted Millions on Useless Digital Ads

Uber’s approach to marketing

Uber is a ride-hailing company that has been known to spend heavily on advertising. The company invested in various forms of advertising, such as TV commercials, billboards, and online ads, to raise brand awareness and attract new customers. However, some analysts have criticized Uber for overspending on advertising and suggested that the company could have better allocated those resources to other areas of the business.

What’s wrong with Uber’s approach

Some analysts have criticized Uber’s advertising strategy for being inefficient and not effectively driving customer acquisition or growth. They argue that the company’s heavy spending on ads has not translated into significant growth in ridership or revenue resulting in wasted millions on ad campaigns. Furthermore, they claim that Uber’s advertising campaigns have not been able to differentiate the brand from its competitors in a meaningful way, and that the company could have achieved similar results by spending less on ads and focusing more on improving the user experience or expanding into new markets.

Uber’s advertising expenses have been a significant portion of the company’s overall expenses in the past. According to the company’s financial reports, Uber spent billions of dollars on advertising in recent years. In 2019, the company spent $3.3 billion on marketing and promotions, which includes advertising, and in 2020, it reported $1.7 billion on sales and marketing expenses, which also includes advertising. These expenses were significantly higher than the company’s revenue during the same period, indicating that Uber was investing heavily in advertising to drive growth.

Typical startup mistakes 

There was a similar problem with numerous Israeli tech startups. They were pouring money generously provided by investors into marketing to drive growth. Most startups were focusing on attracting customers and growing and not on long-term results like customers’ LTV. But after the collapse of tech stocks in 2022, investors shifted their attention to old companies that weren’t growing at phenomenal rates but were generating profit. So startups had to cut spending and rethink their strategy. This shift of focus is relevant to both IPOs and private startups. Shareholders and investors today want to see a profitability forecast or Path to Profitability (P2P) before spending their money. So startups need to analyze and validate their strategy to successfully raise investment rounds.

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Uber wasted millions on ad fraud

One of the major problems was that Uber wasted millions on fraudulent ads. They allocated a significant portion of their budget to programmatic advertising. A typical form of ad fraud is to sell fake impressions, and this one is quite easy to detect.

Unfortunately for Uber, it was a sophisticated kind of ad fraud where sites were using bots which could create and interact with Uber accounts, so it seemed as if those sites were driving genuine users. Such results were convincing enough to allocate even more budget to those sites, because they appeared to be generating real user interactions.

How they approached the problem

To identify fraudulent ad sites Uber could analyze ad sites in terms of the revenue they generate. If the site brings only subscriptions but those who subscribe never order a ride, this indicates fraudulent ads. 

The company realized this after turning off two-thirds of their ad spend – $100m out of annual spend of $150m – and basically seeing no change in the number of rider app installs. A lot of installs they thought had come through paid channels suddenly came through organic.

Better solution

It happened because they allocated a large share of the budget into one type of media without prpperly analyzing its performance. If they had used marketing mix modeling, they would have avoided the massive budget waste. MMM analyzes historical data and generates reports where you can see how each channel in the company’s marketing mix contributed to the KPI. While tools such as marketing attribution may overstate the contribution of digital activities, MMM gives precise results and even calculates how one channel affects other channels in your mix and takes into account external factors like seasonality and macroeconomic situation.

Uber case lessons

We highly recommend using MMM to allocate budget optimally and avoid overspending. By calculating response curves, it’s easy to identify spend limits and reach target number of new customers or sales volume without increasing marketing budget. You can also calculate how you can reduce marketing spends without affecting the performance.

What is the advertising response curve?

Response curves reveal the elasticity of your media investments, so how much more sales the media investments would generate. Simply out, the more you invest in one media channel, the smaller the marginal benefit you’ll get out of each invested dollar.

Calculating your advertising response curves through rigorous data analysis has a profound impact on how marketing is perceived in the company by enabling the following features:

• Identifying saturation points

There comes a point after which no matter the amount of money you invest into advertising it won’t drive the KPI further. So with response curves you can identify this point and invest just the right amount and not overspend.

If you have previous experimentations or enough data to extrapolate what if-scenarios, you should have an understanding how incremental spend would drive sales and profit.

• Optimizing marketing mix

When you find saturation points of all channels you can optimize your marketing mix to make sure every channel contributes to KPIs as much as possible. With enough data you will be able to see what channel in your mix performs better, where there is potential for increasing investments and what channels should be eliminated.

Forecasting marketing performance without historical data may seem challenging. But with advanced marketing analytics tools that use metamodeling it’s possible.

Conclusion

Uber’s experience shows us how not to approach marketing budget management. To make sure that every dollar you spend isn’t wasted use advanced analytics. This way you will not only save budget, but also improve marketing performance and even contribute to sustainable marketing practices.