
In Silicon Valley Now, It’s Almost Always Winner Takes All - sew
http://www.newyorker.com/tech/elements/in-silicon-valley-now-its-almost-always-winner-takes-all?intcid=mod-latest
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rbrogan
The article is not convincing that these are natural monopolies. What happened
to AOL and AIM? What happened to MySpace? There is also this recent article
about Chinese innovation:
[https://news.ycombinator.com/item?id=10806386](https://news.ycombinator.com/item?id=10806386)

Natural monopoly in the Information Age may turn out to have been natural, but
it feels unnatural. There are explanations, but I, personally, do not find
them to be convincing.

~~~
mwsherman
Agree. “Natural monopoly” is a very lazy term. It’s mostly about looking
around at a moment and declaring that it must be so.

Utilities don’t need to be monopolies, necessarily. It’s just that they were
designed that way at a point in time. It’s a path of history, but not a
natural law.

Wintel too. Which _was_ a monopoly, until it wasn’t. It’s not that their
position in the market changed, but the definition of the market itself (i.e.,
computing became mobile).

Google (a monopoly) is (or was) terrified by both Facebook and Amazon. Neither
of which is a search engine, but each of which is a path toward determining
what product to buy. The market itself changes.

~~~
jjoonathan
The threat of possible disruption from an uncertain direction 10 years down
the line is of a very different nature than the threat posed by direct,
immediate competition. Why do you think it's "lazy" to find one type of
competition less desirable and then notice and complain when certain markets
seem to consistently gravitate towards it?

~~~
mwsherman
I don’t think what you’re describing is wrong. But a belief that something is
a natural monopoly causes us to make policy choices based on a flawed
assumption. Flawed choices about the inevitability of a monopoly tend to
entrench same.

E.g. our municipal broadband monopolies trace back to a belief that wireline
phone and TV can only be monopolies. And maybe it’s true! But we might have
chosen differently, had we not assumed it a natural outcome.

We might have assumed that wireless is a natural monopoly. Gladly, we didn’t.
(Though spectrum policy can be more competitive.)

~~~
marklgr
This is not about inevitability and immortality of monopolies, but their
likelihood and the detrimental effects they bring on while they exists. Both
can be pretty high in some domains, so it is worthwhile to think about it, to
me.

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danielnaab
A decentralized ride solicitation tool with a reputation system, maybe
blockchain-based, could kill off Uber and Lyft almost overnight. Especially if
existing taxi companies embraced it. I want to know if a driver is licensed,
insured, etc. Uber doesn't provide that, and I don't like the rent-seeking
aspect of their service.

If it's winner-takes-all, it's only a matter of time until another winner
takes all. I don't think we've seen the end of this market yet...

EDIT: Wow, two down votes in 10 minutes. Care to say why? There are a lot of
incumbent players losing market share to Uber - how do they compete? It seems
like the perfect opportunity for more of a SaaS business model built around
selling integration with an open network. There are already reputation-based
blockchain implementations. Why would a decentralized model not work?

~~~
n0us
I'm not the one who downvoted, but I would imagine this is why.

* Overnight is a bit too quick. Uber's service has grown so quickly partly because they have an organization behind it to fight against regulations which is part of what made their rapid growth possible.

* Implementing a standardized "blockchain" protocol to guarantee all of those things is a non trivial task

* Go outside of SF Bay, whip out your phone with a group and tell them that you're about to order a "distributed reputation system cab" and they're just going to look at you like "wat" then open the Uber app and get an Uber that already works with their credit cards and lets them split the fare. They _maybe_ have heard of Lyft, and most likely have Uber, not the blockchain app.

* Uber has hordes of information available that lets them tell drivers where to be and when, it also prices the rides based on demand. The block chain app has none of that.

* Traditional cab drivers are terrible, the cars smell, they don't show up on time, they drive you in circles to up the fare, sometimes they take off when they hear where you want to go. An app is not going to change this overnight, though eventually the reputation system might change it.

* Rent seeking is annoying but they are still much cheaper than traditional cabs, at least everywhere I have used them.

Maybe it's winner takes all, maybe not. It remains to be seen whether the
legal system has just been slow to react to Uber and its ilk or if it will not
react at all. I think the end of this in the short run is that Uber takes >
90% of the market, Lyft takes the majority of the rest, and the cab companies
continue to operate at a smaller scale with less profits. This is after local
and state governments wake up and impose more modern, but less restrictive
taxi-style regulations on these companies to enforce some level of
accountability for when the shit hits the fan or whatever.

The end of this market in the much longer term seems to be self driving cars
and some form of shared ownership. I could see premium ride sharing clubs
where you pay more to ride in an Audi or something with common ride sharing
clubs where you ride in a van. It is this much longer term that I see Uber
having more potential competition.

~~~
danielnaab
Good points. I meant "overnight" loosely, but I have a few other comments.

* Any software may be branded - no one needs to know the word "blockchain" when they use a well-designed app. If a driver may have more take-home pay from an open network, there is no reason they wouldn't list themselves there in the same way many drivers are on both Uber and Lyft.

* The blockchain would record all transactions in a manner that any software could get something similar to Uber's intelligence, with some allowances for the privacy of the rider.

* I've taken Uber rides that reek of cigarette smoke. If anything, many cab companies have standards that you can't guarantee with the closest Uber. But like you say, reputation systems could address those issues.

I agree, though, that the technical challenges are real and not trivial. In
particular, the privacy concerns seem very real. I just find it difficult to
believe that a multi-billion dollar industry will allow a middleman to take
all their customers away when really the only thing that Uber sells is UX.

~~~
Grishnakh
>* I've taken Uber rides that reek of cigarette smoke. If anything, many cab
companies have standards that you can't guarantee with the closest Uber. But
like you say, reputation systems could address those issues.

Did you downrate the driver and complain? If not, the reputation system isn't
going to work.

------
mwsherman
I don’t see much network effect with Uber. I see a liquidity effect, to a
degree, but the barriers of entry are low on both supply and demand side.

To the extent Uber has a network effect it’s O(n) at best. I don’t have a
connection to other Uber users. I like that there are enough users to make it
worth the drivers’ while – again, liquidity, not network.

On Facebook, network effect is probably O(n^2). The connections exist and
themselves have value.

~~~
tommoor
Uber Pool and Lyft Line are now the majority of rides in SF, not sure about
other cities - but there is definitely a network affect there

~~~
toomuchtodo
SF is not the rest of the world.

~~~
tommoor
you don't say. I'm sure this is the way it will go in any location with high
enough density to get the network effects

~~~
toomuchtodo
Network effects for ridesharing are overstated. Its a commodity that'll race
to the bottom. It already occurs in markets where both Uber and Lyft are
present.

------
caseysoftware
I think this gets down to the network effect (aka Metcalfe's Law).

Like the author notes, Coke isn't going to drive Pepsi out of business.
Because fundamentally if either gets an additional point in market share, that
doesn't compound into larger and larger gains.

But in marketplaces (Uber, Lyft, Ebay) or pure network plays (Skype,
Facebook), having one additional user creates N new potential connections. Out
of those potential connections, a handful are made which encourages more and
more.

A 1% gain can compound over time to huge advantages that the next group _can
't_ overcome.

~~~
davidw
If people are interested in the economics behind these things, I can't
recommend this book highly enough:

[http://amzn.to/1Vqy2J2](http://amzn.to/1Vqy2J2)

Hal Varian has gone on to be the chief economist at Google.

------
bsder
Not sure SideCar is a good example. Investors are pouring billions of dollars
into Uber and Lyft in an attempt to get the monopoly position. That doesn't
sound much like a natural "winner take all".

Google got lucky because AltaVista was run by Digital Equipment Corporation,
whose marketing was legendarily bad (slogan: "DEC has it now, but you can't
have it.")

~~~
seibelj
Source for that slogan? Can't find it anywhere

~~~
PhasmaFelis
"DEC has it now" was from the late '80s; I can't find the original source, but
tech media referenced it occasionally in the following years. [1][2] The "you
can't have it" part was Bader's joke, of course.

[1]
[https://books.google.com/books?id=nBwEAAAAMBAJ&pg=PA19&lpg=P...](https://books.google.com/books?id=nBwEAAAAMBAJ&pg=PA19&lpg=PA19&dq=%22DEC+has+it+now%22&source=bl&ots=YlwpU0C1LU&sig=dXoGka-
BGbhHpJnQko46CJn5MfQ&hl=en&sa=X&ved=0ahUKEwib5pbBnIXKAhWBeT4KHdIxBpYQ6AEIIjAC#v=onepage&q=%22DEC%20has%20it%20now%22&f=false)

[2]
[https://books.google.com/books?id=gx0EAAAAMBAJ&pg=PA17&lpg=P...](https://books.google.com/books?id=gx0EAAAAMBAJ&pg=PA17&lpg=PA17&dq=%22DEC+has+it+now%22&source=bl&ots=USZMYXtc3i&sig=Z_T3WfjmPDBluyNu0HeYINf0Uao&hl=en&sa=X&ved=0ahUKEwib5pbBnIXKAhWBeT4KHdIxBpYQ6AEIIDAB#v=onepage&q=%22DEC%20has%20it%20now%22&f=false)

------
genericresponse
Read the article and try to replace every description of computer technology
with mechanization. You'll find that in many instances you'll see the same
thing. I don't disagree with the piece, but I think its chief error is failing
to identify what's coming from network effects vs. pure economies of scale.

I would argue that Uber's dominance is the intentional strategic choice to
seek monopoly in their space. We saw the same things during the growth of
mechanization.

~~~
sharemywin
I think most of it is coming from capitalization. go find a venture company
that will fund you to be the 10th player in a market.

------
jpatokal
Lyft has already lost the battle. The one to watch is Uber vs Didi Kuaidi,
which owns China's market (80%+, vs <15% for Uber) and is tightly integrated
into Wechat/Weixin, which is rapidly expanding outside China.

~~~
marme
Didi Kuaidi is only competitive in china because of homefield advantage. They
have used bribes and other tactics to hinder uber. Uber has had to fight with
the government to even allow them to operate while didi kuaidi was granted a
license to operate from day one because they are invested with big names who
have government connections. Outside of china didi kuaidi can not compete with
uber. It is the same reason why amazon does so bad in china. China is a
strange market where corruption and physical social networks play a large role
in business the foreign companies just cant compete with

~~~
jessaustin
Even if we stipulate to all of these claims, so what? Do you expect China to
change any of that soon? Maybe a better question is whether other populous
nations like India, Nigeria, Brazil, etc. will decide to follow China's
example.

~~~
Grishnakh
It doesn't matter if China changes it or not. The point is that some Chinese
company has a huge advantage _in China_. That doesn't extend to Brazil or
India; it isn't going to do any better there than Uber, and probably much
worse. Now, some other Brazilian or Indian company might have a huge advantage
(again, thanks to corruption) in their respective country, but the Chinese
company isn't likely to do well at all there because their usual tactics won't
work since they don't have any insider connections in those countries the way
they do in China.

------
pervycreeper
I would argue that with perfect unregulated competition, having more than one
firm with a stable market share is a sign of INefficiency. Small differences
will get magnified, and whoever has the small edge will completely dominate,
assuming rational behavior.

~~~
no_wave
Not in the magic world of VC funding! There will always be at least one
dominant firm and a few others setting tens of millions of dollars on fire by
offering five dollar Lyft Lines in Manhattan hoping to get traction.

It's a bit like restaurants - you have to compete both with established,
profitable competitors and upstarts willing to take a temporary operating
loss.

It may be unsustainable, but I've gotten hundreds of dollars of discounted
stuff from companies operating at a loss looking for traction... thanks,
pension fund VC investors!

------
toadi
Don't get it. There are still different businesses doing more or less the same
thing. Just the media tells the story about the big players. Small profitable
companies are still surviving in the current market.

As an example: Amazon is everything in retail. Well, there is a thriving
company in Belgium called coolblue.be There is also a Dutch company called
bol.com. For every of those great news stories there are profitable small
businesses making money. You just don't see them. To be honest that's ok.

Most of those companies didn't need to shut down if they used money sensibly
and were not only dedicated to growth. But off course that's what VC money
makes you do.

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marcoperaza
Uber isn't profitable. At some point, they have to raise prices and make a
profit. At that point, the competition will swarm in to undercut them. The
barrier for a consumer to use a different app is almost nothing.

------
fancy_pantser
I didn't expect SideCar to shut down just hours before the most difficult
night of the year to get a ride. I hope their users install an alternative and
get it working before they go out for NYE.

~~~
cft
End of tax year

------
gcb0
like the time of the robber barons and telecom monopolies

------
isabelrotton
No matter what business we do, "can do" sprite is the most important element.
Look at Uber, Sidecar and Gogovan. I think everyone can generate similar ideas
but no one do it. The one who did it succeed. Start up business is a gamble.
Being a pioneer of the industry takes the highest risk but also get higher
opportunity to gain market share.

