The question is how much of a network effect Uber really has.
People stay with Facebook because that is where all their friends and family are, but do they have the same lock-in with their rideshare provider? It is an open question how much of a network effect exists in this market. My gut feeling is not much, but others obviously disagree with me. Uber could win the battle and lose the war.
There is going to be a sliding scale between wait time and cost for ride. If all the other companies band together to create a marketplace exchange for rides (Google, Apple, Tesla, etc.), then Uber may be unable to maintain any advantage.
There is a similar effect with tollways. People often have a choice between using the tollway (and paying the toll) or taking the public roads and sitting in traffic.
I don’t have the figures for the USA, but here in Australia the rate people empirically use to avoid tolls is $12 per hour (i.e. they will sit in traffic for an hour extra to save $12 in tolls). Assuming people apply the same thinking to ride sharing, then a cheaper competitor with worse coverage should be able to capture a reasonable share of the market.
To poke a hole in my original comment, presuming that the vehicles are still being driven by humans, there should be a hard floor in how low the price can go. If Uber is already at the a point in some markets where the drivers earnings can't even make up for vehicle depreciation & gasoline, that floor may have already been reached. At that point competitors may have both the same or higher price point and be slower than Uber.
Once driverless vehicles are brought in to the market, presumably these dynamics change again.
A third variable is the device which retrieves a vehicle. Google & Apple, the platforms where presumably almost all Uber vehicles are called from (not sure how many people are using the SMS feature or if it is still functional), are both working on producing vehicles. The current assumption is at least Google's will be self driving from day 1 and both may operate in a manner more like Uber than a traditional automobile business model.
There is a lot more certainty around how transportation will look, in general terms, by 2025 than who will be collecting the profits from it.
Yes there is a hard floor with the price, but there are two ways it could go lower even without driverless cars. The first is Uber's indirect vehicle costs (borne by the driver, but ultimately affecting the price floor) are very high. The drivers don't have any economies of scale in running and servicing their vehicles. A competetor that is optimised for running costs could undercut Uber.
The second way a competetor could undercuts Uber is by accepting a lower return on capital. Uber's cost of capital is very high compared to the cost of capital in the utility industry. It will be very hard for Uber to compete long term against a rival with low cost capital.
My expectation is Uber will win the battle against its venture backed rivals and will lose to a new competetor optimised for running and capital costs.
The Uber network monopoly effect is on the seller side, not the buyer side. It's having a large majority of the drivers under your control that makes it work, because the biggest seller is most likely to have a car nearby.
The drivers don’t seem to be very loyal to any one company. The thing about ride sharing is you can achieve a high density of drivers in a small geographical location at relatively low costs. It is really hard to stop a competitor that is localised.
If I was going to take on Uber I would wait until they IPOed and then build out a business based on local dominance in secondary markets where I would concentrated on getting the transport and maintenance costs down as much as possible. I would lobby the local governments to make life difficult for Uber while promoting the “local hero”. Done well this strategy would be hard for a large player like Uber to fight.
The network effect lies in the chicken-and-egg relationship of riders and drivers, no? Drivers drive for the service that has the most fares, users pick the app with the most cars available.
Similar to selling & buying on eBay, though maybe not quite the same since both sides can be on multiple apps at once.
But drivers can drive for multiple services at the same time, using whichever one is giving them a customer at any specific moment. I've talked to many Uber/Lyft drivers that use both apps at the same time.
On the consumer side, having the most cars available is not the only thing to consider. There's also price. For me, Uber is the first app I check (mostly out of habit), but if there's any sort of surge pricing going on, I'll check Lyft. If Lyft doesn't have a similar surge, I'll usually ride with them, even if it means a slightly longer wait.
You are correct... for now. But the way I see it all going down is only the top marketplace will survive and the rest will shut down. Sure, they may even generate revenue, but I think those that don't manage to become the top will fade away for the same reason most acquired companies die off. When that happens, there won't be any Lyft. Lyft knows this and that's why they took investment from GM, and this is why Sidecar shut down recently.
woah what's up with you people downvoting? I just pointed out what is true and wasn't even trolling. I'm offended, HN. Uber is a marketplace. Facebook is a social network. Craigslist is a marketplace. Uber's network effect works the same way Craigslist's does, and is not so much similar to Facebook's network effect.
I didn’t downvote you, but I think the reason you are being downvoted is nobody is comparing Uber to Facebook, we were discussing how much of a network effect Uber actually has with their service.
As a rule don’t complain about being downvoted - it just brings you more downvotes.
Agreed with danieltillet. Also, an assertion of fact without any explanation or supporting evidence is not particularly constructive. If you had included this part in your original comment it may have received fewer downvotes:
> Uber is a marketplace. Facebook is a social network. Craigslist is a marketplace. Uber's network effect works the same way Craigslist's does, and is not so much similar to Facebook's network effect.
The lock-in originates from (1) immediate (< 5 min) availability of a ride and (2) high density of customers, so drivers aren't idle. Ultimately, it comes down to the numbers, which no one outside of the ridesharing companies really has.
People stay with Facebook because that is where all their friends and family are, but do they have the same lock-in with their rideshare provider? It is an open question how much of a network effect exists in this market. My gut feeling is not much, but others obviously disagree with me. Uber could win the battle and lose the war.