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In Silicon Valley Now, It’s Almost Always Winner Takes All
- gcb0 11y agolike the time of the robber barons and telecom monopolies
- rbrogan 11y agoThe 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 11y agoAgree. “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.
- beambot 11y agoGood point about utilities. Plus, with decentralized (solar) power generation, utility companies are really starting to show some cracks too. As soon as distributed energy storage is economically viable, they're going to need to adapt even further.
- afarrell 11y agoWhat does energy generation have to do with the monopoly power of the folks who own the wires, buy from the bulk electricity market, and sell to consumers?
- beambot 11y agoWhen customers can go 100% off-grid using rooftop solar and in-home storage, it bypasses and obviates the utility's monopoly on bulk generation and transport. This actually causes a lot of issues, since the long-term fixed costs for the utility get spread across fewer paying customers. You're starting to see this problem in locales with heavy solar penetration (eg. Hawaii).
- jjoonathan 11y agoThe 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 11y agoI 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 11y agoThis 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.
- jjoonathan 11y ago> But we might have chosen differently Please elaborate on what you mean by "chosen."
- joe_the_user 11y agoThe weird thing with the "also-rans" of various competitions is that they seem to utterly collapse in a strange fashion. MySpace got shittier and shittier even as Facebook expanded and there was visible mind-share searching for new things. Yahoo has gotten similarly worse despite being in a space where people wanted a Google alternative. The impression I get is that also-rans basically aim to cash-out rather than continuing. The big thing seems to be few investors actually want to think long term and there's money only in being a market leader or in being ad-driven, self-discrediting crap-site - and it costs lots of money running a big website despite it seems like it should be cheap.
- Retra 11y agoSome of those may be the result of trying to differentiate themselves. People might want an alternative to Google (the company), but they don't really want an alternative to Google (the search engine.) If you're trying to beat someone like Google by offering a different-but-worse search engine, it's not really going to work. Facebook offers the same kind of problem. You're also not going to win by being the same. You have to do different-but-obviously-better, which is actually very very hard.
- caseysoftware 11y agoI 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 11y agoIf 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.
- bhousel 11y agoSee also Hotelling's Law https://en.m.wikipedia.org/wiki/Hotelling%27s_law https://en.m.wikipedia.org/wiki/Hotelling%27s_law
- fancy_pantser 11y agoI 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 11y agoEnd of tax year
- deleted 11y ago[deleted]
- mwsherman 11y agoI 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 11y agoUber 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 11y agoSF is not the rest of the world.
- tommoor 11y agoyou 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 11y agoNetwork 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.
- aetherson 11y agoSource?
- tommoor 11y agoFrom August: http://www.forbes.com/sites/ellenhuet/2015/08/18/inside-lyfts-and-ubers-carpooling-quest-uberpool-lyft-line/ http://www.forbes.com/sites/ellenhuet/2015/08/18/inside-lyft...
- pervycreeper 11y agoI 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.
- PKop 11y agoBut for how long? The market itself that the leading firms are competing in is dynamic and can change over time.
- 21echoes 11y agoassuming they offer precisely identical services...
- anigbrowl 11y agoMore likely there's a tendency towards a natural monopoly or duopoly, but markets can also exhibit chaotic behavior.
- no_wave 11y agoNot 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!
- marcoperaza 11y agoYou're assuming that different people have identical preferences. They don't. Some are more price-sensitive, while others are more interested in quality, which can itself be broken down into any number of specific factors about competing services. This is totally rational behavior, in the economic sense of the word.
- danielnaab 11y agoA 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 11y agoI'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.
- bsder 11y agoNot 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 11y agoSource for that slogan? Can't find it anywhere
- PhasmaFelis 11y ago"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=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 https://books.google.com/books?id=nBwEAAAAMBAJ&pg=PA19&lpg=P... [2] 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 https://books.google.com/books?id=gx0EAAAAMBAJ&pg=PA17&lpg=P...
- neolefty 11y agoAlso, Google's search results were profoundly better than Alta Vista, which had no real quality score as far as I could tell. I think it took me about 5 searches to switch permanently.
- genericresponse 11y agoRead 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 11y agoI 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 11y agoLyft 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 11y agoDidi 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
- littletimmy 11y agoIt is wrong to assume corruption. It might just be that China prefers seeing local companies run the Chinese market, and engages in a form of protectionism. That is perfectly justified and not corrupt.
- jessaustin 11y agoEven 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 11y agoIt 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.
- isabelrotton 11y agoNo 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.
- toadi 11y agoDon'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.
- marcoperaza 11y agoUber 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.