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Sincere question: what protects Uber from competition enough to imply huge profits in the future? Network effects don't seem that strong. People will download

Sincere question: what protects Uber from competition enough to imply huge profits in the future? Network effects don't seem that strong. People will download an app to save money, and drivers will download an app to make money. It doesn't cause any major inconvenience. In fact, it seems like a market that may approach perfect competition in a matter of years. There are only two companies now because there are only two companies willing to lose money. After they start making money, that could change quickly.

deepnotderp 10y ago
Self driving cars change everything.
- jeffdavis 10y ago
  Can you be more specific? Their self-driving tech is worth $70B? If it's the combination, then I still don't quite get it. Wouldn't any good self-driving tech pretty easily adapt to ride hailing? Let's say it's a best case for Uber: there are only few self-driving techs out there, and Uber is one; and they dominate ride hailing, and start turning a profit. Couldn't another self-driving tech company snap up Lyft and bundle in the ride hailing, too?
  - alex- 10y ago
    I think a lot of people see todays taxi company being tomorrows ground transport ruler, once self driving cars are ubiquitous. The theory being less people will own cars. The savings made on storage/parking, fuel and maintenance will be greater than paying for individual rides (with no labour costs). The car manufactures would no longer be the company the consumer interact with. i.e. How much does the average consumer care if they are picked up in a Lexus or a Toyota for the average ride? This would put the car manufacturers in competition for the taxi companies business commoditizing the car industry. Who knows what will happen? Maybe regulation will prevent self driving cars becoming ubiquitous? or maybe some advance in manufacturing makes it much cheaper to own self driving cars. But speculation that Uber pulls this off is the only way that I can see how Uber is worth over $60Bn (more than ford $50Bn ish, GM $50Bn ish, Nissian $45Bn ish) while making a $0.8Bn loss on $1.7Bn revenue - as a gamble for what might end up owning a $400Bn+ market.
  - torpfactory 10y ago
    It seems like self driving cars would reduce the importance of the network effect and make the barrier to entry a capital one (cost of the fleet). I'd like to see how much utilization the drivers in a typical market are getting. In order for the self-driving fleet-ownership model of future-uber to work, I think the vehicle utilization would need to be relatively high to make it economically competitive with car owning. It also occurs to me that ride-hailing may not be a good substitute for those who use a car to commute. $70B starts to look awfully high if most people still need to own a car to get to work....
- surfmike 10y ago
  If Google and Tesla get self driving cars too, don't network effects suddenly disappear? The ebay analogy stops holding since the "sellers" (drivers) are a pool of self driving cars.
  - xapata 10y ago
    > suddenly disappear No, they also need to spend an enormous amount on marketing.
- onion2k 10y ago
  The headline figure is net of driver costs. They had a revenue of $1.7b, and a loss of $800m, after paying their drivers. Doesn't that mean that if the cost of the drivers was $0 they'd still have made this loss?
- majani 10y ago
  self driving cars will bring Uber into the black, but it'll make competing with them so much easier, since signing up self-driving fleets will be way easier than signing up individual drivers.
msoad 10y ago
Yes, that's correct. The taxi business (now they called "ride sharing" for some reason!) is just like air travel. Price matters the most but brand and quality of service is important as well. It's a very low margin business and has a low barrier to entry. This makes Uber a risky investment in my opinion. Once Uber decides to make money, the real game will start. You'll see lots of competition and not much appetite for losing money like now. Driverless cars?! That's going to make barrier to entry even lower but it's science fiction for next decade anyways.
- bogomipz 10y ago
  >"Price matters the most but brand and quality of service is important as well." Many drivers drive for both Lyft and Uber so what exactly is that brand? The app? I don't see a lot of brand to be loyal to.
  - xapata 10y ago
    Perhaps that differs by city. Some cities have more competition among rideshare apps than others.
  - CamelCaseName 10y ago
    >Many drivers drive for both Lyft and Uber so what exactly is that brand? The app? I don't see a lot of brand to be loyal to. I believe this is incorrect. Many drivers stick to one because they get a guaranteed wage if they're online for 50 minutes per hour and pick up every call they get. As for customers, switching costs might be low, but unless there's a reason to switch, why would they?
Bombthecat 10y ago
You could say the same about chat app. One person downloads the app to chat. The other downloads to reply. And here we are. Still using WhatsApp:)
- function_seven 10y ago
  You really can’t. I can use any taxi company I want to get from A to B. I can’t use any chat app I want to talk to my cousin Alice or my brother Bob. I have to choose one that they’re already on. That’s the network effect. In transportation, all these taxi companies are using the same roads; the same network. I don’t have to make sure AcmeRideShare has permission at both the pickup and drop off points. And I can change my mind tomorrow and go with ABCRideShare if I have a coupon. I can’t just arbitrarily decide to use ICQ tomorrow to talk to my Facebook friends.
  - xapata 10y ago
    In the chat app comparison, your cousin Alice is the driver. Saying that the roads are the network is like saying the internet is the network.
    - function_seven 10y ago
      But Alice is NOT the driver. Alice is whatever destination I want to get to. And any taxi company will be able to get me there. > Saying that the roads are the network is like saying the internet is the network. Fair enough.
      - xapata 10y ago
        Not every taxi company is willing to pick you up in a reasonable time frame and take you wherever you want to go. In many cities, on many occasions, I have had significant trouble hailing or calling for a cab. Further, I've often had them (illegally) refuse to take me to my desired destination. Uber and Lyft are wonderful, because the drivers show up and don't complain about where you're going.
- 10y ago
MarkMc 10y ago
There is most certainly a network effect. It's similar to eBay: Buyers and sellers can switch to another eBay clone, but they don't because there are no buyers or sellers on the clone. Similarly, nobody will download another app if it doesn't have any drivers, and drivers will not install another app if there are no riders.
- surfmike 10y ago
  Doesn't this analogy stop holding with self-driving cars?
  - MarkMc 10y ago
    Yes, it probably does - good point! When that happens the Taxi market will probably be analogous to airlines: companies will have huge capital investments but will receive low returns on that investment because the service they are selling is essentially a commodity.
  - adventured 10y ago
    Only if you assume Uber isn't going to get there first, with their billions in capital and other vast resources. Meanwhile you have to convince a VC firm or similar to give you an extremely large amount of capital, to build out your fleet, enable/create the self-driving car tech, hire the people to make it all work, market to customers / convince them to even try you, all the while Uber is racing forward. Uber's present advantages are providing the springboard to lead in the next evolution of that business. Similar conceptually to what Netflix managed in transitioning from physical to digital. The advantages of your present can provide for your continued dominance in the future if you're willing to eat your own business when necessary. In five to ten years when self-driving cabs are increasingly common, Uber will already have been there the entire time. You still have to steal their customers (a lot of marketing $$$), build out a huge infrastructure, have a large fleet of vehicles, convince someone to give you a lot of money, compete against a super famous brand (that has already achieved Kleenex type status), and be able to survive the blood-letting competition with a very entrenched and very rich company (see Amazon vs Diapers.com).
- 10y ago
xapata 10y ago
Compare this with the airline industry. What protects Delta from competition enough to allow profits? Not very much. In fact, airlines have historically struggled to show profit since deregulation. In the last few years they've finally had some profits, but a tiny amount in comparison to the decades of taking on debt. Still, the airlines keep going.
dsil 10y ago
Network effects are incredibly important for the service they're able to give. Where I live they have so many active drivers that I never have to wait more than 5 minutes if I request one sometime between ~8am-10pm. And that effect is even larger for things like Uberpool, where a smaller network means they may have to go way out of the way to find another rider going to a similar destination, making your ride take longer and the service worse. Network effect also extends to their other services, like Ubereats, where they can get you your food faster and more accurately-timed than their competitors, because of their larger network of drivers.

deepnotderp 10y ago

Self driving cars change everything.

jeffdavis 10y ago
Can you be more specific? Their self-driving tech is worth $70B? If it's the combination, then I still don't quite get it. Wouldn't any good self-driving tech pretty easily adapt to ride hailing? Let's say it's a best case for Uber: there are only few self-driving techs out there, and Uber is one; and they dominate ride hailing, and start turning a profit. Couldn't another self-driving tech company snap up Lyft and bundle in the ride hailing, too?
- alex- 10y ago
  I think a lot of people see todays taxi company being tomorrows ground transport ruler, once self driving cars are ubiquitous. The theory being less people will own cars. The savings made on storage/parking, fuel and maintenance will be greater than paying for individual rides (with no labour costs). The car manufactures would no longer be the company the consumer interact with. i.e. How much does the average consumer care if they are picked up in a Lexus or a Toyota for the average ride? This would put the car manufacturers in competition for the taxi companies business commoditizing the car industry. Who knows what will happen? Maybe regulation will prevent self driving cars becoming ubiquitous? or maybe some advance in manufacturing makes it much cheaper to own self driving cars. But speculation that Uber pulls this off is the only way that I can see how Uber is worth over $60Bn (more than ford $50Bn ish, GM $50Bn ish, Nissian $45Bn ish) while making a $0.8Bn loss on $1.7Bn revenue - as a gamble for what might end up owning a $400Bn+ market.
- torpfactory 10y ago
  It seems like self driving cars would reduce the importance of the network effect and make the barrier to entry a capital one (cost of the fleet). I'd like to see how much utilization the drivers in a typical market are getting. In order for the self-driving fleet-ownership model of future-uber to work, I think the vehicle utilization would need to be relatively high to make it economically competitive with car owning. It also occurs to me that ride-hailing may not be a good substitute for those who use a car to commute. $70B starts to look awfully high if most people still need to own a car to get to work....
surfmike 10y ago
If Google and Tesla get self driving cars too, don't network effects suddenly disappear? The ebay analogy stops holding since the "sellers" (drivers) are a pool of self driving cars.
- xapata 10y ago
  > suddenly disappear No, they also need to spend an enormous amount on marketing.
onion2k 10y ago
The headline figure is net of driver costs. They had a revenue of $1.7b, and a loss of $800m, after paying their drivers. Doesn't that mean that if the cost of the drivers was $0 they'd still have made this loss?
majani 10y ago
self driving cars will bring Uber into the black, but it'll make competing with them so much easier, since signing up self-driving fleets will be way easier than signing up individual drivers.

msoad 10y ago

Yes, that's correct. The taxi business (now they called "ride sharing" for some reason!) is just like air travel. Price matters the most but brand and quality of service is important as well. It's a very low margin business and has a low barrier to entry. This makes Uber a risky investment in my opinion. Once Uber decides to make money, the real game will start. You'll see lots of competition and not much appetite for losing money like now. Driverless cars?! That's going to make barrier to entry even lower but it's science fiction for next decade anyways.

bogomipz 10y ago
>"Price matters the most but brand and quality of service is important as well." Many drivers drive for both Lyft and Uber so what exactly is that brand? The app? I don't see a lot of brand to be loyal to.
- xapata 10y ago
  Perhaps that differs by city. Some cities have more competition among rideshare apps than others.
- CamelCaseName 10y ago
  >Many drivers drive for both Lyft and Uber so what exactly is that brand? The app? I don't see a lot of brand to be loyal to. I believe this is incorrect. Many drivers stick to one because they get a guaranteed wage if they're online for 50 minutes per hour and pick up every call they get. As for customers, switching costs might be low, but unless there's a reason to switch, why would they?

Bombthecat 10y ago

You could say the same about chat app. One person downloads the app to chat. The other downloads to reply. And here we are. Still using WhatsApp:)

function_seven 10y ago
You really can’t. I can use any taxi company I want to get from A to B. I can’t use any chat app I want to talk to my cousin Alice or my brother Bob. I have to choose one that they’re already on. That’s the network effect. In transportation, all these taxi companies are using the same roads; the same network. I don’t have to make sure AcmeRideShare has permission at both the pickup and drop off points. And I can change my mind tomorrow and go with ABCRideShare if I have a coupon. I can’t just arbitrarily decide to use ICQ tomorrow to talk to my Facebook friends.
- xapata 10y ago
  In the chat app comparison, your cousin Alice is the driver. Saying that the roads are the network is like saying the internet is the network.
  - function_seven 10y ago
    But Alice is NOT the driver. Alice is whatever destination I want to get to. And any taxi company will be able to get me there. > Saying that the roads are the network is like saying the internet is the network. Fair enough.
    - xapata 10y ago
      Not every taxi company is willing to pick you up in a reasonable time frame and take you wherever you want to go. In many cities, on many occasions, I have had significant trouble hailing or calling for a cab. Further, I've often had them (illegally) refuse to take me to my desired destination. Uber and Lyft are wonderful, because the drivers show up and don't complain about where you're going.
10y ago

MarkMc 10y ago

There is most certainly a network effect. It's similar to eBay: Buyers and sellers can switch to another eBay clone, but they don't because there are no buyers or sellers on the clone. Similarly, nobody will download another app if it doesn't have any drivers, and drivers will not install another app if there are no riders.

surfmike 10y ago
Doesn't this analogy stop holding with self-driving cars?
- MarkMc 10y ago
  Yes, it probably does - good point! When that happens the Taxi market will probably be analogous to airlines: companies will have huge capital investments but will receive low returns on that investment because the service they are selling is essentially a commodity.
- adventured 10y ago
  Only if you assume Uber isn't going to get there first, with their billions in capital and other vast resources. Meanwhile you have to convince a VC firm or similar to give you an extremely large amount of capital, to build out your fleet, enable/create the self-driving car tech, hire the people to make it all work, market to customers / convince them to even try you, all the while Uber is racing forward. Uber's present advantages are providing the springboard to lead in the next evolution of that business. Similar conceptually to what Netflix managed in transitioning from physical to digital. The advantages of your present can provide for your continued dominance in the future if you're willing to eat your own business when necessary. In five to ten years when self-driving cabs are increasingly common, Uber will already have been there the entire time. You still have to steal their customers (a lot of marketing $$$), build out a huge infrastructure, have a large fleet of vehicles, convince someone to give you a lot of money, compete against a super famous brand (that has already achieved Kleenex type status), and be able to survive the blood-letting competition with a very entrenched and very rich company (see Amazon vs Diapers.com).
10y ago

xapata 10y ago

Compare this with the airline industry. What protects Delta from competition enough to allow profits? Not very much. In fact, airlines have historically struggled to show profit since deregulation. In the last few years they've finally had some profits, but a tiny amount in comparison to the decades of taking on debt. Still, the airlines keep going.

dsil 10y ago

Network effects are incredibly important for the service they're able to give. Where I live they have so many active drivers that I never have to wait more than 5 minutes if I request one sometime between ~8am-10pm. And that effect is even larger for things like Uberpool, where a smaller network means they may have to go way out of the way to find another rider going to a similar destination, making your ride take longer and the service worse. Network effect also extends to their other services, like Ubereats, where they can get you your food faster and more accurately-timed than their competitors, because of their larger network of drivers.