5 ms·

It's wise for a company in an industry with strong network effects to purposely give up first mover advantage?

matthewmacleod 10y ago
That's interesting - these are companies that I would consider to have minimal network effect. There isn't much of a barrier to both drivers and users installing and using both services. It seems like a pretty workable idea to let Uner take the first-mover regulatory risk then follow them into the market and clean up.
- JumpCrisscross 10y ago
  > these are companies that I would consider to have minimal network effect Gett raised $100 million [1], designed a decent app and put up a bunch of billboards all over Manhattan. I tried to use it for over a month. The drivers were friendly, the cars were wonderful and the rates were great. But the waits were like 20 minutes. Haven't used it since. [1] https://www.bloomberg.com/news/articles/2016-11-30/uber-rival-gett-receives-100-million-from-russia-s-biggest-bank https://www.bloomberg.com/news/articles/2016-11-30/uber-riva...
  - k-mcgrady 10y ago
    Sounds like a bad launch (lots of marketing - leading to lots of users - when you don't have the drivers to handle it) and pretty easy problem to solve.
- deleted 10y ago
  [deleted]
aetherson 10y ago
Ride-sharing no more has strong network effects than Doritos do. Which is to say: Is it an advantage for Doritos that they have tons of brand recognition and a large customer base? Sure! They get economies of scale, and it is easy for them to convince retailers to carry their product. In turn, their customers know that they can get Doritos anywhere, and that's an advantage for their customers. But no reasonable person would regard Doritos as a network-effect business. Passengers for Uber do not make the service better for other passengers. In fact, they make it worse, by driving surge multipliers. If another business provides a rival service to Uber, passengers experience no negatives for switching, the way they do to a brand new social network, where their friends aren't. The existence of Uber's brand, and the demand that Uber experiences, is of course an advantage for Uber. Obviously, it is a good thing for Uber that they have passengers, and can sell their services. But that's not a network effect -- it's just a regular old "advantage of being big and having a brand."
- tuna-piano 10y ago
  I'm going to have to disagree. 1. Drivers want to have passengers close by for pickup. Passengers want to have drivers close by for pickup. The more drivers, the quicker passengers will get picked up, the more passengers will use the service, and the more drivers will use the service. 2. In addition, UberPool/Lift Line have obvious and strong network effects. Sharing a ride is only possible with a large number of users. The more rides that can be shared, the cheaper the rides can be. In both these ways, additional passengers do add value to other passengers. These services are really just curated marketplaces of drivers and passengers. Uber has its driver/passenger marketplace, Lyft has its marketplace. It's tough to replicate the power of these marketplaces, just as its tough to replicate the marketplace power of Craigslist or eBay. You need a substantial amount of both buyers and sellers for the service to be worth anything. If Doritos was not yet in Canada, they could provide value immediately by selling Doritos in one 7/11 shop, no problem. For Uber to expand to Canada, they would need a minimum number of drivers and passengers in a given geographic area.
  - aetherson 10y ago
    1. Chip-sellers want to have chip-eaters to purchase from them. Chip-eaters want to have chips of known characteristics readily available to purchase. The more chip-sellers of Doritos, the easier it is for chip-eaters to reliably get Doritos, and the more chip-eaters will become Doritos customers, which in turn incents more chip-sellers to carry Doritos. And, I mean, that's true. It really is an advantage. But it is again, obviously absurd to describe Doritos as having a network effect. A network effect means a scale advantage over-and-above the effect that is enjoyed by everyone with a big brand and built in demand. 2. Uber Pool and Lyft Line have a genuine network effect, that's true. But as far as I can tell, they're just not compelling products.
  - rbranson 10y ago
    I think you're confusing economies of scale with network effects. For example, a hotel chain is more valuable if it has a global presence because it can leverage that to create customer loyalty. That is not a network effect. To the consumer, it does not matter how many people use those hotels. They could be completely empty for all they care, they just want a room for a competitive rate. More efficiency through higher utilization (more passengers lowers the cost of pooled rides) is a classic example of economy of scale. There are counter-examples to your "Uber expand to Canada" argument. For instance, a mobile provider is not going to be very successful in a market until they have coverage across the area of that market. Nobody would say that a mobile provider has a network effect because they have invested in build-out.
Apocryphon 10y ago
Depends if the local network is even feasible for a Silicon Valley company to enter.

That's interesting - these are companies that I would consider to have minimal network effect. There isn't much of a barrier to both drivers and users installing and using both services. It seems like a pretty workable idea to let Uner take the first-mover regulatory risk then follow them into the market and clean up.

JumpCrisscross 10y ago
> these are companies that I would consider to have minimal network effect Gett raised $100 million [1], designed a decent app and put up a bunch of billboards all over Manhattan. I tried to use it for over a month. The drivers were friendly, the cars were wonderful and the rates were great. But the waits were like 20 minutes. Haven't used it since. [1] https://www.bloomberg.com/news/articles/2016-11-30/uber-rival-gett-receives-100-million-from-russia-s-biggest-bank https://www.bloomberg.com/news/articles/2016-11-30/uber-riva...
- k-mcgrady 10y ago
  Sounds like a bad launch (lots of marketing - leading to lots of users - when you don't have the drivers to handle it) and pretty easy problem to solve.
deleted 10y ago
[deleted]

aetherson 10y ago

Ride-sharing no more has strong network effects than Doritos do. Which is to say: Is it an advantage for Doritos that they have tons of brand recognition and a large customer base? Sure! They get economies of scale, and it is easy for them to convince retailers to carry their product. In turn, their customers know that they can get Doritos anywhere, and that's an advantage for their customers. But no reasonable person would regard Doritos as a network-effect business. Passengers for Uber do not make the service better for other passengers. In fact, they make it worse, by driving surge multipliers. If another business provides a rival service to Uber, passengers experience no negatives for switching, the way they do to a brand new social network, where their friends aren't. The existence of Uber's brand, and the demand that Uber experiences, is of course an advantage for Uber. Obviously, it is a good thing for Uber that they have passengers, and can sell their services. But that's not a network effect -- it's just a regular old "advantage of being big and having a brand."

tuna-piano 10y ago
I'm going to have to disagree. 1. Drivers want to have passengers close by for pickup. Passengers want to have drivers close by for pickup. The more drivers, the quicker passengers will get picked up, the more passengers will use the service, and the more drivers will use the service. 2. In addition, UberPool/Lift Line have obvious and strong network effects. Sharing a ride is only possible with a large number of users. The more rides that can be shared, the cheaper the rides can be. In both these ways, additional passengers do add value to other passengers. These services are really just curated marketplaces of drivers and passengers. Uber has its driver/passenger marketplace, Lyft has its marketplace. It's tough to replicate the power of these marketplaces, just as its tough to replicate the marketplace power of Craigslist or eBay. You need a substantial amount of both buyers and sellers for the service to be worth anything. If Doritos was not yet in Canada, they could provide value immediately by selling Doritos in one 7/11 shop, no problem. For Uber to expand to Canada, they would need a minimum number of drivers and passengers in a given geographic area.
- aetherson 10y ago
  1. Chip-sellers want to have chip-eaters to purchase from them. Chip-eaters want to have chips of known characteristics readily available to purchase. The more chip-sellers of Doritos, the easier it is for chip-eaters to reliably get Doritos, and the more chip-eaters will become Doritos customers, which in turn incents more chip-sellers to carry Doritos. And, I mean, that's true. It really is an advantage. But it is again, obviously absurd to describe Doritos as having a network effect. A network effect means a scale advantage over-and-above the effect that is enjoyed by everyone with a big brand and built in demand. 2. Uber Pool and Lyft Line have a genuine network effect, that's true. But as far as I can tell, they're just not compelling products.
- rbranson 10y ago
  I think you're confusing economies of scale with network effects. For example, a hotel chain is more valuable if it has a global presence because it can leverage that to create customer loyalty. That is not a network effect. To the consumer, it does not matter how many people use those hotels. They could be completely empty for all they care, they just want a room for a competitive rate. More efficiency through higher utilization (more passengers lowers the cost of pooled rides) is a classic example of economy of scale. There are counter-examples to your "Uber expand to Canada" argument. For instance, a mobile provider is not going to be very successful in a market until they have coverage across the area of that market. Nobody would say that a mobile provider has a network effect because they have invested in build-out.

Apocryphon 10y ago

Depends if the local network is even feasible for a Silicon Valley company to enter.