4 ms·

There are plenty of network effects. To start a new ridesharing company, you have to get drivers and riders. You'd have to offer them a ton of incentives to st

by a13n 8y ago

There are plenty of network effects. To start a new ridesharing company, you have to get drivers and riders. You'd have to offer them a ton of incentives to start driving/riding with your service, when the existing options are well established. For drivers, Lyft and Uber have incentives (lower fees) if you do the majority of rides with their service, which incentivizes you to only drive with one service. When's the last time you downloaded a new app on your phone? For me it's been weeks, maybe months. For so many people, it's easier to just not try your new rideshare service.

CPLX 8y ago
This is just not correct. To start a new ridesharing company all you have to do is attack and carve off the most profitable element of the big company's product mix. All you need is to undercut them in certain high profitability routes, like airport runs, or luxury vehicles for executives, or anything, and you have a toehold. There are some positive network effects, but there are also negative network effects. Having more users doesn't mean you always win as the big company. For example if you have no customers all you have to do is be outside of a stadium at the end of a show, or waiting by an airport during a busy landing period, and have rudimentary abilities to let people know you exist, and you'll get defectors.
- Jommi 8y ago
  Not sure why you're saying the op is not correct. Nothing you said discredits that. The reality is that both are true. There are multiple positive network effects at work, as it's evidenced by the growth of these companies. However the barrier to entry is super low, so competition can be quite high. Like you said, just by subsidizing rides/drivers you will start gaining some market share. In the end it's all gonna be about who has the most cash and whose efficiency is the highest. Yeah you could hire a promoter and give out flyers outside a venue, but if you check the data, the ROI is abysmal.
- aeternus 8y ago
  Without a large network, the time for a car to arrive is high and unpredictable. This is bad for customers.
  - CPLX 8y ago
    Not necessarily. It's pretty easy to have a network that's not very big that always has someone at the airport, or always is available for trips that stay within a specific neighborhood, or can always be arranged with a little more advance notice, or whatever. And the relevant part of pointing this out is that as long as that's true, which is forever, then these large companies will never be able to extract monopoly pricing. As soon as they start gouging customers people will immediately flood in to siphon off the lowest hanging fruit or easiest segments of their customer base. That dynamic will never go away, it's not at all clear what the point of all this buying of market share is, given that it will never be truly defendable.
    - ghaff 8y ago
      Yes. You can overprovision in a constrained area and you can also let people schedule ahead of time. That's pretty much every black car service which often are not very big companies. But they tend to be relatively expensive. (Which is fine for some uses; I use one to travel to and from the airport.)
psgibbs 8y ago
I'd make the argument that because there are low costs of switching (as has been mentioned elsewhere), these are scale effects (like in most industries), rather than network effects.
cartsagis 8y ago
The future of ridesharing is uber pool/lyft line in order to increase efficiency. The network effect is huge.
- CPLX 8y ago
  Have you ever, like, actually used the shared ride options? It can be handy when you're not in a hurry, but as long as people are involved, and they aren't always where they say they are going to be, there's a pretty hard upper limit to how efficient things can get.
  - nine_k 8y ago
    A shared car is great when you have little money, few other options of transportation, and the route allows to share it with other people. I did it a few times. But usually when I need a ride, it's because I'm in a hurry, and paying $5 more is no object. Else mass transit suffices. This only works in urban areas, but it's where the most profitable ride-hailing markets seem to be anyway.
gnopgnip 8y ago
From an economic standpoint if the winner is substantially more effective, the cost of producing the product is high, and the marginal costs of servicing additional users are small the system will end up as winner takes all. This is common in the software, sports and entertainment industries. Because service like Lyft depends on more than just the software to provide the end service so the product is not substantially better. For the most part the drivers are also working for the competition, the time to get to the destination, and the overall cost will be similar. At some level the network effect is part of both the barrier to entry, and the quality/value of the product but it is not clear if this is enough to end up on top of a winner take all market.
diminoten 8y ago
Remember that you're almost certainly not a trendsetter or first customer. You are never the person a startup goes after first. There's a whole group of people who behave very differently from you who do download new apps on their phones all the time. There are entire chapters dedicated to talking about each group of adopters, and you saying that no one is in the "early adopters" group is simply not true.

by a13n 8y ago

CPLX 8y ago

This is just not correct. To start a new ridesharing company all you have to do is attack and carve off the most profitable element of the big company's product mix. All you need is to undercut them in certain high profitability routes, like airport runs, or luxury vehicles for executives, or anything, and you have a toehold. There are some positive network effects, but there are also negative network effects. Having more users doesn't mean you always win as the big company. For example if you have no customers all you have to do is be outside of a stadium at the end of a show, or waiting by an airport during a busy landing period, and have rudimentary abilities to let people know you exist, and you'll get defectors.

Jommi 8y ago
Not sure why you're saying the op is not correct. Nothing you said discredits that. The reality is that both are true. There are multiple positive network effects at work, as it's evidenced by the growth of these companies. However the barrier to entry is super low, so competition can be quite high. Like you said, just by subsidizing rides/drivers you will start gaining some market share. In the end it's all gonna be about who has the most cash and whose efficiency is the highest. Yeah you could hire a promoter and give out flyers outside a venue, but if you check the data, the ROI is abysmal.
aeternus 8y ago
Without a large network, the time for a car to arrive is high and unpredictable. This is bad for customers.
- CPLX 8y ago
  Not necessarily. It's pretty easy to have a network that's not very big that always has someone at the airport, or always is available for trips that stay within a specific neighborhood, or can always be arranged with a little more advance notice, or whatever. And the relevant part of pointing this out is that as long as that's true, which is forever, then these large companies will never be able to extract monopoly pricing. As soon as they start gouging customers people will immediately flood in to siphon off the lowest hanging fruit or easiest segments of their customer base. That dynamic will never go away, it's not at all clear what the point of all this buying of market share is, given that it will never be truly defendable.
  - ghaff 8y ago
    Yes. You can overprovision in a constrained area and you can also let people schedule ahead of time. That's pretty much every black car service which often are not very big companies. But they tend to be relatively expensive. (Which is fine for some uses; I use one to travel to and from the airport.)

psgibbs 8y ago

I'd make the argument that because there are low costs of switching (as has been mentioned elsewhere), these are scale effects (like in most industries), rather than network effects.

cartsagis 8y ago

The future of ridesharing is uber pool/lyft line in order to increase efficiency. The network effect is huge.

CPLX 8y ago
Have you ever, like, actually used the shared ride options? It can be handy when you're not in a hurry, but as long as people are involved, and they aren't always where they say they are going to be, there's a pretty hard upper limit to how efficient things can get.
- nine_k 8y ago
  A shared car is great when you have little money, few other options of transportation, and the route allows to share it with other people. I did it a few times. But usually when I need a ride, it's because I'm in a hurry, and paying $5 more is no object. Else mass transit suffices. This only works in urban areas, but it's where the most profitable ride-hailing markets seem to be anyway.

gnopgnip 8y ago

From an economic standpoint if the winner is substantially more effective, the cost of producing the product is high, and the marginal costs of servicing additional users are small the system will end up as winner takes all. This is common in the software, sports and entertainment industries. Because service like Lyft depends on more than just the software to provide the end service so the product is not substantially better. For the most part the drivers are also working for the competition, the time to get to the destination, and the overall cost will be similar. At some level the network effect is part of both the barrier to entry, and the quality/value of the product but it is not clear if this is enough to end up on top of a winner take all market.

diminoten 8y ago

Remember that you're almost certainly not a trendsetter or first customer. You are never the person a startup goes after first. There's a whole group of people who behave very differently from you who do download new apps on their phones all the time. There are entire chapters dedicated to talking about each group of adopters, and you saying that no one is in the "early adopters" group is simply not true.