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Nope. Market share and pricing power in digital advertising comes from user base and targeting capability. As an advertiser, I can reach most of the population

by sfifs 7y ago

Nope. Market share and pricing power in digital advertising comes from user base and targeting capability. As an advertiser, I can reach most of the population in many country through FB/IG and YouTube. Their targeting data is also pretty good. So they claim a lion's share of the market. Also inventory expands as userbase expands and the userbase doesn't really have other options with similar network effects. Uber on the other hand has plenty of competition. Their total cost to user has to be competitive vs. not just taxis but possibly owning a car. There's only so much they can charge for a ride and they pay a ton of incentives to get drivers to drive for them in many markets. So the available space for profitability is constrained.

foobarian 7y ago
So basically advertising is less constrained on the upside than transportation. The whole bit about 'they have to pay their drivers' is a red herring - the real constraint is that the price the riders are willing to pay is more constrained / lower than what advertisers are per user.
- sfifs 7y ago
  That's part of it. The other part of it is that digital advertising business models turn out to be close to zero cost. There's very little "product cost" when you amortize tech cost over billions of ad impressions - the "cost" really comes from "reduction in addressable market" - ie. what portion of the audience will stop watching the platform due to ads. At least for Google and Facebook, the answer seems to be negligible proportion and in China at least, publishers are finding that many of such people are willing to pay for an ad free experience if you have killer content. Taxi service is a much more constrained business - you have to pay out product cost plus some incentive to generate supply but you have a strict price ceiling on scaled demand and a lot of competition. The answer for the previous generation of entrepreneurs in this space was to execute regulatory capture and institute a system of restricted supply to boost prices (ie. Medallions, permits etc). So it's going to be interesting to see how these businesses evolve.

by sfifs 7y ago

foobarian 7y ago

So basically advertising is less constrained on the upside than transportation. The whole bit about 'they have to pay their drivers' is a red herring - the real constraint is that the price the riders are willing to pay is more constrained / lower than what advertisers are per user.

sfifs 7y ago
That's part of it. The other part of it is that digital advertising business models turn out to be close to zero cost. There's very little "product cost" when you amortize tech cost over billions of ad impressions - the "cost" really comes from "reduction in addressable market" - ie. what portion of the audience will stop watching the platform due to ads. At least for Google and Facebook, the answer seems to be negligible proportion and in China at least, publishers are finding that many of such people are willing to pay for an ad free experience if you have killer content. Taxi service is a much more constrained business - you have to pay out product cost plus some incentive to generate supply but you have a strict price ceiling on scaled demand and a lot of competition. The answer for the previous generation of entrepreneurs in this space was to execute regulatory capture and institute a system of restricted supply to boost prices (ie. Medallions, permits etc). So it's going to be interesting to see how these businesses evolve.