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The really interesting story here is that if drivers are so willing to switch networks for better opportunities, there isn't a compelling reason for Uber to hav
by jefflinwood 12y ago
The really interesting story here is that if drivers are so willing to switch networks for better opportunities, there isn't a compelling reason for Uber to have the valuation that they do.
The value of Uber isn't really in the tech or the app - it's in the networks of riders and drivers in each city. If each of those can be aggregated into some other kind of service, where Uber, Lyft, etc. are just providers of payment processing, and possibly some operations expertise, that middleman network will capture all of the value.
- smacktoward 12y agoI'm not sure a middleman service is even really necessary. There's plenty of drivers right now driving for multiple services. The more services there are, the more competition there is for drivers' time, which means drivers have more leverage. One could read Uber's insistence on canning drivers who turn down too many rides as an attempt to reduce this leverage, since the only way drivers can exercise it is to turn down Uber rides in order to drive for somebody else. Requiring them to accept a certain volume of Uber rides effectively ties them to Uber.
- jkestner 12y ago> There's plenty of drivers right now driving for multiple services. The more services there are, the more competition there is for drivers' time, which means drivers have more leverage. We're gonna need an Uber for Ubers. But of course a middleman is necessary - who's going to match customers and available drivers? But if drivers have the leverage, it could resemble more of an agent relationship. Why haven't Uber/Lyft demanded exclusivity with drivers?
- smacktoward 12y agoThe services match customers and drivers; they just don't do so authoritatively. Instead, you have a sort of pseudo-auction going on for chunks of drivers' time. Each match from a service is essentially a bid. If there's only one bid, the driver takes it; if there's multiple bids, she chooses the one that best fits her circumstances and turns down the others. > Why haven't Uber/Lyft demanded exclusivity with drivers? That was my point above, it sounds like that is what Uber, at least, is trying to do. They want their drivers to be Uber drivers first and foremost, so they punish drivers who turn down too many Uber-proposed rides. Of course, if that's the relationship they want to have with their drivers, it sort of calls into question how "independent" those independent-contractor drivers really are. If Uber wants drivers to only drive for Uber, they could always just hire them as full-time employees. That would cost them money, though, so instead they prefer to keep their drivers as contractors and just force them to behave like employees instead.
- avalaunch 12y agoBest guess: Uber/Lyft can't demand exclusivity from their drivers without crossing a line clearly delineated by the IRS. Doing so would be considered an "inappropriate degree of control" and the drivers would no longer be considered independent contractors, but instead employees. Neither Uber nor Lyft would want that. Penalizing drivers that don't accept a high percentage of rides offered them is Uber's attempt to demand exclusivity without demanding it.
- dnautics 12y agoIt's state-by-state/region-by-region. IIRC, California specifically disallows non-compete clauses in general [citation needed]. Seattle outlaws driving for more than one service.
- toomuchtodo 12y agohttp://en.wikipedia.org/wiki/Non-compete_clause#California http://en.wikipedia.org/wiki/Non-compete_clause#California
- avalaunch 12y agoI'm pretty sure it's state-by-state as well as federal. That is, you need to follow both federal (IRS) rules and state rules to ensure your workers are independent contractors and not employees.
- rhino369 12y agoNon-moonlighting employment rules / provisions aren't the same legal issue as non-compete. Non-competes are for after the contract ends. It still might not be legal for a part time contractor, but it wouldn't be because of non-compete law.
- sheetjs 12y ago> if drivers are so willing to switch networks for better opportunities, there isn't a compelling reason for Uber to have the valuation that they do. There are two sides to the story: If customers are so enamored with Uber that they wouldn't consider Lyft or the other services, Uber will still be in control. EDIT TO CLARIFY: Did not mean to suggest that customers are indeed enamored with Uber. Only wanted to point out that driver promiscuity does not necessarily threaten Uber so long as customers flock to them.
- aetherson 12y agoThere is absolutely a large chunk of the rides-for-hire passenger population that is entirely mercenary in its affections. Some people are loyal Uber passengers or loyal Lyft passengers or whatever, but a lot of people are happy to go where the bargains are.
- dogecoinbase 12y agoThis, exactly. And more critically, because of the non-mediated nature of the interaction (that is, Uber is an absent middleman for the actual customer experience), drivers themselves can push passengers to other services. For example, a new arrival to the space could offer drivers a promotion for each new passenger-customer they recruit with a code. Driver is driving for Uber, hands passenger a card with the new service info and a $20-off code so they try it. No stickiness at all.
- deleted 12y ago[deleted]
- Aqueous 12y agoI think you're right that isn't out of loyalty that people use one or the other service. But it's de facto loyalty - also known as (extreme) laziness. Most people are using Lyft and Uber for the convenience. Thus if both are about the same level of convenience they will probably not shop around for a new app even if the competitor has a lower rate. They will go to the Lyft or the Uber app if it is already on their phone. More advanced users will probably have both - but that is a minority of users. So it's critical for one of these two apps to be the first installed on the phone.
- yumraj 12y agoThis. Basically while there are network effects in the sense that any provider (Uber, Lyft etc.) will need to have some critical mass before there are enough drivers and enough riders, both can subscribe to multiple providers and there is no long-term stickiness at the moment. In other words, this is not a winner take all market with FB/LinkedIn/Twitter type network stickiness and the overall market is still fair game. The driver's rating is the only sticky data, and it is unclear in this context as to how valuable that is as riders are not going to wait an extra 30mins to get a 5-star driver vs. a 4-star driver. This should not come as a surprise to anyone since right now most metros have multiple competing taxi service providers, so it makes sense that that may be replaced by a similar multiple mobile-app taxi providers. Also, it is difficult to re-paint your taxi when you move from one traditional provider to another, in the Uber/Lyft/etc. world, that is no longer required, so provider switching or aligning with multiple providers is trivial which will imply that in future the providers' margins will be squeezed out and riders and drivers will keep the most benefit.
- toomuchtodo 12y agoHow would you say self-driving vehicles fit into this? Supposedly they're rolling out in ~3-5 years, and with self-driving vehicles, you no longer need the middle man managing a fleet of contractors. EDIT: I'm willing to me a Long Bet [1] with anyone regarding fully autonomous self driving vehicles in regular use in 6 years. [1] http://longbets.org/ http://longbets.org/ ; http://longbets.org/rules/ http://longbets.org/rules/
- aetherson 12y agoSelf-driving vehicles are the final commoditization of the rides-for-hire business. Personally, I'd be very skeptical about the 3-5 year time frame, but clearly they're coming at some point. When they do, I can't see any rides-for-hire business having gross margins higher than 5% (though the size of the rides-for-hire market may well expand greatly). Barrier for entry is basically nonexistent.
- lxmorj 12y ago
- ThomPete 12y agoUber is going to be a logistics company. But I agree they are grossly overvalued.
- viscanti 12y agohttp://fortune.com/2014/09/11/uber-vs-lyft-the-credit-cards-dont-lie/ http://fortune.com/2014/09/11/uber-vs-lyft-the-credit-cards-... I don't know. The numbers appear to disagree. That just shows a sample of their growth in the US, but according to reports the bulk of their growth is internationally. They are likely orders of magnitude larger than their closest competition and growing rapidly. Real money is going through that system. If they can find a way to leverage that user base and become a full-on logistics company they're probably undervalued.
- potatolicious 12y agoThis is an oft-repeated meme but I don't see it ever substantiated. Disregarding the fact that the "driver in a car" model is never going to be the most efficient means of transporting things (as opposed to people), we're ignoring the fact that the "Uber for X" formula already has many players. Instacart, Seamless, GrubHub, Google Shopping Express, Postmates, every product category already has an "Uber". In fact every product category already has several "Ubers". Uber won't have a first-mover advantage in any of them, and a lot of them thrive on having logistics options that aren't "dude in a sedan/SUV", and have built substantial hard-to-clone infrastructure on that front. Uber has a lot of momentum, and a lot of hard-to-clone systems built around freelancer drivers, but IMO others are ahead in applying logistics to other things. This is like saying "Toyota can leverage their engineering expertise and totally own aerospace!" ... without acknowledging the existence of Boeing and Airbus.
- ThomPete 12y agoYou might be right but to me there is a big difference. Uber seems to be collecting much more interesting data accross greater distances than those you mention which I why I think about them as a logistics company. But again I think they are grossly overvalued and I think they will find themselves having to change to something else as competition will heat up and pushes prices down.
- supercanuck 12y agoIf these taxi cab drivers are "contractors" they should be able to just take on whatever business they want. Carry one phone for Uber and one phone for Lyft, and swap out the branding when representing one or the other.
- prawn 12y agoThere was a photo going around Twitter recently of a driver with five or so dash-mounted phones/devices doing more or less what you suggest.
- pinkyand 12y agoMaybe the networks now are quite weak. But in a future where a large percent of rides are shared by 3 passengers on average, or maybe even more via SUV(for cost savings of course), being the dominant provider is tied directly achieving optimal routes and average share ratios. In such a future , the network effects over riders is much stronger , and it's probably a "winner takes most" market.
- aetherson 12y agoThat's true, IF passengers are interested in sharing a ride with two other passengers (and if they're interested in trading cost savings for the delays involved in that). I kind of doubt that there will ever be a day when rides have an average of 3 passengers. Figure that if your base fare is $20, the first person you share with saves you $10 (or maybe $9 or something if you have to shore up the profits of the hailing app). Second person you share with saves you... $3. Third person saves you $2. The returns to the passengers for additional passengers falls off fast, and the costs to the passengers (in terms of time, of discomfort, etc.) are linear or even more than linear. So probably not three passengers. But two passengers is possible and would make for a real network effect... if ultimately there's enough demand for shared rides at all. There might be! Hard to say.
- pinkyand 12y agoI was refering to three passengers sharing. Versus two passengers sharing it's a cost decrease of 33%. Maybe over one time trip it doesn't matter much, but if you're doing it alot ,for many 33% of their total transportation budget starts to matter. But the end goal is to replace a large part of private transportation. And with car occupancy of 3 passenger and a drivers ,maybe cars start to get special road rights(as a tool to decrease traffic - it's part of some future roads in israel). At that point, with UBER running a large part of the traffic and being able to create optimal routes, together with special road right , the difference in delay might not be that big versus driving , and you don't need to drive. Yes, there are many if's here, as in all visions. but it might come to pass.
- nchuhoai 12y agoI think Uber realizes this, thus their strategy is to eliminate Lyft and any future competitors from entering the market as soon as possible. AFAIK, Lyft currently makes no money on its operations while Uber does (by virtue of their greater scale). I'm afraid of a world in which Lyft is forced to quite (as you only so long sustain on VC money), and Uber then abusing it's monopoly power. The difference to the existing cab market is the extraordinary scale and growth Uber posses. They can simply afford to undercut everyone's prices for the short term with their billion of dollars in VC money.
- anigbrowl 12y agoProbably so. Reading up on Homejoy for another thread, and wondering about their valuation, I noticed that after getting $38m in series A funding 8 months ago they have used some of it to buy out a competitor: http://getmaid.com/ http://getmaid.com/
- cordite 12y agoThis reminds me of the concept of cities renting out internet infrastructure to providers.
- mayneack 12y agoI recently was in a Lyft where the driver was also an Uber driver. I don't know how rapidly he switched contexts (ride to ride, day to day, or something like surges). Does either company do anything to prevent this?
- dpiers 12y agoNo, if they did, they would not be able to claim that drivers are contractors. People driving on Lyft/Uber are allowed to perform trips at will, and can go on/offline as they please. Something that would cause problems is if a driver was simultaneously accepting requests on one service while performing trips on another. I've had this happen as a user, and you just see the driver going the opposite direction for ten minutes while claiming to be 'on the way'. Another problem might be cancellation rates; if a driver were online in multiple apps and got simultaneous requests, they would have to accept one and cancel the other. Acceptance rates are part of a driver's performance records on Lyft/Uber/etc. and declining lots of rides could get a driver's account deactivated.
- wpietri 12y agoYes. I think a good comparison is airlines. They generate enormous value, but because there's a lot of competition, they don't generate much in the way of profits. Another useful analogy is real estate: because it's so easy to become a real estate agent (you need business cards, people skills, and modest arithmetic skills), it's a relatively hard business to me in. I wouldn't buy into Uber right now.
- stcredzero 12y agoThe value of Uber isn't really in the tech or the app - it's in the networks of riders and drivers in each city. One thing to keep in mind, is that a "spontaneous pick-up of a new rider" workflow is very similar to a "switch rider to a new network" workflow. If the apps are designed to be rapidly downloaded over cellular/LTE then this could often be accomplished in the space of a single ride, facilitated by coinciding GPS information.
- Spooky23 12y agoIMO, it's a great example of what happens when you dress up fundamental disrespect for the law and society at large as creative disruption.
- stackcollision 12y agoThank you for saying this, it's exactly what I've been thinking since the start.