4 ms·

This just shows that there is not much margin in this industry. They are essentially buying market share. However, as soon as Uber try to squeeze out some profi

This just shows that there is not much margin in this industry. They are essentially buying market share. However, as soon as Uber try to squeeze out some profit, they'll be undercut by the competitors.

omarchowdhury 11y ago
Competitors lowering their pricing is not going to magically cause an exodus of customers who are attached to using Uber. Price change would be gradual, if done correctly, imperceptible. Plus, those competitors are being squeezed right now, who knows if they will be around once Uber decides to raise pricing to move towards profit. As they say on Wall Street, the market can stay irrational longer than you can stay solvent. No doubt this saying is apt for this present circumstance, especially since Wall Street is involved. Uber is in the service industry, and winning in the service is not always on price.
- erispoe 11y ago
  Customer attachement is still a largely unproven hypothesis. How many people in San Francisco have both Lyft and Uber? The cost, as a consumer, to use indifferently one or the other is null. The really hard challenge for Uber is: not becoming a commodity. I have no doubt they can crush incumbent taxi companies. How Uber will avoid being swallowed by the competitive beast they created is another, and harder, challenge.
- onion2k 11y ago
  Let's assume their strategy works and they win an effective monopoly. What's stopping a "new Uber" coming along, funded by a couple of billion in VC money, to attack Uber's monopoly position by offering the same service cheaper. If winning a market can be done by subsidising your offering with VC cash then someone else will come along and do it as soon as Uber push for higher prices. While there's huge amounts of private equity money available Uber will never be able to raise prices, especially considering there are plenty of investors around who are unhappy about missing Uber's first few rounds.
  - pbreit 11y ago
    Reality is the opposite. Uber is building a commanding, monopoly-like position whereby it can raise and lower prices as necessary. Not only does winning a market require way more than subsidies but Uber is also in the best position to subsidize.
crdoconnor 11y ago
It shows that they're fighting very hard to become the monopoly player because they know that the lock in from the network effects of the taxi market are worth way more than $500 million.
- boomzilla 11y ago
  There is no network effect. As soon as you pay the drivers more, and charge the riders less, they will install your app. What keeps drivers and riders from checking both Uber and SuperDuperUber apps at the same time to make/save some extra money?
  - crdoconnor 11y ago
    Networks that have a larger customer and driver base can link them up quicker. That means that, at no extra cost to the network, the customer will end up waiting 2 minutes for a cab instead of 40, and the driver will end up waiting 2 minutes for a fare instead of 40. Would you pay extra for those 38 minutes as a customer? I would. Would you accept a lower commission as a driver if you spend less time waiting for fares? I would. As soon as the competitor tries to muscle in, the dominant player can maintain that advantage while dropping their costs and still remain profitable. They can undercut the new player until they go out of business. Realistically speaking, the new players will recognize this built in advantage and will not challenge the monopoly at all unless their pockets are very, very, very deep and they are prepared for a protracted period of heavy losses. Uber is still fighting to gain that monopoly advantage, but it looks like their investors are willing to sustain heavy losses for a long time to get there. Once they do have it, it will become self-sustaining. The more powerful their monopoly power is, the less likely it will be challenged, so the more powerful it will become. At that point they can start milking their customers and drivers and then earn some truly ridiculous profits. Part of the monopoly advantage means that they can covertly punish drivers who choose to use competitors' apps by sending them fewer rides. If it's not already here, this tactic is probably coming very soon.
    - quonn 11y ago
      > Part of the monopoly advantage means that they can covertly punish drivers who choose to use competitors' apps by sending them fewer rides. If it's not already here, this tactic is probably coming very soon. If they try this as a monopoly, the Department of Justice will probably start investigating.
pbreit 11y ago
I would say the opposite. I suspect they could clamp way down on spending and "only" grow 200% per year instead of 300%.
omouse 11y ago
That's because Uber is an infrastructure project that just happens to be VC-funded instead of taxpayer-funded. Uber is targeting the taxi industry and delivery services. Their competitors like Lyft have too small a vision. Lyft doesn't want to replace taxis with self-driving, they're focusing on making the standard taxi ride experience nicer than usual. Uber has a service for delivering food, their competitors are courier services who do food delivery, in-house delivery drivers, and apps that let you pre-pay for takeout. Uber's vision is bigger than just delivery of food, it's for delivery of damn near anything. This is why Jeff Bezos invested in Uber; Amazon is looking at using drones for delivery but why do that when you have a stable of drivers (and self-driving cars in the future) that can do deliveries? Basically; Uber's competitors are still focusing on their little niches and not willing to be the infrastructure for getting person/object A to place B.

omarchowdhury 11y ago

Competitors lowering their pricing is not going to magically cause an exodus of customers who are attached to using Uber. Price change would be gradual, if done correctly, imperceptible. Plus, those competitors are being squeezed right now, who knows if they will be around once Uber decides to raise pricing to move towards profit. As they say on Wall Street, the market can stay irrational longer than you can stay solvent. No doubt this saying is apt for this present circumstance, especially since Wall Street is involved. Uber is in the service industry, and winning in the service is not always on price.

erispoe 11y ago
Customer attachement is still a largely unproven hypothesis. How many people in San Francisco have both Lyft and Uber? The cost, as a consumer, to use indifferently one or the other is null. The really hard challenge for Uber is: not becoming a commodity. I have no doubt they can crush incumbent taxi companies. How Uber will avoid being swallowed by the competitive beast they created is another, and harder, challenge.
onion2k 11y ago
Let's assume their strategy works and they win an effective monopoly. What's stopping a "new Uber" coming along, funded by a couple of billion in VC money, to attack Uber's monopoly position by offering the same service cheaper. If winning a market can be done by subsidising your offering with VC cash then someone else will come along and do it as soon as Uber push for higher prices. While there's huge amounts of private equity money available Uber will never be able to raise prices, especially considering there are plenty of investors around who are unhappy about missing Uber's first few rounds.
- pbreit 11y ago
  Reality is the opposite. Uber is building a commanding, monopoly-like position whereby it can raise and lower prices as necessary. Not only does winning a market require way more than subsidies but Uber is also in the best position to subsidize.

crdoconnor 11y ago

It shows that they're fighting very hard to become the monopoly player because they know that the lock in from the network effects of the taxi market are worth way more than $500 million.

boomzilla 11y ago
There is no network effect. As soon as you pay the drivers more, and charge the riders less, they will install your app. What keeps drivers and riders from checking both Uber and SuperDuperUber apps at the same time to make/save some extra money?
- crdoconnor 11y ago
  Networks that have a larger customer and driver base can link them up quicker. That means that, at no extra cost to the network, the customer will end up waiting 2 minutes for a cab instead of 40, and the driver will end up waiting 2 minutes for a fare instead of 40. Would you pay extra for those 38 minutes as a customer? I would. Would you accept a lower commission as a driver if you spend less time waiting for fares? I would. As soon as the competitor tries to muscle in, the dominant player can maintain that advantage while dropping their costs and still remain profitable. They can undercut the new player until they go out of business. Realistically speaking, the new players will recognize this built in advantage and will not challenge the monopoly at all unless their pockets are very, very, very deep and they are prepared for a protracted period of heavy losses. Uber is still fighting to gain that monopoly advantage, but it looks like their investors are willing to sustain heavy losses for a long time to get there. Once they do have it, it will become self-sustaining. The more powerful their monopoly power is, the less likely it will be challenged, so the more powerful it will become. At that point they can start milking their customers and drivers and then earn some truly ridiculous profits. Part of the monopoly advantage means that they can covertly punish drivers who choose to use competitors' apps by sending them fewer rides. If it's not already here, this tactic is probably coming very soon.
  - quonn 11y ago
    > Part of the monopoly advantage means that they can covertly punish drivers who choose to use competitors' apps by sending them fewer rides. If it's not already here, this tactic is probably coming very soon. If they try this as a monopoly, the Department of Justice will probably start investigating.

pbreit 11y ago

I would say the opposite. I suspect they could clamp way down on spending and "only" grow 200% per year instead of 300%.

omouse 11y ago

That's because Uber is an infrastructure project that just happens to be VC-funded instead of taxpayer-funded. Uber is targeting the taxi industry and delivery services. Their competitors like Lyft have too small a vision. Lyft doesn't want to replace taxis with self-driving, they're focusing on making the standard taxi ride experience nicer than usual. Uber has a service for delivering food, their competitors are courier services who do food delivery, in-house delivery drivers, and apps that let you pre-pay for takeout. Uber's vision is bigger than just delivery of food, it's for delivery of damn near anything. This is why Jeff Bezos invested in Uber; Amazon is looking at using drones for delivery but why do that when you have a stable of drivers (and self-driving cars in the future) that can do deliveries? Basically; Uber's competitors are still focusing on their little niches and not willing to be the infrastructure for getting person/object A to place B.