The network effect of ride-sharing is considerably weaker than that of a social network. A social network’s effect is O(n²), as that is the number of meaningful connections.
Ride-sharing networks are O(n). They benefit from liquidity, but I derive only secondary benefit from being “connected” to others on the platform. It's not nothing, but it feels linear, not superlinear.
Ride-sharing apps are just apps, and the barrier for adopting a new one is low, for both sides of the market. Further, Uber’s political operations benefit the other apps equally.
Uber can defend its brand and its satisfied users. Size helps here. Think iTunes. But the “network” is replicable by others.
Why Uber Keeps Raising Billions - yes, it's trying to build marketshare, and intimidate others from backing rivals.
But the reason isn't because ride-sharing is a network-effect heavy industry.
It's because logistics is an industry that is cheaper at scale.
The long game for Uber isn't ride sharing, it's logistics, and "people delivery" is only one (fairly minor) part. If Uber can pick up enough scale, then every time a delivery is picked up (in one of the driverless vans of course) it can also deliver multiple packages along the way. That's where scale is important, and why the capital is important.
Talk to an UberX driver: here anyway (in Australia) Uber is already sending them on optimized delivery paths when they do delivery.
"The ride-sharing industry has long been seen as a zero-sum game because of the “network effect”"
I am not sure how true this is, both drivers and riders will always follow the money, and there is not a lot you can do on the experience side that can't be replicated by competitors. This will never be a zero sum game at scale.
When Uber & Lyft moved out of Austin, drivers rallied to make a quick network. In India, drivers already have their closed networks, and many work for both Uber & it's competitor Ola, which just goes to show there is no driver lock-in.
They want a cash horde that will allow them to continue to invest and expand through the next business cycle.
I've suspected that Uber and AirBnB know they need a legal warchest.
I have a great dislike of Uber. They say they are "breaking the taxi monopoly" but they're literally just building a new one, and they're doing that by starving out the existing taxi services with the billions and billions of dollars they keep fundraising. It's fucking dirty.
I don't understand how this article is claiming that ride-sharing is a zero-sum game. It's not a search engine or social network that "network effect" or customer experience is the main motivation for customer to choose the service.
People will choose another provider if they offer the service for pennies less. Heck people switch to Bing search for a few pennies a week in "Bing rewards".
I'm sure Uber/Lyft competition in the United States is going to be like Coke/Pepsi competition. It's a low margin business and a lot of people can do it. Therefore there is no way you can have a "winner take it all" situation.
Seems like Uber has quite a bit of competition in the US market besides Lyft, namely: 1) Juno -- https://www.gojuno.com/ 2) Gett -- http://gett.com/nyc/ 3) Via -- http://ridewithvia.com/
Seem like all our starting out in NY, but it is just a matter of time before margins are squeezed to zero.
The article is quite superficial on many aspects: i) first, Uber is not in the sharing economy but in the on-demand: you don't share and monetize an asset (vs AirBnb), you offer a service activated by demand; ii) in my opinion, Uber keeps raising funds for multiple reasons and some of them are simply overlooked in the article: - from a global market point of view: money (especially in the form of debt) is historically cheap - from an investor point of view: investors are looking for proven business models as VC funding is slowing down - from an employee point of view: the multiple funding rounds maintain/increase the valuation, which preserves the stock-based incentive for employees (and we know that's a key reason why so many great programmers joined Uber) - from a competitor point of view: Uber opens the market and evangelizes (pays the legal cost, advertises in new markets, etc.) iii) it never really analyses the on-demand transport economics = is it a "winner takes all" market structure? The article keeps suggesting it is while it is clearly not
One important factor is the TEAM. They have one of the finest workforce. Extremely talented people driving the growth of the company.
It's easy to understand why they'd want this, and as for why people invest... hope, greed, the usual things.
The second there's a Tesla icon on my phone that summons a driverless car, goodbye Uber. Not sure how they're going to buy and maintain a fleet of cars below Musk's cost.
>> "Uber says it is profitable in North America, Europe, the Middle East, Africa and Australia — if you factor out taxes and interest payments."
There's a level of immaturity in the current definitions of profitability that the Valley is pushing. Being privately held ensures that no sensible accounting system will be anywhere near their books.