> All the regulation in the taxi industry was driven by the players wanting to control the cut-throat competition that existed before regulation.
The difference is that traditional taxis had no monopoly power. They were (and are) undifferentiated commodities—I don't even have any idea who owns a cab I'm in.
Uber's network is a substantial moat which protects it from undifferentiated price competition.
Again, how do you propose that a competitor would build a viably competitive network in an Uber city?
>Again, how do you propose that a competitor would build a viably competitive network in an Uber city?
I would pick mid-size markets and optimise for unit costs. I would settle on a single fuel efficient car model (or two) and then work on making my capital and servicing costs as low as possible. I would use trained and experienced employees and implement tracking technology to ensure that the drivers are polite, prompt, efficiently located, and don’t drive the vehicles like taxi drivers do (helping keep wear costs down). I would then bombard the local media market to achieve name recognition and app take up and then run a price war to gain market domination. Since I had optimised for unit cost I should be able to defend this domination against new entrants as long as I kept my pricing at just above my costs. I would make little profit, but my market would be defendable. Rinse and repeat in each new markets.
I don’t think such a business is worth the effort, but all it take is one person who does.
I don't think that's a viable strategy. If it were, Lyft would be successfully deploying it.
Namely, I see 3 primary flaws:
1. A marginally lower price is not by itself enough to achieve market penetration. If it takes 5-10 minutes longer to get a ride on your platform (due to fewer drivers), I'm not going to use it—even if you are 20% cheaper (wiping out Uber's entire margin).
2. You're ignoring the pooling savings which come from being able to easily coordinate shared rides due to a huge installed rider base.
3. Uber can spend you into the ground. They have a massive war chest and continued huge revenue from their mature markets—enough to undercut you until you run out of oxygen.
The biggest flaw of these 3 is that I just don't think price alone is sufficient to overcome network effects. If it were, the $100+ vouchers which I see also-ran competitors giving out would have made a dent in Uber's market share.
Competing against Uber in even a single city would require hundreds of millions in capital to basically buy your entire network overnight, and once you succeed in that market you'll enjoy less profitability than Uber does today.
There's a reason that crappy marketplaces like Ebay and Craigslist are incredibly sticky—networks are overwhelming.
A monopolist doesn't have to make its moat unbreachable, it just needs to be insufficiently profitable to overcome.
The only possible risk I see to Uber is from corrupt politicians.
I can see a competitor using the fast food model to effectively compete with Uber.
By having a large enough number of clean, reliable and uniform cars a competitor would provide a more consistent and predictable ride than Uber, which relies on its drivers subsidizing the cost of a variety of different vehicles.
Sure, you would be getting a McTaxi instead of an a la carte experience, but at least you would know what you order is what you get.
You raise a very good point. When it comes to a service like Uber most people just want a McTaxi experience; they want to get to where they want to go efficiently in a safe and friendly manner. They are not looking for more than this.
The reason McDonalds is successful is not because they produce great food, but because they meet a minimum standard in consistent way. The way Uber currently works make this hard to deliver.
Namely, I see 3 primary flaws:
1. A marginally lower price is not by itself enough to achieve market penetration. If it takes 5-10 minutes longer to get a ride on your platform (due to fewer drivers), I'm not going to use it—even if you are 20% cheaper (wiping out Uber's entire margin).
I think you have assumed that I would not have as many drivers on the road as Uber. I would have as many or more - hence the need to go after mid-size markets to begin with. The time for the driver to turn up with my service would be the same or better than Uber.
2. You're ignoring the pooling savings which come from being able to easily coordinate shared rides due to a huge installed rider base.
I am not ignoring it. If there is demand for this service and I have as many cars on the road as Uber then I can offer the same pool service. I will still have the same unit cost advantage.
3. Uber can spend you into the ground. They have a massive war chest and continued huge revenue from their mature markets—enough to undercut you until you run out of oxygen.
The biggest flaw of these 3 is that I just don't think price alone is sufficient to overcome network effects. If it were, the $100+ vouchers which I see also-ran competitors giving out would have made a dent in Uber's market share.
If you limit the size of the markets you go after then there is a limit to what even Uber can spend trying to kill you. You just need to be able sustain any loss over the length of time that you think Uber can fight you for. The key to success here is have enough resources to survive the level of damage anyone can throw at you. Personally I would hold off until Uber just goes public when they can’t afford to waste as much money anymore.
More fundamentally the reason none of Uber’s competitors like Lyft (or even Uber itself) has pursued this model is that you can’t sustain it at the capital cost that VCs demand. It is a model which will only be pursued by businesses with a low cost of capital in much the same way the container shipping industry is run. The problem for Uber long term is once a business enters with this model they will be hard to fight.
I have to say these discussions are lots of fun :)
The difference is that traditional taxis had no monopoly power. They were (and are) undifferentiated commodities—I don't even have any idea who owns a cab I'm in.
Uber's network is a substantial moat which protects it from undifferentiated price competition.
Again, how do you propose that a competitor would build a viably competitive network in an Uber city?