This article is built on the premise that Uber "won," but fails to define winning or back up this premise with facts.
Does winning mean beating its competitors? In San Francisco, at least, this doesn't seem clear at all. Most people I meet -- both drivers and passengers -- prefer Lyft to Uber because they claim it has better technology, a better brand image, better treatment of employees (correction: drivers), and fewer instances of creepy and offensive behavior from its top management.
Does winning mean expanding faster than its competitors? This rests on the VC assertion that Uber is playing in a winner-take-all space. The fact that they can't starve out the competition on their home turf challenges this assertion. Unless they can put up artificial barriers once they enter new markets, they might just be clearing the way for their competition.
Or does winning mean transforming from a VC-fueled startup to a self-reliant profitable company? Once again, no facts in the article, but they did recently claim they'll be profitable in the U.S. in Q2 2016 (although losing $1B/year in China) [1]. But unless they can differentiate in terms of price or service (which, my experience, they've failed at), this isn't necessarily a sustained win.
Uber has actually created the market for new competition to enter. Since they can't stop their drivers from driving for a new competitor, all any new competitor needs to enter the market is an app and a lower price / bigger split with the drivers. Given any new competitor will not be carrying the capital costs of building the network in the first place they will be able to outcompete uber. The eventual winner is going to be the consumer as the market becomes a profitless commodity service.
I have to say that I am surprised that uber didn't use the driver lawsuits to lock up their network. If the drivers were employees then they could have prevented them from driving for other services.
> If the drivers were employees then they could have prevented them from driving for other services.
This. I feel like this doesn't come up often enough in discussions about whether drivers should be considered employees or not. A lot of people seem to think that making drivers employees would be better for the drivers and have no effect on passengers. But as soon as drivers become employees it's game over for Lyft or any future competitor, and Uber's monopoly will let them push driver comp as low as possible. As long as Uber and other companies have to work to attract drivers and passengers they'll take a lower cut for themselves.
Surely Uber's reason to exist is to be ready to take over as soon as robocars are good enough. In a world where taxis are cheaper than owning a car, the winner is the one with the software and userbase that can organise the most journeys efficiently, offering discounts to merge rides, running buses and trains when enough people want to go from the same A to the same B
This explanation presupposes that running a ride share business is a good entry point for running a robocar business. On the face of it the requirements for running these two business appear to not have much in common.
It certainly seems unusual from my perspective to create a network that others can use at no cost to compete against you. The drivers’s lawsuits could have been a great opportunity to negotiate employment contracts with excellent terms for Uber. There must be more to this than I can see, but it does look strange.
The reason they weren't made employees is pretty simple: there'd be a bunch of payroll taxes to pay. Either the already meager driver split would need to go down even more, or they'll have to raise prices that users have to pay...
Knowing Uber, they'd probably push down employee wages and then run into minimum wage issues...
I think that's true for the most part, though I bet a lot of people under-report.
But there are things like health insurance which Uber would have to provide (and in the contractor case, are instead subsidised through Obamacare provisions) that I think would end up with take home being less...
Obamacare mandates access to insurance (from a dwindling group of participating insurers), it is not a direct subsidy.
In fact, Obamacare has raised insurance rates for most people, as insurers cancelled most plans because they "were not compatible" with Obamacare, and re-enrolled members at higher rates than before.
It would have to be risky as a driver to under-report as they would be one pull of Uber's data away from an audit by the IRS.
Health insurance might be more of a problem, but this is really only a US issue.
I am wondering if a franchise model (say like McDonald's) might get you to a model where you have the benefits of employees, but without all the associated issues.
It doesn't even require a pull of Uber's data. Unless the driver is making less than $600/yr from Uber, Uber is required to file a 1099-MISC with the IRS for that driver.
Given competitors are experiencing lower and lower friction entering the market, the desire to "compete" isn't limited in normal rates. The amount of competition will increase and drive (and break) economies at scale. Bubbles bursting. Markets collapsing. Faster and faster because the compute and network are lowing capital costs to enter market. Think candle vs. LED cost/light output. This is why we must rethink how we build infrastructure software.
I believe that Ubers ultimate goal is to become a logistics company. They want to move people around. They also want to be the last mile on delivering that express Amazon package to your door, or getting your food order to your house (they're already experimenting with that), and just generally being the company responsible for transporting everything around a city.
From the perspective of managing their drivers, they're not to worried about other folks taking "their" drivers as ultimately they're going to have FAR more work for drivers to do than companies merely in the cab business. As a driver you're going to rely on Uber because the quantity of the work will be so much higher on their network.
That's the long game for them and I suspect that's how they see things right now.
* note: I'm 100% speculating here, I have no real special insight into what they're up to.
> This rests on the VC assertion that Uber is playing a winner-take-all game.
They certainly seem to be playing a winner-take-all game, by heavily subsidising rides when they first launch in a new city.
But it seems questionable to conclude that taxi services really are a winner-take-all market. Many Uber drivers I see have multiple phones, running multiple taxi apps at the same time. And most people I know have at least two apps in their phone. I usually check three (Uber, an European one, and a local one in my city) before making an order.
There are some network effects to taxi services - customers want a car fast, and drivers want to find fares fast. But there are no switching costs for either side, so these network effects can be distributed over more than one platform.
Yes, I meant to say that the VCs are asserting it's a winner-take-all game. And, yes, Uber is playing a winner-take-all strategy, which I agree is questionable.
True, but with switching costs so low, if your friend told you "I love Uber, but service X costs $1 less and it's the same drivers", most people would switch in a heartbeat.
Yeah I feel like everyone thinks the spoils of the ride sharing fight is a future network of automated vehicles which should be lucrative, but is a long way from now. Yahoo looked like the winner of the search engine war once upon a time.
Yeah, I really think that the treatment of employees, drivers (they are no employees!), partners etc. will crucial for their success. And I see this only partially fulfilled.
Did Uber really win yet?
They haven't exited yet. Their valuation is insanely high and they are not looking to IPO, as they won't get a favorable price in todays markets. They are spending billions in China where they are not leaders yet (and unlikely to be).
I don't see how they have won yet. They are walking a dangerous path with no exit in sight.
Treating drivers as independent contractors also increases liquidity for everyone else in the market, as drivers just run multiple apps (and anecdotally prefer driving for Lyft in my unscientific q&a sessions). It's like Groupon marketing budget in early days increasing awareness of all deal sites out there.
They also have severe problems in many European countries where the consideration of the legality of the service hasn't been as lenient as in the US. One can "win" without a global presence sure, but that's something to still keep in mind.
Is Uber about to go public? I'll believe it has won once we see some more numbers.
I am baffled how they operate here in Taiwan. Uber has been declared illegal here. Drivers and passenger are issued fines when caught. Uber fully compensates them. Now the laws are more strict; if a driver is caught 3 times, his license is revoked. Yet there are still 5 cars within 5 minutes of me at any time of day.
I don't understand how that works at all. It does not seem to be a good way to get into the good graces of a country. I wonder how many places Uber operates illegally and pays fines, and how analysts use this to calculate the future value of the company. Do they assume Uber will one day be made legal in all these places? That would boost the valuation but I'm not sure it's accurate.
They want you to use the app and get the brand out there. They don't care about fines because the end game is driverless cars.they will later on replace all the drivers .
Maybe I'm misunderstanding the author's point but I kinda disagree that Uber has created a 'network'. To me, it's more of a commodity service. My use of Uber doesn't really increase it's value for other users. At least compared to something like Facebook where network effects are obvious.
I also think it's too early to call the game. They're doing well but again, with a commodity service, it doesn't take much to fall behind. I see the logical end game here as more of a marketplace where I can request a ride and anyone can bid for for the job.
Your use of Uber does increase value for other users. Every incremental user increases the probability that someone will need a ride at any given moment, allowing fewer drivers to profitably service an increasing geography. This means better service, on average, for the network.
Another benefit is every incremental passenger increases the utilization of the current assets, spreading fixed asset costs around to more rides.
> I kinda disagree that Uber has created a 'network'.
I agree with your disagreement. In particular because the network effect means that it's hard to go from facebook to somewhere else because the services are useless if your friends are not on it. Both drivers and customers of uber already use competing services.
Well you kind of do contribute to Uber's value for others by using it and not other service, but not as significantly as with social networks. You use an app, drivers see there is a demand for it, more drivers, better service, you ever so slightly increased Uber's value against its rivals.
This is true for every service, only the value of individual contribution differs: huge for facebook, pretty big for "real life" businesses (uber, airbnb), quite minor for "online only" (non-multiplayer videogames).
Your use encourages more drivers, which makes it more useful to other riders, and so on.
It would be very hard for another ride sharing company to get involved now because there would be no incentive to use yet another app unless the company subsidizes rides or something to entice both users and drivers.
Unless the drivers are in an exclusive relationship with Uber, increase in supply of Uber drivers usually leads to increases across the board, as drivers just run multiple apps. Drivers set out to maximize their own utility, not Uber's.
This is what surprised me about Uber's recent efforts to not have their drivers become employees. I was expecting them to use the lawsuits to extract favourable terms from the drivers and lock them into exclusive employment contracts. If they had done that their network would be hard to break, but as it stands now any new competitor is one app away from entering the market.
I think they figured they can extract that via market terms, such as bonuses for those driving X+ hours weekly (where X is a fairly large number) or never-ending chain of orders in UberPool.
Sure if they can keep the drivers at near 100% capacity then this would work, but this is hard to do.
A small competitor can piggyback off their network at low cost and be hard to dislodge. It is difficult to extract monopoly profits with an open network.
Two different effects of creating a network: for Facebook, you see network effects creating lock-in for users - nobody wants to leave because everyone's on it. For Uber, the network effects make the experience better as the network grows - with more drivers, more riders use it, and vice versa.
We often use "network effects" to refer to word of mouth growth and user lock-in, but I think Uber's advantage is still a network effect - just a different one.
Investors love to spout this stuff. Unfortunately, it really isn't true (even though as a founder who generally prefers to bootstrap, I wish it was.)
FTA:
> If the cost of customer acquisition (CAC) is greater than the lifetime value (LTV), a startup can grow itself to death.
Oh, you mean like Salesforce? No, wait, they had an IPO and they still only rarely show a profit. And they hold their LTV very close to their chest, so we still have no idea if CAC is lower or higher than LTV.
> When investors talk about growth, we’re talking about sustainable growth.
No, you're not, because you continually fund companies that do the opposite. Salesforce, Webvan, Pets.com from the first boom. Instacart, Uber, Lyft, WeWork, HubSpot from the latest.
> The period of cheap capital and billion dollar checks has ended.
Same thing we heard in 2001 and 2007.
> In this capital constrained market, buying scale is no longer going to be a credible lever for the next generation of startups. ... Companies can no longer look to money as a performance enhancing drug for scale-up.
Until it is again. It wasn't OK to "buy scale" in 2001 or 2007, but it was in 1997-1999 and 2012-2014. And now in 2016, it's fallen out of fashion again.
Either we're going to have a raging depression, or the bubble will inflate again. Hypothetically, both of those scenarios could actually happen--a depression followed by bubble inflation yet again.
This is why I suggest that founders tune out the idiocy and focus on building a sustainable business. You probably won't build an Uber as quickly as Uber did. But you'll be hugely protected against the inevitable downfall, and won't find yourself cash-strapped and forced to switch gears quickly (notice Uber now singing the "we plan to be profitable in most U.S. cities this year" tune.) And, more importantly, you'll have built a life for yourself, your employees, and their families that are depending on you.
> Oh, you mean like Salesforce? No, wait, they had an IPO and they still only rarely show a profit.
This is a very common argument. It's also wrong.
Salesforce earned $6.7B of revenue in 2015^. It spent $3.2B of that revenue on sales and marketing, in other words getting new customers. It made $100M total profit.
If Salesforce stopped caring about acquiring new customers, it could cut sales and marketing spend by 90%, down to $300M. It would then have $3B of profits.
This seems to assume that the number of customers would stay steady if marketing costs drop to zero. That strikes me as implausible.
It's sort of like saying, "If we stop investing in R&D and machine maintenance, our factory will be much more profitable." In an accounting sense, yes, sort of. But in reality, no, because you're eating your seed corn.
I grant that Salesforce is still in a "let's buy market share" mode, so we shouldn't expect to see a profit. So they could be just growing happily. But they also could be in a highly competitive market without much competitive advantage. Or it could be that they are using marketing spending to boost revenues well beyond what's sustainable. From the numbers, we can't tell. Which, I believe, was ericabiz's point.
Hard to tell there are a lot ways to inflate revenue via creative "marketing". VZW & Comcast do
cross promos where they are hiding deep discounts
as marketing expenses.
Financial "Engineering" applies to all public companies across the board. What applies to SalesForce is the part of the statement "it's hard to tell" :) (Given the level of detail they provide on their filings about the Marketing/Sales spending it's very hard to tell :)
most VC's will tell you anything but the truth - profits, sustainability, culture, blah blah blah, they'll make some nonsense blog posts about it, but none of that matters, as long as you grow the business through any means necessary and have a huge, profitable exit for them. and if you can't have a huge exit, well, they'll probably just take all the money back and leave you with nothing.
things like profitability and sustainability are for suckers, plebe small businesses that they won't look at until they smell an opportunity. otherwise, you might as well be the taco joint they eat lunch at. they'll say great things about you and even use your products, but they wouldn't give you more than an hour of their time.
they have the best jobs on the planet, that's for sure. i'm not saying they don't do work, they certainly do, it's just extremely favorable for them, because they have all the money. so what are you gonna say, chump? nothing.
watch out for their lawyers, too. it's hard to tell which of the two are more full of shit.
I love it when I read an article, generally agree with it, feel like i'm wiser now, and then read the comments and someone like you shows me I automatically agreed with the author without thinking about it too much.
Gotta work on my critical thinking. Any recommendations on what to read?
I don't know if there's something you want to read so much as just have a higher awareness of the active processes in your head. When you agree with something, have a hook that asks why you agree. When you want something, have a hook that asks why you want it.
This sort of awareness takes time to build, much like building muscle at the gym.
I've grown to be suspicious of getting too comfortable. And to appreciate becoming uncomfortable. So maybe this:
For the first article you read every day, take 1 minute and pay attention to how it made you feel. Are your biases and beliefs affirmed or challenged? Can you argue the other side of it fairly? Are there ways the author could be fooling himself or fooling you?
If you try that for a while, my guess is that you'll notice particular biases and develop reactions to them. E.g., lately I've been working on in-group bias. I'm more likely to agree with authors I perceive as "us", and more likely to disagree with authors I perceive as "them".
Pick a topic (like economics). Pick out 3 contrasting books which give alternative view points on said topic. Read them and takes notes. At the end compare and contrast your notes from all 3 and write your own condensed version of notes from your new perspective. Try make sure the books are really contrasting, i.e. pick work from Ayn Rand, Thomas Piketty & Lee Kuan Yew. It's literally impossible to agree with all three on all topics so you will be forced to analyse why you do or don't agree with the contents of the book.
Sure, if you want a book that's really unconventional, I like "How to Get Rich" by Felix Dennis. He was worth something like $500 million when he wrote it, a college dropout--probably someone you've never heard of, but you've likely heard of Maxim magazine, which he founded.
Not only does it have a lot of excellent business advice, but he's also a pretty hilarious writer.
More recently, I enjoyed Dan Lyons' skewering of Silicon Valley culture with "Disrupted" (which just came out and has been getting a lot of press.) I didn't agree with everything he said, but it was a great read nonetheless.
Sometimes is just a matter of expertise. The more you know about a subject the more critical you can be when reading about it. Many of the posts about SV startups here are very inside-baseball.
You talk sense but I'll relate one of my favorite econ quotes to you: the market can stay irrational longer than you can remain solvent. If a founder was focusing on the tech and business side and tuned out the funding fads, he/she would be at a significant disadvantage to the crowd that is abusing "steroids".
An interesting analogy is steroid usage among men in fitness. I guess that is why the author used it.
Would an Uber/Lyft like company have been even mildly successful if it wasn't for the capital? Is there any other scenario under which we could've seen a private company take on the taxi monopoly? I'm not sure.
Maybe using insane amounts of capital isn't a black/white issue and more dependent on your market/business type. Obviously, you are right about everything else just being cyclical.
> Would an Uber/Lyft like company have been even mildly successful if it wasn't for the capital?
Probably not them but other companies with less capital have achieved better long term results.
I think we should have a serious discussion about "startup dumping" and business inequality. I don't know how to solve the unfair competition pushed by companies who can spend a lot of money acquiring customers without a profit but it is important to increase the success rate of startups with less capital.
The reason this "LTV" notion doesn't work is because "Lifetime" doesn't mean anything if your own "lifetime" depends on customer lifetime. These companies calculate "LTV"s based on the assumption that the companies themselves will be immortal and end up learning that that isn't the case.
Don't think this article disagrees with most of your statements. The leverage of money is cyclical--so it's not incongruous that at different time periods the profile of growth vs profitability focus of startups funded varies.
The Yankees are infamous for using money as a tool, buying up as much talent as they could.
In recent years, the Dodgers have outspent everybody, but in an absolutely different way. 25% of the Dodgers payroll goes to players not playing for the Dodgers. Often, it's going to players playing against the Dodgers. Many commentators have described this in similar terms. They use their deep pockets a s a weapon. Instead of giving their players huge salaries, they on multiple occasions have found teams struggling with expensive contracts for underperforming players. They negotiate to take the player (and the bad contract) and then require some talented youngsters to be thrown in on the deal. They then trade away the underperforming player to another team, subsidizing the contract substantially, and keep the talented prospects. While some of these trades didn't pan out well, it was a pretty unique way to use deep pockets as a weapon.
It's funny you choose baseball as the sporting example, as it's without a salary cap.
If you look at hockey and basketball, this has been a strategy for a long time because teams have to remain below the salary cap. As such, bad contracts are traded around all the time to make room for payroll. Stars sometimes change teams for essentially nothing but cap space.
I guess it interesting that a baseball team is doing it in a world where there are no spending caps.
Baseball implemented the luxury tax system, which operates at a soft cap. So while it's technically accurate to say no salary cap, there does exist a financial mechanism by which team payrolls (and by association, player salaries) are limited.
I wanted to know if I'm the only one who doesn't find these apps convenient. I'm in NYC and have been trying to use Uber and Lyft, but I keep finding that whenever I request a ride, the driver usually takes too long to get to me (e.g. gets lost and goes the wrong way), and in that time I see like 20+ taxis drive past.
Why would I wait 5-10 minutes for an Uber/Lyft when I could, in the same amount of time, be closer to my destination by just hailing a regular taxi?
Surely I'm not the only person experiencing this. I want to love Uber/Lyft, but so far my experience has just been one of hassle and inconvenience. I was motivated to try them out because of free credits, and I'm trying to use up my free rides before they expire, but it's just been too painful so far!
NYC is arguably one of the only places in the world where you can conveniently hail a taxi. And that isn't the case if you happen to not be white. And while you might be able to hail a taxi in NYC that doesn't say anything about the quality of that taxi which has notoriously been poor.
Uber/Lyft being 5 minutes away is a godsend in the suburbs of DC. If I want to call a cab, I have to wait at least half an hour for it to show up.
Generally speaking, the vast majority of people in the DC area do not live where it's easy to grab a cab. The only places it's easy to hail a cab are in Downtown DC, which is where are the tourist attractions are, but not much you'd want to do on a daily basis as a resident.
In this case "not white" can specifically be substituted for "being black" - there were huge problems with this years ago in NYC, to the extent that questions were asked when Uber first launched as to whether drivers would be able to see the ethnicity of the passengers asking to be picked up.
1) Driver and I agree on a best route via mapping software, no more getting lost, miscommunications or malicious route designed to get more money out of me.
2) Payments are clear and fast. No more getting pressured and hounded for cash when I only cary my card.
3) It's always a clean nice car. No more duct tape over check engine lights.
4) I know if there is ever an issue I know it's going to get taken care of instantly by Ubers excellent staff. No more terrible customer service.
#2 is going to change for you soon. As part of a lawsuit settlement, Uber is going to allow for tipping, and the drivers will be allowed to ask for a tip in cash at the end of the ride. It's going to be awkward and a real shock to early Uber users.
Easy solution to that problem: Solicit a tip, get 1 star. Uber is far more likely to keep me around as a passenger who pays the published rates and uses them frequently than a driver who continues to generate complaints from users due to tip solicitation. They can easily replace drivers with ones who won't do that.
I think you are still in minority about not carrying cash. Also the drivers rate you as well. Pretty sure you will be the one kicked off for low rating before the drivers.
NYC is the exception to a lot of rules, this one included. And to be honest, as an NYC resident, I still disagree with you. If you're in central Manhattan you'll get a yellow cab very easily, but if you're anywhere outside of that area you will have a significantly more difficult time.
Another advantage to me is the fact that my destination is programmed in - I've had to deal with a lot of yellow cab drivers who have absolutely no idea where they are going or the location I am talking about.
If you're in Manhattan below 125th st, dumbo, williamsburg, or downtown BK, hailing a yellow cab usually works out. Everywhere else uber/lyft are superior solutions.
Post success analysis have one serious flaw. Theory should explain not only why Uber won but why Lyft lost. Assuming that some competitor would do the same as Uber regarding their strategy but without having to change laws/work on PR needed for drive sharing - why Uber strategy cannot be copied?
Also, it's not even clear that one of them has won or lost yet. Lyft is still going strong, and uber is now having to make major changes to how it deals with tips. It's too early to write narratives for this.
Exactly. As a point of reference, Uber entered Russian market which already had various competing providers such as Yandex.Taxi and GetTaxi, and did not gain significant advantage.
One problem with business as science is that even if we found a perfect recipe for success the fact that it was found would change the market in such a way that would render the golden recipe invalid. And that's assuming all things being equal which is never the case, at least not these days. Admittedly though, that's not how you sell thousands of copies of business books.
The article says Uber "won" by spending heavily to get 5 minute response and $25/hour driver pay. They no longer provide either of those, because they couldn't do so profitably. Uber might still be the next Webvan.
Am I the only one who was slightly ticked off by this guy's writing style?
It was riddled with terms like "arb", clearly written for self-satisfaction. If my life was wrapped around the VC universe, I probably would not care to read this article, and yet for anyone who isn't so familiar, you need to interrupt the reading several times if you want to understand what he is talking about.
The conclusion of the article, hinted at the beginning, seems to run abrupt without fully explaining itself.
Is capital really getting more expensive? Aren't we still seeing truckloads of cheap cash still getting shepherded into private tech companies?
It sounds to me like this investor would like to see a return to investments in profitable companies rather than aggressive investments in growth, because it was more fun for him when he had fewer competitors willing to throw money around. Is there any evidence that this trend is actually reversing as opposed to just being wishful thinking?
Has uber won? When? Did the rest of the market get told?
Given the fact they are still embroiled in legal wrangles worldwide, still throwing a billion dollars a year into a hole in China, had to recently settle a large case with their drivers, face competition from Lyft as their friendlier rival, from lady only driver firms to deal with rapey and gropey uber drivers, overall, sounds like a winner. Or does it?
Indeed I'm not sure you can say Uber has won until they maintain market dominance without having to throw in more investor money. It's pretty hard to compete with them when they are subsidising fares but when they stop maybe less so.
I am traveling right now in India, and Uber is a huge boon: no more haggling, no hassles, no arguing: just call up Uber and go. I've been making it a point to ask the drivers what they think about Uber. The interesting part is, when Uber first came to town, they would offer a flat fee: Rupees 60,000/month, as long as the driver kept the app open 10 hours/day, and didn't refuse rides. So many drivers signed up, that many of them spent the entire day just hanging around, giving 2-3 rides/day. So Uber outspent the competition heavily, taking huge losses. But now, with the glut of drivers in Uber, their payment has gone down significantly: they pay based on the number of rides a driver makes. For example, for 17 rides, Uber pays about Rs 3000. The problem is: most rides are < Rs 100, so Uber is still offering rides at a loss.
So, the answer to the question "why Uber won" is: by spending lavishly.
Uber won because a massive amount of stored trust (capital) was put into it while users were trusting it would do what it said it would do then, now and in the future. Being able to change the business model and not violate user trust, as most software does eventually unfortunately, is much tricker. Saying they "won" when the game is ongoing is illogical. Post this in 20 years when Uber is still a brand, the customers (and drivers) are still joyful (and the company isn't bringing them suffering) and then you can talk about success.
Huge cash inflections into companies isn't helping user experience. In most cases, the game theory behind the huge cashouts causes user suffering. It's time to think differently.
I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers. After hooking all the riders, UberX became much easier.
I think the main reason Uber "won" is because starting off with the black cars was a much more effective launch approach. As everyone knows, 2 sided marketplaces are very difficult to build. Uber solved this by stocking one side with a pre-existing, semi-organized group of providers.
That's a very astute observation.
Anyone have any ideas of other markets(or potential markets) where such an approach could be translated?
Does anyone else find the first chart in this post ominous? 2014-2015 is looking a lot like 1999-2000, and nothing seems to suggest things are that different this time around...
Great explanation of how Uber could get so big. I never really understood why Uber made it and nobody before, because the App itself does not seem like a revolutionary idea. There must have been apps like that around already and lost of people must have thought of it. I mean I certainly thought of this long before I heard of Uber.
But the missing piece of the puzzle, which this article filled in was that it was never really about the app. It was about using money cleverly to get this thing going.
Now Uber has first mover advantage. But I can see many potential problems for them. They have advantage in name recognition and momentum but I can't see much else advantage.
The tech should be easy to replicate. So I think what will matter in the future is who manages to figure out the best way to use autonomous vehicles.
In this regard I'd rather place my bets on Tesla. If they as they hinted get into doing Uber like stuff in the future with autonomous cars, they have a clear advantage as they got advantages in more fields than Uber which can enhance this particular business.
By controlling the cars, they are pulling in more data than anybody else on autonomous driving at the moment. They are already beating the master data collector Google, collecting more data then they do in a year on autonomous driving.
I don't fully understand the conclusion that "the period of cheap capital and billion dollar checks has ended." Uber won in a unique market place primed by underutilization of personal vehicles and widespread customer dissatisfaction with taxi services. There's even an argument that the so-called gig economy is mostly Uber and its competitors. [1]
So yes, companies in less valuable markets are going to have a tough time getting funding as VCs pull back. But it does not follow that if you found an equally valuable market somewhere else you would not have access to funds to make it big. There's still a lot of money out there looking for good investments. I don't see a complete downturn as predetermined without some other externality at play.
In SF the quality of Uber's service has dropped so dramatically in the past 3-4 months that I no longer use it anymore. It's completely commoditized and I have no qualms about switching to Lyft when they have a better product.
Curious what you mean by the quality of service dropping? I use both Lyft and Uber pretty regularly (multiple times a week) and have had only positive experiences in SF.
1) I can't see estimated time but lots of cars around. I then book and it estimates > 12min wait time. If I cancel, it charges me $2 anyway because reasons.
2) a number of drivers cancel after 10 min of waiting - this happened 3x in a row a few weeks ago so I finally got a car after 40 min.
...
That's what Google returned but I didn't think it made sense in the context. I guess he means to say you can trade one for the other? That doesn't make sense to me to be honest. I did like the article though.
I think the author is using "arbitrage" a bit loosely/metaphorically, as "a new opportunity that seems low-risk that has only just appeared, and, being such a great opportunity, will thus likely only exist briefly till the first few actors exploit it till it's not really an available opportunity anymore"
The looseness comes from the fact that traditionally an arbitrage opportunity really is theoretically nearly zero-risk while I think the author is using it here in cases where it's a bit more complex. But the analogy at least works in highlighting the aspect of these opportunities being temporary in their existence, like the joke about an economics professor and student seeing a twenty dollar bill on the ground and the professor ignoring it, quipping "If that was a real twenty dollar bill, someone else would already have picked it up off the ground"
Arbitrage may be the most incorrectly used word in Silicon Valley. People usually mean they buy something here and sell it for more there - but that's not arbitrage.
Still remains to be seen what the long term costs are to be an Uber driver. They are probably not that favorable when considering depreciation, insurance, etc. Most likely there will be a slow exodus of drivers until the market reaches equilibrium and Uber et al are not so distinguishable from traditional taxis.
I didn't see any comments mentioning self driving cars, which to me suggest a cleaving of uber's marketplace. If all cars were to suddenly become autonomous, uber could be easily bested because their liquidity has become beside the point.
I think the more interesting story isn't how Uber won but how Lyft lost.
Sidecar was actually first out of the gate with a ridesharing product but Lyft wasn't far behind and soon clearly dominated the space with their ingenious pink mustaches. Sidecar suffered from a classic first mover's disadvantage in that they were overly concerned with regulatory risk which made them too timid. Sidecar's opinion was that the mustache overstepped the bounds between employer/independant contractor and that the CPUC would slap down Lyft and put them out of business (similarly, the bid model that Sidecar used was driven by similar concerns despite the noticeably poorer user experience).
I've never seen a product achieve such ferocious product/market fit as Lyft did. During its first year, it was extremely common for there to be hours at a time when drivers were immediately snatched up as soon as they ended their last ride and passengers would wait for half an hour at a time, eagle eyed staring at the screen to snatch up a car. The level of inconvenience that people were prepared to put up with just to use Lyft's product spoke to just how much of a radical upgrade in user experience ridesharing provided and a hint as to the explosive growth that was to come.
Lyft was in the enviable position that they held a near monopoly in this space for almost 18 months as Uber tried to reconfigure itself and I remember hearing Travis speak about how the cheaper Uber would be Uber and being skeptical that he could ever overcome such a huge first mover advantage.
In the face of all of this, Lyft could have made the "standard" startup decision of prioritizing growth above all else and taking whatever compromises were necessary to service that growth. Instead, Lyft took an alternate path in which they placed driver quality as a longer term priority. I remember during even the most insane supply/demand mismatches, Lyft was still rejecting some 50%+ of driver applicants for not being "Lyft material".
I think against almost any other competitor, Lyft could have made the same choices that it made and come out ahead but Uber's raw ability to execute is something that, regardless of what you think of their ethics or culture, has to be admired. Uber is one of those extraordinary companies that prizes execution ability culturally in the same way that Apple prizes design. Lyft should have rolled out into other cities faster, Lyft should have gone international, Lyft should have dropped its prices more aggressively and taken the hit on driver quality. All of those are recoverable errors unless you're facing up against someone like Uber who rolled out an aggressive expansion plan and then relentlessly executed against it with the wheels barely falling off.
This is all easy to see with the benefit of hindsight but I remember living through that time, with friends at all 3 companies and watching them grope towards an uncertain future while doing the best they could.
I quit reading Techcrunch in ~2010, and by that time Arrington had already posted about 'UberCab' many times. So your comment seemed off to me, and I went to Wikipedia: it looks like both Lyft and Sidecar were started after Uber.
Uber was offering it's black car service which wasn't really in the same product category. Uber was having moderate traction with but it wasn't the same insane demand that Lyft and Sidecar had. It wasn't until Uber rolled out UberX that it became the monster it is today.
Does winning mean beating its competitors? In San Francisco, at least, this doesn't seem clear at all. Most people I meet -- both drivers and passengers -- prefer Lyft to Uber because they claim it has better technology, a better brand image, better treatment of employees (correction: drivers), and fewer instances of creepy and offensive behavior from its top management.
Does winning mean expanding faster than its competitors? This rests on the VC assertion that Uber is playing in a winner-take-all space. The fact that they can't starve out the competition on their home turf challenges this assertion. Unless they can put up artificial barriers once they enter new markets, they might just be clearing the way for their competition.
Or does winning mean transforming from a VC-fueled startup to a self-reliant profitable company? Once again, no facts in the article, but they did recently claim they'll be profitable in the U.S. in Q2 2016 (although losing $1B/year in China) [1]. But unless they can differentiate in terms of price or service (which, my experience, they've failed at), this isn't necessarily a sustained win.
[1] http://fortune.com/2016/02/18/uber-profitable-us/