The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding.
That's essentially the bet with these companies. You're betting that paying the price to (1) establish and (2) maintain market dominance (by accepting the billions in hemorrhaging today), is worth it once these businesses make a very remarkable turnaround when their operating expenses drop off a cliff, thus yielding massive profits.
Like anything, it's a bet. It could pan out, and early investors will be rewarded very well. Or it won't. I don't think it's a done deal either way, or you wouldn't have two camps of thought. Tons of people decreeing ride hailing companies, many others cheering them on. There's valid reasons to both sides.
"Theres a lot of people that spend years telling themselves that they're going to work on rockets. These same people build ad tech platforms and never leave. If you want to build rockets, just go build rockets." -- a very paraphrased Peter Thiel.
If these companies are waiting for the next wave of automation they need to build it. Uber and lyft are trying with self driving but they haven't bet the farm on it. If Uber had spent $800 million on autonomous tech and staked the company's entire future on it, maybe they'd be further.
If Tesla gets to level 4 automation, I doubt they'd have trouble whipping up a ride share platform that connects directly with their vehicles.
Google+ begs to differ. Network effects are real. A product needs to be 10x better than a network effect alternative to have a shot at replacing it. If Tesla is first to market by a year or two, maybe. But if Lyft hits the market within a few months; as a lift user, you’ll just stick to that app, why switch.
> A product needs to be 10x better than a network effect alternative to have a shot at replacing it.
This isn't true, sometimes it's just fashion. At its inception Facebook wasn't 10x better than MySpace. Moreover, ride sharing doesn't benefit from the kind of network effects that social network do. I'm stuck on Facebook because that's where many of my friends are. I have no reason at all to care at all which ride-sharing app my friends use. Even old-school email is more sticky in this regard, my Gmail account has a bunch of historical email I want to keep - so it's unlikely I'll ever delete it entirely. What's in my Uber account? Ride history? Why do I care about keeping that?
A think a better parallel is airlines. I have almost no loyalty to any airline, I just choose the flights that go where I want with the least cost/pain. Why would ride-sharing be that different?
An emphemeral ride you recieve via a ridesharing app is a commodity. Your social connections are not a commodity. The distinction in where (and where not) network effects applies matters.
Small critique, though: if there are no drivers, you won't ditch Uber of Lyft for the no-name platform that mandates a 60 minute wait before you can get picked up since they have so few drivers.
Perhaps, network effects should be a continuum, with ridesharing at the weaker end, and social networks at the stronger end, when it comes to business relevance.
Platform liquidity is more powerful than you are giving it credit for. Any two sided marketplace has network effects by definition because the value to buyers increases with the number of sellers as does the opposite.
Airlines are not a two sided marketplace; they own the fleet. I agree Uber is more a commodity than facebook, but almost no product ever has been as sticky as facebook.
Facebook might be sticky, and people have it for the sake of "having" it, but before we all became some Product Manager's KPI to raise "number of likes" and "number of shared posts" -- it was far more useful. Interaction with the platform is, subsequently, way down since I only care to read so many political rants from family I'm not politically in agreement with and "actual photo/footage of me doing <x>" memes. It's so overdone. I never thought I'd hit a point where I'd think, "you know what, I'm not going to touch that political facebook post" because I love to discuss politics-- and here we are.
Loyalty comes from a large pool of drivers. How many times would you jump between random apps, and wait 20 min for an available driver before you just decide to stick with one? I have a lot of friends that travel internationally; they strongly prefer Lyft but have to use Uber because it is available more widely. They all talk about how they could look for a local app...but say 'who cares, Uber is evil, but whatever'.
If we only had a meta search engine for taxi rides that enabled you to get the quickest ride from any service! Somehow that's a thing in the airline sector but (for now) not in the on-demand ride business.
Or at least not on the client side. Cab drivers appear to have no problem using several apps at the same time and picking the best option.
> The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding.
This narrative never made sense to me. Buying all those autonomous vehicles and burger flippers is an enormous expense and comes with additional logistics complications such as maintenance. Even if autonomous vehicles were perfected tomorrow, transforming a company with little to no capex like Uber into a capex behemoth would take many years, tons of real-estate negotiations, construction, etc. I'm not convinced Uber could make this transition faster than Amazon could build and app and start parking a fleet of cars at its already-built distribution centres.
Only the ones that also own the automated vehicle/robotic hamburger flipper technologies—and if it's not one of the on-demand firms that does that key job automation piece, all the existing on-demand firms are worthless in the face of the firm that owns the technology that erases the big cost in their business, and therefore can partner with the whichever is willing to accept the smallest share (or just start it's own) and own the whole market.
Everyone is assuming customers are price sensitive, it could be that the losses are designed to achieve monopolies and drive out competition while establishing a large two sided network and once achieved they use monopoly pricing power to extract value from price insensitive customers. It’s a reasonable thesis based on history.
I just personally thing this class of company will never achieve positive unit economics because people are price sensitive, and the service is a commodity with no meaningful network effect
It is completely valid to question the value of being first to market. Will anybody care about Uber or Lyft if a new player, Company X, has a fleet of hundreds of thousands of autonomous vehicles in all major U.S. cities? Consumers have shown us just how easy it is to switch to a new app.
I concur that the branding wouldn't matter-- if the existing rideshare companies couldn't strike a deal with makers of autonomous vehicles, they won't be getting a share of the autonomous profits. Of course, these companies are actually developing their own technology. But that is far from their singular focus today.
Quietly, I assume there are folks operating on the thought that market dominance doesn't matter. We don't hear about them today very much, because they don't get much media attention.
That's essentially the bet with these companies. You're betting that paying the price to (1) establish and (2) maintain market dominance (by accepting the billions in hemorrhaging today), is worth it once these businesses make a very remarkable turnaround when their operating expenses drop off a cliff, thus yielding massive profits.
Like anything, it's a bet. It could pan out, and early investors will be rewarded very well. Or it won't. I don't think it's a done deal either way, or you wouldn't have two camps of thought. Tons of people decreeing ride hailing companies, many others cheering them on. There's valid reasons to both sides.