It's amusing to see how much skepticism Uber seems to generate. Apparently it's super-hard to understand how a tech company could possibly do something better than the decades old taxi industry, and that the resulting business could have major network effects.
It's actually a centuries old industry: taxis were already regulated in 1636[1]. I think the point is, though, not whether they can do it better (they are certainly a driver for innovation in the space), but how successful that particular company is going to be.
Given that in most cities you could pick up a phone and get a taxi for over a century, or hit some buttons on your mobile phone and order one for the last 20 years, this becomes a question regarding two aspects of Uber: deregulation and brokerage, which are Uber's two differentiating factors. The author claims that deregulation has been tried numerous times -- and failed pretty much everywhere (although, maybe this time it's different) -- and that brokerage of a commodity is not too profitable[2].
I've ordered taxies by phone, and I've used Uber, and I can tell you that I have no doubt as to which is the future.
As for network effects, is it really that hard to see that a larger network of vehicles will have inherent advantages over a smaller network? (think about distance to the nearest available vehicle, especially as the network expands outside of dense urban areas)
Everything you say is true, but none of it predicts tremendous success for Uber. It may well be that there's little advantage to being the first mover brokering commodities. We might soon see meta-Uber apps, or Uber aggregators, that optimize the selection of car across several providers. Uber will probably just be a big, successful, taxi company, but not one that is worth billions.
It kind of is hard to see much value in Uber outside of SF which has abominably bad taxi service. I'm not sure about network effects, but adding the lyft app to your phone costs $0. And for similar price and convenience most customers probably are willing to use competitors, so I'm not sure uber isn't a commodity or how it gets pricing power.
Consider nyc; even if uber is the only competitor left standing, yellow cabs aren't hard to get. I'm sure they'll adopt similar ios/android hailing apps, so what then is the value of uber?
Yellow cabs aren't hard to get in midtown/downtown Manhattan, during rush hour, when you're not going anywhere outside of midtown/downtown. If you tell the taxi driver you want to go to Brooklyn, there's a good chance they'll not take you, regulations forbidding this notwithstanding (how's that for the people who whine that uber isn't "playing by the rules"?) to say nothing if you're starting somewhere like Washington Heights, or out in Queens, or, God forbid, the Bronx.
FWIW I live in Hamilton Heights (aka. lower Washington Heights) and I am bombarded by yellow and green cabs at all hours of the day or night. And it's really easy to hail them because nobody else is interested.
do you live in nyc? rush hour is when it's hard to get a cab in manhattan. and while the effectiveness can vary, calling 311 in the backseat if the driver refuses to deliver was effective in my one experience
So the author provides a defensible breakdown of the unit economics and goes into detail... and all you have is "super-hard to understand how a tech company..."
Technology companies are revolutionary in terms of leverage, but really, tech didn't invent the concept of leveraging.
I think Uber reminds people of AirBnB, and if you haven't been living under a rock for the past year you should be familiar with some of the reasons opinions on AirBnB have shifted.
- turning a blind eye to people who violate contracts to provide the service (For example, many AirBnB hosts don't actually have the legal right to lease the place they are listing)
- allowing their service providers to skip things like insurance (in other words AirBnB takes a cut of the host's profit, while foisting the risk on the unwitting host)
Running a service is cheap & "competitive" when you don't have insurance or even own the property! That comes at the price of risk, but AirBnB isn't the one who assumes that risk...
I think it is nearly criminal and probably legally actionable for Uber to advise people they only need "regular" car insurance, when regular car insurance very definitely does not cover carrying passengers for money.
Well, it's not like they're a public company with obligations to report financials. We're at the mercy of their great media handling, PR, and tech-media darling status.
