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by rbranson
3358 days ago
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I think you're confusing economies of scale with network effects. For example, a hotel chain is more valuable if it has a global presence because it can leverage that to create customer loyalty. That is not a network effect. To the consumer, it does not matter how many people use those hotels. They could be completely empty for all they care, they just want a room for a competitive rate. More efficiency through higher utilization (more passengers lowers the cost of pooled rides) is a classic example of economy of scale. There are counter-examples to your "Uber expand to Canada" argument. For instance, a mobile provider is not going to be very successful in a market until they have coverage across the area of that market. Nobody would say that a mobile provider has a network effect because they have invested in build-out. |
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1) Economies of scale: You hire an ops team of 10 people, they manage a city of 10k riders, to get to 50k drivers (5x), you only need to add 5 ops people to manage the city (1.5x).
2) Network Effects: A city starts with 10k drivers. Wait times on average are 10 minutes for a rider, and during rush wait times grow to 25 minutes (less supply elasticity), and the average time from hail to pickup is 12 minutes (IE, app blings the driver, and they are 2 miles away from rider, takes them 12 minutes to drive to rider), and the total pickup loop is hail -> 12 minutes to pickup (unpaid) -> 2 minutes waiting for ride (unpaid) -> 12 minutes on ride, so ~50% of a driver's time on a trip is unpaid. The city grows 5x (50k drivers). Now, average wait time is 3 minutes, and during rush, the average rider wait time is 5 minutes (more supply elasticity), and the average time from hail to pickup goes from 12 minutes to 4 minutes, while the wait time and trip time stay the same, so now the driver is unpaid for only ~20% of a trip. As the percent of time that a "driver is being paid" goes up, the ridesharing fares can go down, to attract more riders, until a sort of equilibrium is reached. The benefit to the consumer of more drivers is lower wait times and lower fares (because you're paying for less driver 'non productive time').