[joshe]

What is Uber's long term moat/pricing power? To compete in a local market you just need to sign up 5000 or so drivers. At a $5 signup bonus that costs like $25,000. You can just be the third app, most drivers already swap between Lyft/Uber. You could even form a drivers cooperative and just give all the charges to drivers (like farmers do).

Regulatory capture seems like the only real route to sustainable profits with their existing main product. What they really need is something where they are the only one or two legal providers for a locale.

A different model of what they are doing is using their massive revenue growth (not profit) to raise money to fund a search for real pricing power with food delivery, shared bikes, and Uber freight.

[clairity]

> "...you just need to sign up 5000 or so drivers. At a $5 signup bonus that costs like $25,000."

that's nowhere near the cost of acquisition for a driver. having worked on driver acquisition, i can tell you it's hundreds of dollars, not $5.

[joshe]

Sure, but neither have a guaranteed cash signup bonus. They have guaranteed first month earnings and bonuses per ride.

Uber trying to raise it's fees is an invitation for someone else to jump in with lower fees and compete. You don't need any kind of national reputation, taxi companies never did. You can just compete city by city.

That is lack of pricing power.

[jngreenlee]

Not trying to be rude, but can you explain your credibility a little further? I'm sure it would be interesting and add to the discussion.

[vladd]

Uber and Lyft businesses are a marketplace that benefits from the effects of scale: when lots of drivers and customers are present, supply and demand are near each other and balance out nicely. It also suffers from the chicken and the egg problem in new cities being launched: there's no driver close-enough in order to ensure low latency for new orders.

To mitigate that, Uber and Lyft heavily subsidize launches in new cities by pre-signing up drivers well ahead of initial demand, to ensure low minute order fulfillment. This is done by giving drivers activity bonuses in the initial new-city market formation stage, no matter the actual orders. This ensures order low latency fulfillment for early adopters in new locales, which leads to customer satisfaction, word-of-mouth advertisement and soon enough full marketplace formation (and lock-in).

If you were trying to compete with Uber in New York City, the main problem you would have is that you'd need a lot of capital to have hundreds/thousands of drivers to ensure order fulfillment on average under 5 minutes by having a driver as close as possible to any new order being placed.

Convincing people (using money) to stay idle despite lack of initial order demand (until the marketplace is formed) takes more than $5 per driver.

[joshe]

It's a very local market though isn't it? You just have to be better (cheaper, faster, nicer) than them in your city to win that city. People don't even really travel that much, and when they do, and the guidebook said "use Careem in the middle east", well then they would.

[goobynight]

I'm not that guy and don't have the credentials, but none of rideshare or food delivery apps pay out $5 for a referral. If they could, they would. In the earliest days, there were even 4 digit incentives for getting into driving for Uber.

People aren't desperate enough to hustle for $5. Even $200 is low. I'd consider that the minimum to even have a program worth running.

[clairity]

i worked with a number of on-demand companies (ridehailing, delivery, home services, etc.) helping them fill their supply-side funnels. as others have pointed out, it doesn't take much exposure or expertise to realize that the supply side of a marketplace can be expensive. of course retention also highly influences the cost.

[robszumski]

This page [1] was the first search result and contains many mentions of hundreds of dollars. It easily costs them millions of dollars in each market they enter.

[1] https://ridesharecentral.com/uber-sign-up-bonus

[cyan_atrus]

not that it necessarily changes your argument, but the signup bonuses that uber / lyft offer are significantly higher than $5 (closer to $1k), and are structured in such a way to ensure you're not dual-apping.

"A different model of what they are doing is using their massive revenue growth (not profit) to raise money to fund a search for real pricing power with food delivery, shared bikes, and Uber freight."

I suspect this isn't far from the truth.

[joshe]

Totally agree about the higher sign up bonuses.

Though they are really offering higher driver pay for a limited time on signup. To compete I'd just offer that higher driver pay all the time by taking less fees than Uber. Not correcting you or anything, just embroidering.

Over 10 years or so, this devolves into the taxi business, which without medallions is very low margin. [1]

[1] https://www.forbes.com/sites/lensherman/2017/12/14/why-cant-...

[joshe]

Here's a restatement of what I'm trying to say, the details seem to distract.

Grocery stores, restaurants, and taxis (especially without medallions) are famously low margin, highly competitive business. [1]

Single passenger ride hailing looks a lot like a low margin business.

[1] https://www.forbes.com/sites/lensherman/2017/12/14/why-cant-...

[treis]

>At a $5 signup bonus that costs like $25,000. You can just be the third app,

Uber can offer those drivers $10 not to switch and their capital will last longer than yours.

[koolba]

I’m not sure they even can do that. Maybe incentive drivers to drive with them but contractually preventing them from driving elsewhere starts smelling a lot like full time employement.

[joshe]

Sure right now. But long term? They don't seem to have any kind of moat at all.

They can't actually do that because it messes with the contractor thing, but they can do what they are doing with the rewards for a certain amount of availability.

But still I could just halve the amount I take from the transaction and give it to drivers. That's surely better for the drivers.

Moat is about them having a long term advantage that makes it hard to compete against them. Lots of capital isn't enough in 2019.

Long term it seems like the restaurant business, where most are just scrounging for minimal profits all the time.

[treis]

>Sure right now. But long term? They don't seem to have any kind of moat at all.

They also have the moat of providing a reasonably good service with network effects. How would you come in and beat the Uber/Lyft duopoly? They can copy any innovation you come up with and have the capital to beat you in a price war.

[joshe]

Businesses where you burn capital on price wars are low margin businesses.

[treis]

(1) Low margin is probably OK given the enormous market Uber/Lyft will share.

(2) They won't actually have to burn capital. No one is going to get into a price war they obviously can't win.

[joshe]

1) We totally agree, ride hailing is a low margin business.

2) Yes! As long as Uber/Lyft act like low margin businesses no one will compete with them. This means they have no pricing power.

[jakear]

Not really. Driver are already nonexclusive, this is just adding one more entity.

[paulcole]

Time to add, "starting an uber competitor" to the Hacker News Weekend Projects™ list.

[BoiledCabbage]

For all the lip service that's paid to "free market capitalism" I chuckle that the first question always is "How quickly can we get to a moat so we don't have to compete with anyone." Whether it's a monolopy, vendor lockin, network effect, high customer leave burden or any of the other number of methods.

And, I'm not knocking that that how business works, I just think we probably acknowledge that many businesses have little interest in actual market competition and letting the best overall product win. Free markets are discussed and desired in theory, but people don't really want free competition in practice.

It's more of an "emilinate burdens on me as a business, but don't make me actually compete" economic system.

[jacques_chester]

I once read that Michael Porter, in Harvard's Business School, looked over the fence into the Economics department, took what they said about monopolies, and repackaged all of the downsides of monopolistic behaviour into "Strategy".

[dboreham]

I heard this 30+ years ago in a business strategy class so it's probably true.

[jartelt]

If they are ultimately successful, branding will be part of it. Everyone knows about Uber and thus many people have the app on their phone.

Furthermore, having a large network of riders and drivers enables lower wait times and better carpooling utilization.

[hcnews]

Like others have said, getting drivers is much more costlier than 5$. Another bigger aspect is maintaining drivers and riders on your platform. Maintaining platforms is much harder than people give credit (e.g. netflix).

[joshe]

Notice how Netflix has rushed to create content?

If they hadn't, the entertainment companies would have just taken all their profits.

I don't know what Uber's equivalent moat is, but they are desperate to find it.

[todd3834]

Thinking about self driving cars I think the experience in the vehicle will be a potential differentiator.