[OrwellianChild]

Being installed on someone's iPhone on the home page is a pretty sticky place to be.

This strikes me as pretty disingenuous, considering the fact that the entire value of the Lyft/Uber systems is matchmaking. I can open both apps and check availability/price in seconds. Why would this not continue to be a healthily competitive space? (scummy, sabotage and price-war tactics aside)

[fred_durst]

I think you are a bit naive to believe that both Uber and Lyft with survive long term. In a network effect business its typically winner take all.

[OrwellianChild]

I think it depends on the "scummy, sabotage, and price-war tactics" bit. If a well-funded Uber can out-spend and temporarily out-price Lyft into bankruptcy/acquisition, they might gain some leverage. That said, plenty of equilibria exist in other networked service-based markets. A good example would be UPS and FedEx, which provide remarkably similar service profiles to remarkably similar service areas.

The matchmaking part of the equation is low-cost on a per-transaction basis, and most of the risk and operational cost lies with the independent contractors (the drivers with their cars). This makes the services straightforward to run and scale, meaning there is no inherent reason why one or the other would be "shut out" of a market.

We may see this shake out one of multiple ways that could include the two operating at different levels of the market (Uber on limousines, Lyft on ride-share/cabs). There may also be additional tools/services from one of the companies that upsets the balance in a more sustainable way (e.g. facilitation of ride-shares, carpools, or other less ad-hoc trips like daily commutes). Lots of room for growth and expansion in this space.

[fred_durst]

The FedEX UPS example doesn't apply because their services are limited by physical infrastructure. The have to buy/lease trucks and distributions centers. Uber and Lyft have no physical limits so the larger one can always undercut the other out of business once it has enough of a competitive advantage. Once Uber is the name brand service for consumers drivers will no longer have a choice and Uber can price squeeze Lyft to death.

[6cxs2hd6]

I think another difference is that the bulk of FedEx and UPS customers are businesses -- who typically are smart enough to allocate business among at least two vendors. Short-term this keeps your suppliers honest on price and service. Long-term it hopefully sustains more than 1 supplier. Even when an industry has one "gorilla" (e.g. Intel), business customers will try to sustain at least one "chimpanzee" (e.g. AMD).

However this dynamic is missing from consumer businesses.

[makmanalp]

What's the network effect here? I can pull up either app.

I guess the lock-in is in the driver side. They could stipulate that they must be uber or lyft only. But drivers will eventually leave if consumers do. And especially with much less regulation and overhead, drivers can switch over much easier than cabbies can get a badge. This is all great. We need all actors to be able to switch for there to be healthy competition.

If the regulation efforts hit back and make it impossible for drivers to move, then we're stuck with one company or the other. But both uber and lyft have positioned themselves as anti-regulation (in the sense that they claim they're not cabs) so the acting forces make it seem like it's difficult that they can pull off a deal with local governments that lock drivers in.

[fred_durst]

The network effect starts with the drivers. Whoever can become the reliable service by always having a driver nearby will become the first app opened. Right now consumers are going to where the drivers are, but eventually that will flip for Uber once it reaches the saturation point. Then Uber will proceed squeeze everyone(including the drivers).

Ebay is probably a good analogue for ride sharing.

[aetherson]

Which may become relevant if Uber pool or Lyft line work out and this actually becomes a network effect business. But for the now, it is not.

[OrwellianChild]

Ha! I didn't even realize they were already going this way (car-pool coordination). Thanks for bringing them up!

UberPool and Lyft Line seem like exactly the sort of quick innovations on the matchmaking side that can provide real value for customers, especially if they act as escrow and clearing house to automatically split fares among carpoolers. Looks like Lyft Line is trying to eat the upside by just providing a slightly discounted fare. Can't tell how UberPool is handling it from my quick scan.

[aetherson]

They're both basically hoping to increase their margins while still providing substantive savings to their passengers. So, for a $20 ride, they basically want to charge each passenger about $12 (thus saving the passenger $8) and thus increase their net take from $20 to $24.

The complicating factor is that they're also trying to provide passengers an incentive to try out the service before it gets good, so they offer some discounts even for rides that they think they will not actually be able to find an additional passenger for.

It's a very cool innovation. I hope it works out. It remains to be seen if passengers want to deal with sharing a car in enough quantity to make the services work out. If it does work out, then rides-for-hire will, in this sub-space at least, become a genuine network effect business, and there will be one hell of a brawl.

[fred_durst]

Because having enough drivers with their own cars available to pick up rides is totally not a network effect business. See I can make snarky sarcastic comments too.

[aetherson]

You're correct: having a large supply does not mean that you are in a network effect business.

Tostitos has a large supply. This is not without value! It is indeed the case that a customer in search of tortilla chips can reliably get Tostitos when they might not be able to reliably get a smaller brand of tortilla chips. Tostitos is a big business that can get their brand into more stores than smaller competitors, too.

But I assume that we all agree that Tostitos is not a network effect business.

People pretty routinely confuse the advantage of "being big" (and being somehow involved with computers) with a network effect. This is bad both from a pure terminology reason (ie: we don't need a new term for "being big and somehow involved with computers," while we do need a term for actual network effects), and also in terms of confusing people about the merits of a business -- to whit, we should not assume that the rides-for-hire business is naturally going to become a monopoly because of a "network effect" when there is no network effect. In contrast, we should assume that social networks are naturally going to become monopolies because of a network effect.

Rides-for-hire-hailed-with-a-smartphone is a few things. It's a threshold business -- you need a certain density of drivers in a service area in order to offer quality of service to your passengers. If a rival of Uber can't get a certain number of drivers, they can't provide good service. But whatever that magic number is, it's also actually bad for them to have MORE drivers than that, until their passenger demand also expands. Much of the business problem of rides-for-hire is, unlike a traditional network effect business, where it's "stay bigger than your rivals," matching driver levels to passenger levels. If your number of drivers is too low, your quality of service goes down. If your number of drivers is too high, your drivers don't earn enough to continue with you, stop bothering to log in, etc.

[fred_durst]

Can you try at least for one or two comments to dial down the snark. Seriously, I don't live in the Bay Area anymore so my tolerance for it is pretty low these days.

Anyhow, it's not a threshold business. The idea that there will eventually be a "number of drivers" that is too high is without any case study of modern business I can recall. Maybe you can enlighten me on some examples(see I can do that passive aggressive snark too!). I can't remember a single instance of over supply that destroyed the market maker's position. Sure many in the supply side(drivers in this case) lose their shirts, but the market makers typically do very well. The network is drivers and riders. Just like a dating site as a matchmaker. We all know that is lead by female adoption. Same analogue of driver adoption. Once you have enough network on the supply side you end up with a dominant share of the demand side which comes back around and gives you leverage over the supply pricing. That's where the profit happens.

Maybe you should dial down both the snark and idealism and read up on the historical business fundamentals at play.

For example, explain to me the several periods where eBay increased its margins to the determent of sellers and did not lose its dominant market position. Or 1 degree of separation, explain how PayPal continues to dominate.

[alsetmusic]

I don't see snark in those comments. I see someone disagreeing with you and you taking it personally. Also, I still live in the bay (and like it here very much). You're generalizing about those of us who live here and it wasn't called for or on topic.

[mbesto]

This is a bit of a fallacy, especially in extremely large markets and this market in particular. A good example comparison is Zillow/Trulia. Zillow only does +$50mm more in revenue than Trulia (despite the fact they bought them for $3.5b).