[pitnips]

There's as much difference between Uber and the airline industry as there is in a $10 ride home versus a $250+/person flight.

Uber doesn't own any cars. How would better service and lower prices be bad for Uber? It wouldn't. The more activity they generate, the better off they are. They simply get a cut off everything. It would be wiser to compare to VISA/MasterCard. Those are software companies with huge network effects similar to Uber. Could anyone just go out and create their own payment network? Sure. Are prices per transaction competitive? Sure. Do VISA and MasterCard make a TON of money? Absolutely. And in this case (the more accurate comparison), the first guys to do it are still the main players, and they haven't needed to truly innovate in decades.

I think a lot of people tend to forget that these valuations aren't just some people out there being euphoric about the future. These valuations come from experienced investors, using real money, making thoroughly calculated guesses.

[gmarx]

Airlines don't own planes (generally). They lease them

[pitnips]

Although you may be technically correct, it doesn't change the argument. Their contract terms still force them to try to extract every penny out of customers to maintain profitability.

Airlines get squeezed by airports and manufacturers (Boeing, Airbus, etc). Uber doesn't get squeezed by anything. They don't have the same risk to oil prices, and they certainly don't have to worry about covering MASSIVE fixed costs like airlines. Uber simply gets a cut of every transaction, and those transactions will continue to flow. They don't have to schedule anything with anyone (100% on demand), they aren't subject to airport fees, they don't have to worry about $billions of planes, and they don't even provide the service (the driver does - he is the one operating the vehicle and arranging the pickups/dropoffs).

Uber's software does all of this already. They just need to maintain a certain level of marketing and overhead to support the whole shebang, while collecting boatloads of cash.

[curiousjorge]

The fact that they don't own any car proves there is no barrier to entry. If they had their own self driving cars it would be a very different story but since they don't own any of the assets like an airline does, the barrier entry is nil. To start an airline you need large investments (you need to rent or purchase airplanes, crew, fuel). To start something like Uber does not require the same investment in assets, there is no such cost apart from copying the app and offering lower prices as soon as Uber begins to raise prices.

Nothing suggests they are like Mastercard company, rather the logistics company line is a better explanation of their high valuation. But network effect or lock in? It simply doesn't happen by purchasing more assets because the customer simply does not care in a price sensitive market.

[pitnips]

The network effect is the barrier to entry. It's a huge barrier to entry. There wasn't a barrier to entry a few years ago, but now there is a huge one. There won't be more than a few of these companies in the future; it's just not worth it for customers to have 5+ apps - 2 or 3 will do just fine (at the most). I only have the Uber app, like most people, and I don't have a reason to download another until Uber disappoints me. However, more users lead to more drivers, which minimizes the chance Uber disappoints me.

Logistics companies are an ok comparison, but not really. A higher number of people that use a certain logistics company doesn't necessarily translate to better service. FedEx/UPS would be a better comparison (more people utilizing their capacity will reduce shipping rates and increase service levels, i.e. delivery times), but they own inventory, so it's not a perfect comparison.