Uber Valued at More Than $50B • Hacker News Board

Re: Uber Valued at More Than $50B

#91

Post by pitnips » Mon, Aug 03, 2015, 2:30 AM UTC

curiousjorge wrote: post #77

pitnips wrote: post #76

Earlier quoted context omitted.

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 eff…

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, th…

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.

Re: Uber Valued at More Than $50B

#92

Post by pitnips » Mon, Aug 03, 2015, 2:36 AM UTC

gmarx wrote: post #85

pitnips wrote: post #76

Earlier quoted context omitted.

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 eff…

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

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.

Re: Uber Valued at More Than $50B

#93

Post by pitnips » Mon, Aug 03, 2015, 2:46 AM UTC

curiousjorge wrote: post #75

pitnips wrote: post #68

Earlier quoted context omitted.

But it is a network effect. The more people that use the service, the better that service will be. If only a few people used Uber, there would only be a few drivers. This would lead to high prices and poor service levels. The more people that use Uber, the more drivers there are, and the lower the price and better the service. That leads to consolidation to those services with a high number of users, and those servic…

I don't think you understand what network effect is. A network effect is where the network raises the costs of switching to another network significantly that they are locked in. ex. FB and your friends. There is nothing that suggest Uber has a network effect that locks in a user to use Uber. You are talking about a quality effect from the assumption that more assets will lead to a lock in effect but it's hopeful at…

Well, I think you don't understand what a network effect is. From Wikipedia, "A network effect is the effect that one user of a good or service has on the value of that product to other people."

It's as simple as this: the more users Uber has, the more drivers it will have. The more drivers Uber has, the better the service and the lower the prices. Therefore, a greater number of users leads to greater value of the product (service) to other people.

"You are talking about a quality effect from the assumption that more assets will lead to a lock in effect but it's hopeful at best." I think you're totally missing here. Why is everyone talking about Uber and not Lyft or some other company? Why would anyone switch from Uber to another app if he/she is happy with Uber? Why don't you or anyone else write an app and go create a network of drivers? Because no one will switch, that's why. And that's the effect of the network.

Facebook didn't have any more assets than Google+, except for the users. How is this any different from the "quality effect" you are talking about?

Re: Uber Valued at More Than $50B

#94

Post by pitnips » Mon, Aug 03, 2015, 2:53 AM UTC

prostoalex wrote: post #81

pitnips wrote: post #48

Earlier quoted context omitted.

Groupon doesn't have a network effect. Uber has a VERY strong network effect. In fact, it has the type of network effect that can keep its advantage over competitors (see Facebook versus Google+).

But it's localized network effect. Taxi drivers and consumers in Moscow or Barcelona are not going to switch right over just because #1 taxi app in San Francisco just arrived in their market. If a yellow cab owner from NYC decided to expand to Tucson or Kansas City, you'd expect him to do okay with his background in the ins and outs of the business, but expecting total domination based on his knowledge of NYC market…

It's a localized network effect only if they are isolated to local areas. However, most people in the U.S. (especially outside of SF) only have Uber, so the network effect grows stronger as consumers only need one app regardless of the city they are in.

I'm not sure I understand your yellow cab comparison. With Uber, no one needs an understanding of the local markets (aside from the laws, which can be done at the corporate level). Uber just shows local drivers how to make money, and they take a cut because they have a strong technology, brand, and user base.

As far as international expansion, I agree it would be much tougher. But even if they aren't successful outside of the U.S. (which I still think they will be), they will cash in billions.

Re: Uber Valued at More Than $50B

#95

Post by pitnips » Mon, Aug 03, 2015, 2:58 AM UTC

prostoalex wrote: post #82

pitnips wrote: post #67

Earlier quoted context omitted.

More users (i.e., your friends) drive higher service levels (more Uber drivers and quicker service times, which spirals). There is no "forcing," just as no one "forces" you to have a Facebook account. If you want bad service (long wait times, high prices) then your argument makes sense. However, the more people that use Uber will lead to better service levels and lower prices. Drivers benefit by minimizing wait times…

> More users (i.e., your friends) drive higher service levels (more Uber drivers and quicker service times, which spirals). Considering how many drivers are signed into multiple apps (and that will be the law of the land if Uber wants to keep them as independent contractors), there's also a bit of network subsidy - top network adding liquidity to its competitors.

But how many customers are signed into multiple apps? I don't think very many. And even if competition forces prices to go incredibly low, only the biggest players will survive. Uber's scale will allow it to weather low prices, especially since they just rake in transactional fees without requiring significant investment.