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Comment by hn_throwaway_99 | Hacker News Reader

> Whether these companies have the unit economics to succeed is, remarkably, still an open question.

I don't think there are many people who doubt that ride hailing apps can be done profitably. I think the big question is (a) is it a commodity business (I personally believe it is) and (b) can potential profit margins support their astronomical valuations.

I think the main problem (though MUCH more so for Uber than for Lyft) is that it is valued as a "network effects" business, e.g. something like a Facebook or a Google with substantial pricing power, but I think the reality is that it will turn out to be much more like the airline business - basically a commodity business where raising prices is extremely difficult.

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> but I think the reality is that it will turn out to be much more like the airline business - basically a commodity business where raising prices is extremely difficult.

I believe you are onto something there. What did people do before Lyft/Uber? They walked more. They biked. They took public transportation. Maybe they drove themselves. Maybe they drove/carpooled with a friend. Maybe they took a good old fashioned taxi.

Faced with a price hike attempt, those options are again always on the table.

Sounds like you’re talking about the price elasticity of demand. You describe airline travel (at least for personal economy class flights) to be fairly inelastic, meaning that if the price rises even a little bit, a lot of people will just drive or not take the trip. That certainly rings true to me. I recently bought US domestic flights home for Christmas, and I certainly chose the absolute cheapest flight that fit the schedule and had less than 2 hours of layover. The price was already brutal, and I felt like I was very near the top of my price tolerance.

But I feel like the Lyft/Uber mode of transport is generally more spontaneously and is therefore generally more elastic. Sure, there are undoubtedly some inelastic use cases, like regular commutes, but there are also some very elastic use cases, like a ride home from the bar or a rescue from the rain. I am definitely interested to see how the breakdown of these different use cases turns out to be, but for me and my friends and peers in the SF Bay Area, the latter use case definitely dominates.

https://en.m.wikipedia.org/wiki/Price_elasticity_of_demand

Historically, I would have said that taking taxis was fairly price inelastic. You knew it would be relatively expensive but you either didn't care or it was really the only practical way to get from Point A to Point B.

However, my sense is that for at least certain locations/demographics, that's probably changed with Uber/Lyft. I don't personally use them much but anecdotally a lot of people have started using them as an alternative to public transit or just because it's easier if they're going out for a night on the town. And I work with a lot of people for whom the reflex seems to be to pull out a smartphone anytime they need to go more than a few blocks while traveling. I expect those behaviors would change if the price suddenly went to 2X. (It also definitely makes a difference at the margins when renting cars and that's mostly a straightforward price calculation.)

It's actually the other way around: demand is said to be inelastic if changes in price have little impact on it.

Ugggh, yes, no matter how much I read about this stuff I will always get that backwards. I think I always mix it up because I think of the price tolerance being elastic instead of the demand being elastic.

very elastic use cases, like a ride home from the bar or a rescue from the rain

They manage demand via surge pricing, I thought. So is it really elastic?

They also manage availability by surge pricing. It not only discourages riders, but it also encourages more drivers to work.

I think it’s probably more like them capitalising on the elastic nature of the demand for these scenarios. Definitely an element of control as well though, as there is increased demand too (but it’s likely more elastic and therefore more tolerant to price increases).

When you say you think it's a commodity business could you imagine a new entrant in a mature Lyft/Uber market? I couldn't. Pockets would have to be very deep.

The basic economics of Uber/Lyft-style transportation is very profitable. The biggest economic challenges are 1) entering a market and 2) pools. And Lyft & Uber fighting each other.

They're already not the only ones, there's cabify, mytaxy and a few others.

The drivers gladly use multiple apps so these businesses don't really hold much power in terms of lock-in.

I can imagine it. I’ve lived in San Francisco since 2011, and I remember using Uber, Lyft, and Sidecar. I have had long periods where I was “loyal” to each of those three, with Lyft being the current and longest-lived loyalty. At various times in the past I would comparison shop between all three, looking for the cheapest or quickest option.

So you’ve witnessed zero new successful entrants in 7 years despite a huge market.

On the contrary, Lyft and Sidecar both launched after I moved to SF, and I believe Uber was only a black car service when I moved there.

Setting up an airline isn't cheap either but plenty of people do it.

Setting up an airline is easier. You can lease a plane or two and fly one cherry-picked route. There’s no chicken/egg hurdle.

Buy a bunch of self driving cars and deploy in a city. No chicken egg there either.

Except self driving cars don’t exist.

Yes it would be fairly easy:

1. Start in one city only and concentrate on that. 2. Get your service listed in Google Maps. 3. Gradually expand.

Job done. The only real defence against that is that Uber/Lyft could probably afford to undercut you until you go out of business, Walmart-style.

Can you point to an example of anyone doing this (successfully)?

Yes there are actually loads of regional Uber-like companies that only operate in particular regions. Most recently I went to Thailand where they use Grab. It is advertised in Google Maps.

Do you think Waymo will build its own network or hitchhike onto someone else’s? If they choose the former, I can see them being a contender.

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