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Comment by paulgb | Hacker News Reader

I remember following Groupon closely and feeling like Groupon was spending a bunch of money teaching people around the world how to use daily deals, only to have competitors come in make it a race to the bottom because the barriers to entry were so low.

I feel like Uber is doing the same: spending a bunch of money teaching people how to hail a cab from their phone. When competitors like Lyft, Hailo, and Via enter the market and compete with them, it starts to look like the same race-to-the-bottom that happened with Groupon.

(Last I heard, both Via and Lyft Line are cheaper than UberPool right now in Manhattan. I suspect both are taking a loss on many rides to compete.)

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You also have existing taxi companies to compete against. Way before Uber was a thing, my preferred company in Stockholm had a simple hailing app, it was basically one button for "I want a cab, here, now". No tracking, no payments, nothing fancy, but still.

These days, Taxi Stockholm has a hailing app that is on par with Uber's app, and I just can't see how Uber can compete with that. I can use Taxi Stockholm and get a professional cab driver in a nice luxury car that is insured, regulated, cctv'd and has a trusted brand name, or I can use Uber and get a non-professional in a regular car, no taxi license plate, unknown insurance situation, for maybe a cheaper price.

Uber is fantastically successful in places where the existing taxi market sucks for whatever reasons, but there are plenty of places where it doesn't suck, and it's very questionable what Uber can bring to the table then. Or Lyft, Hailo, etc. Any technology they make can be easily copied by their competitors, but local vehicle fleets can't.

I think the Taxi companies are taking note and Uber is going to force them to innovate since they feel threatened. If they are able to do this, I think Uber will find themselves in serious trouble.

> nice luxury car

Are the cabs in Stockholm actually nice?

Compared to SF, oh yes, much better! The most common taxi in Stockholm is probably a Mercedes, and the average car of the kind of people who would want to drive for Uber is definitely not. I don't see how Uber could mobilize a comparable fleet to compete with that. I can see UberPool working where people expect a "regular" car, and I could see them becoming the dispatch of choice for non-affiliated taxi drivers, but that's the bottom of the barrel of that market.

If people think that taxi markets everywhere look like the one in SF, then I understand why people value Uber so highly and think they'll conquer every market easily. But the truth is that Uber doesn't have anything that isn't easily replicatable by entrenched taxi companies that are willing.

Same in Copenhagen, every taxi cab now carries advertising of its respective app.

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+).

What network effect? How does my friends using Uber force me to use Uber as well? I see it more like a toilet paper or shampoo thing: My friends might recommend Uber, but other friends would recommend Lyft, and others a local competitor. There is nothing that locks me in. We can disagree and I can live with them using Uber and me using some other service for years.

Unlike Facebook, Uber is easily replaced. I can't convince my friends to change to a Facebook competitor, but for Uber I don't have to. I don't lose out by using an Uber competitor. With Microsoft in the 90s I couldn't share or read documents if I used a competing OS. I literally had to use Windows.

Right now, Uber is paying lobbyists and lawyers squirming around the issues with braking taxi laws, labor laws, tax laws etc. And they are paying for marketing to teach us to order cabs using apps. And then, local competitors can make apps that are as good and the business model is easy to compete with.

If I travel to London I might not know what the local competitor of Uber is called and I may wanna go with Uber or a conventional taxi. But back in my city, Uber is just one of a bunch, soon one of many. That's, by the way, a difference from AirBnB who is only used by people who are out of town.

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 and being able to depend on the money.

And if you went to London, you get the convenience of not having to download a local app. You simply use Uber (what you're used to, what you depend on, what you trust), and you have one less thing to worry about in your travels.

No it doesn't have any speakable economic moat built around it. Like the parent comment mentions, it's just one of the many possible ways to get around the city, there's no cost of change.

>However, the more people that use Uber will lead to better service levels and lower prices.

That would be very bad for Uber. Lower prices would mean that they are constantly operating at a loss against traditional taxis and other competitors or apps.

Your argument fails to support that there is a network effect that would raise the cost of switching to alternative means of transport and incorrectly assumes that uber is able to operate at a loss constantly as the network size grows.

Take a look at the airline industry. The first guys to do it are nowhere. Everyone is undercutting each other because customers are not locked into one airline and are price sensitive.

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.

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.

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.

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.

> 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.

I wouldn't call it network effect, it's just a market. They need riders and drivers, just like Groupon needed buyers and businesses, but the fact that my friends use Uber doesn't stop me from trying Via. My Via driver the other night was telling me about how he drives for Uber on weekends. The switching costs are very low for both the rider and driver.

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 services will be the only ones that survive, hence the network effect.

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 best. There are no barriers to entry to erode future Uber profits if they make money and no perceived cost of using new entrants services or existing ones.

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?

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 is bit of a stretch.

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.

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