This post is using the term “disruption” incorrectly. Uber (and the ridesharing services) are not disruptive because, at present, it is better than the current taxi service in every way. If it weren’t for these services, I would have to own a car because taxis are so unreliable in SF. http://en.wikipedia.org/wiki/Disruptive_innovation
Also, I agree with the point of the article; my last Uber driver had a lot of complaints about the way the company was changing fees on drivers in a way that hurt him considerably, after he’d invested in a car with their service. He also said that it was still better than driving for the taxi companies, which were terrible to drivers.
It is good to be wary of any company that is absolutely tearing a market apart, like uber is. The chance for monopoly behaviors becomes almost inevitable–I personally have been on the paying end of 8x (!!!) surge pricing.
But even with that uber is so much better than the status quo. Even though their drivers are paid quite a bit less (I had some great conversations with uberx drivers this weekend) they still prefer to work for uber. Now, we can all hear Selection Bias loud and clear, but I have never had a bad uber experience but have had mostly negative cab experiences.
So uber is going to win this round. I can’t see how it won’t. I only hope when they start abusing their position a competitor will eat their lunch.
An important element of this debate that I rarely see discussed is that “Uber” is a really, really dumb name for a company.
Uber isn’t a “monopoly” or a “monopsony” or anything to that effect because (A) there are a number of direct competitors (Lyft is mentioned) and (B) the barrier for entry into the market is ridiculously low. They set up a disruptive middleman arrangement for rearranging the car service market, and there is absolutely nothing preventing another company from doing the same. Outside of some IT backend (which is basically overhead for a modern company), the level of investment required in replicating or improving on the Uber model is minimal. The only thing holding Uber ahead is inertia, and that can break as easily as it is formed in a competitive market.
The thing is that the cab companies could have done this ages ago. In most of Seattle calling for a taxi, even off rush hour, has always been hit or miss with wait times from 10 to 30 minutes, and often the cab never arriving. My limited Uber experience has been a 3-5 minute wait, even in more remote neighborhoods where I would usually try calling a cab, then wind up walking a ways to a bus stop.
There is no reason one or more of the taxi companies couldn’t have developed a more transparent and uniform dispatch system. There is no reason they couldn’t have done this five years ago.
I do worry about Uber’s monopoly and monopsomy, but one promising sign is that there is now an Uber driver’s coalition which could provide some push back. There are also the existing cab companies who could improve their product.
Uber’s initial service disrupted town-car service, not cabs: it was much cheaper than typical black-car service but with the availability of taxis. It quickly disrupted the taxi business as people chose to pay more for what is now Uber Black at times, but Uber Black by itself would have remained a valuable niche service. Lyft disrupted cabs (through experience rather than necessarily cost), and Uber dropped into that business.
As for appropriating the public space, that is what happened with the existing taxi structure. First came reform of a chaotic system, then the takeover of the public space, then the regulatory capture. When I can plan in advance, I tend to book small car companies, usually run by immigrants and get very good service, but when I can’t plan in advance Uber fills an important niche.
better in the same way that cigarettes without a tax stamp are better.
We could get into a very interesting discussion here if you’re interested, because this forms the heart of part of my concern.
The cost of entry into this market has actually risen quite a bit. Lyft, Sidecar, and others have raised tens of millions of dollars. The adoption of the app is the crucial factor as well as the very time-intensive and socially intensive factor of recruiting drivers, which Uber has been very good at. (They are giving Lyft drivers in SF $500 and a free iPhone right now to switch or add Uber.)
These ride-aggregation services don’t just release an app and have a back-end server operation.
Imagine, for instance, a company that wants to compete with Uber because Uber has knocked other players out of the market and raised rates. It’s now priced between cab and black-car rates of the past, and there are only some limited local players in each market, called by telephone, no other app-based player.
What would it take in that environment to compete in a single market? Probably millions for staff, app development, and driver recruiting. Drivers would have to be convinced to carry another phone or use another app and not piss off Uber and be knocked out.
I would love your thoughts on whether that would or wouldn’t be the case! Let’s have some dialog.
Doesn’t San Fran have a decent public transit system? Why not use that? I’ve never been out there, but if it gets you where you are going, for a decent price, what’s wrong with taking a train or the bus?
This is something I don’t cover directly: inexpensive car services often run by and used by immigrant communities. Drivers are typically licensed (some avoid this and go under the radar), and they aren’t expensive like typical town cars. It’s a niche business and could potentially still thrive outside of anything that disrupts cabs.
It’s very uneven, sometimes unreliable, often slow, and doesn’t always go where you need to be.
On a recent reporting trip in which my expenses were covered, I was as frugal as I normally am, but I wound up taking a $37 surge-priced UberX ride to a location from downtown SF to nearly Daly City. On my return, I did more bus research and was heading to a different part of SF and hopped on a $2 express bus back into town!
On another night during that trip, I went to and from the East Bay by BART (about $10 round-trip, I think), but my hotel was in a part of town with infrequent bus service, so I spent about $8 on an UberX to go the last leg.
Sounds much like public transit around here… MARTA is pretty notoriously bad, especially the trains, which generally don’t go far out into the suburbs, and there are only 2 real sets of lines - N/S and E/W. Buses are supposed to cover the rest of the city, but can be spotty too.
I’m curious if the parts of town with less reliable bus service are to the less or more affluent areas? The people with less access to cars or who have less money to spend on taxis or a service like uber would be more in need of reliable transportation, so it seems like the buses/trains should be more concentrated and reliable in those areas. Is that the case or no?
I do wonder if the surging will end up losing them more potential customers. I was interested in Uber and signed up for them a while ago (but haven’t had the need to use them yet).
However, after hearing about this (in my view, greedy) price surging business, it makes me think it’s best to keep access to my own a car available and not be at the whim of inconsistent pricing.
I’m just not sure I’d save money using Uber at this point compared to owning my own used car. I don’t want to pay more for far less convenience.
The mishmash of regulatory agencies and competition with existing taxi services seems likely to put early entrants like Lyft and Uber into an unassailable competitive position. With business models specifically tuned to compete effectively with traditional cab companies and ground floor input new regulation on such middlemen, these companies are raising the bar for every subsequent company that wants to take a shot at disrupting the market.
Heck, Uber has already managed a years-long effort at negotiating municipal and state regulations, crafting them in some cases, to be in the position that they are now as a nationwide service. A new company that wanted to get into the business would have to figure out every loophole, negotiate every counter-intuitive practice necessary to stay on the right side of the law. In some areas, it seems that Uber’s sheer audacity and deep pockets allow it to blow off the sorts of licensing that any lesser company would be immediately suffocated with.
[quote=“GlennF, post:12, topic:35988, full:true”]
The cost of entry into this market has actually risen quite a bit.[/quote]
Bluntly, no, it hasn’t. Virtually every company in this space started with an app, some IT infrastructure, and at least one driver. That’s all that is required to get started … at the moment.
[quote]Imagine, for instance, a company that wants to compete with Uber because Uber has knocked other players out of the market and raised rates. It’s now priced between cab and black-car rates of the past, and there are only some limited local players in each market, called by telephone, no other app-based player.
What would it take in that environment to compete in a single market? Probably millions for staff, app development, and driver recruiting. Drivers would have to be convinced to carry another phone or use another app and not piss off Uber and be knocked out.[/quote]
You just answered your own question - if Uber raises rates, then there’s space for a lower-priced competitor to take some of the market. (That is, unless you believe that price doesn’t matter to Uber customers.) Millions for staff, app development, and driver recruiting are not required - especially when there are existing pools of experienced staff, developers, and drivers. In fact, competition is often created when members of an existing company see ways to do things better, so they split off and form a competitor.
The economic ignorance of this article is appalling. Uber is not even close to a monopoly or a monopsony, and the market they are in is both growing rapidly and becoming more crowded. Many of the key features of a monopoly, such as strong barriers to entry, simply don’t exist - compare the Uber market to the traditional cab market, which is a government-enforced monopoly (or oligopoly) where market entry simply cannot be had at any price. (And this is something that the author clearly understands!)
The characterization of the Amazon/Hachette issue as the exercise of a monopoly power over a helpless publisher is beyond ridiculous - Hachette is one of the five largest publishers in the U.S., with the Twilight books among their products, and Amazon only controls 50% of the market. What’s next, a “monopolist” being someone who only controls 25% of a market? 10%? Amazon and Hachette are having a pricing dispute - nothing more. You can buy Hachette products at literally a hundred other websites, and Amazon can do nothing to stop them. While it may hurt them not to sell through Amazon, it hurts Amazon too. If Amazon was an actual monopoly, Hachette would have no choice - but it’s incredibly obvious that they do.
Further, if Uber was a such a bad gig, why are so many drivers and passengers switching to using it? If Uber and companies like it encourage discrimination, how would that avoid encouraging competition that doesn’t? And how could Uber “sit in the middle and avoid the overhead of the taxi world”, and still drive up prices? Does the author believe that price doesn’t matter to Uber customers and cab customers? Does the author believe that it’s an accident that the cab market isn’t competitive, even though he clearly understands why the cab market isn’t competitive? And why does the author think that cab companies going out of business is a bad thing, when even he notes their tendency to abuse passengers and drivers alike?
This article is basically complete rubbish. If you’re not happy with Uber, use a competitor - the cost of changing is almost literally nothing, and there are plenty to choose from. That’s how markets work, and this one hasn’t been broken yet by the politicians and their cronies - if left alone, will provide better service at lower cost.
Surely the “barrier to entry is low” for another service to compete with Uber the same way the “barrier to entry is low” for another social networking platform to compete with Facebook. After all, there’s nothing preventing another company from doing what they’re doing, and there’s the same low costs that consists largely of IT backend. But I don’t think either of us expects that anyone is going to do that, any time soon.