Assuming they eventually win all the legal battles and drive all other taxi and taxi-like services out of business
That's very unlikely to happen and I don't think anyone here at Uber sees the world as a zero-sum game as you portray it. Even in SF, the most mature Uber market, there are still plenty of cabs operating. Cabs offer a different service (street hails, fixed pricing etc) - which is why you can even hail a cab from the Uber app if you want.
Differentiation is key, and that's how Uber does and will compete with both taxis and direct TNC competitors.
I also don’t think it is very likely either, I was just assuming the best case scenario for Uber and I can’t see how they can make money in the long term even if they achieve this. Competition is great for consumers, but not so good for investors.
Edit. Thanks for the updates to your post Ben. Given Uber’s cost of capital and current valuation how do you see Uber earning enough of a return with a differentiation business model? Or is the current business model irrelevant to Uber’s future and you foresee a massive pivot?
I think you under-estimate the power of network effects and also the cost of entry to set up an on-demand transportation company. If it really was as easy and low cost as you assert I would suggest you would have seen many other players enter the market already by now.
Maybe, but if each market is isolated then the network effect is small. To dominate a market you just need enough drivers available to meet the market expectations. If you have two businesses in a market supplying an equal quality service, but where one is 20% cheaper, then the cheaper service will capture the majority of the market.
An alternative hypothesis might be that nobody can think of a way to make money by investing in such a market and so they don’t.
My god I hope this is not Uber’s plan. While this would actually work it is very, very illegal [1]. I can’t see the USA government turning a blind eye to such blatant antitrust activities, but after what they have let the banks get away with maybe it would work.
I think we are talking past each other here. Any competitor with an equal number of drivers can offer the equivalent to Uber pool in a market.
I was referring to a business model where Uber cut prices in a small market when a new competitor enters to kill them before they can get going. This model works really well once you are an established business (the Standard Oil model) hence why it is illegal.
Yes, we probably are. Not much of what you write makes any sense. Cutting prices is obviously not illegal. In extremely rare circumstances if the pricing is clearly below cost, you might have something. But that's even more unlikely in the software or service industries.
Yes I agree. I view the taxi industry as being made up of many separate markets where dominating one geographical market gives a company little competitive advantage in other geographical markets and hence why the taxi industry stayed fragmented when other areas of the transport industry consolidated. If this is wrong then the first business to win the consolidation race will dominate the market long term.
I don’t think Uber is in a commodity market right now (there is far too much innovation going on), I just don’t know how you prevent it becoming one in the future. Your current valuation suggests that a lot of smart money disagrees with me :)
Winning all the legal battles might not be their best case. They are getting good at fighting legal battles, and a permanent state of lawfare might be to their advantage (because they are better at fighting it than competitors).
If this is their business model it is a very interesting one. Create continual legal battles with the local authorities to scare off new entrants to the market.
I wonder if any business has ever used this model successfully before?
In a more general sense, quite a few businesses rely heavily on complicated regulatory environments that virtually ensure than only people who can afford lawyers can compete.
Of course, there's a difference between continual legal battles and just needing a lawyer.
That's very unlikely to happen and I don't think anyone here at Uber sees the world as a zero-sum game as you portray it. Even in SF, the most mature Uber market, there are still plenty of cabs operating. Cabs offer a different service (street hails, fixed pricing etc) - which is why you can even hail a cab from the Uber app if you want.
Differentiation is key, and that's how Uber does and will compete with both taxis and direct TNC competitors.