Uber is the middleman in a two-sided marketplace. It connects drivers with passengers, and takes a cut for this service.
Uber's competitive advantage is that it had the capital to attract drivers - with lots of drivers on its network, costs & wait times are lower for passengers, so passengers use Uber. Cue flywheel metaphor.
BUT Uber is still not profitable.[2] Unlike Amazon, there are no economies of scale in this business. Cities are local markets - Uber's dominance in A doesn't help it in B. And, as Uber acquires more customers, its cost of driver acquisition increases. Uber is so big that in many cities, it is churning through drivers and needs to incentivize the current drivers to stay on the platform.
Counterpoint: This is all a short-term concern! Once drivers are eliminated from the equation, Uber will be insanely profitable!
Wrong.
Once self-driving cars go mainstream:
Uber's competitive advantage completely disappears. As a passenger, all I care about is getting from point A to point B safely, quickly, and cheaply.
As a manufacturer of self-driving cars, why would I sell or lease them to a middleman (or if we're getting extreme, even to consumers!) to take the profits in this space? As Tesla, GM, etc. I am going to pump out a fleet of self-driving cars and have consumers pay for a subscription plan (X number of minutes / miles per month on my fleet). Because this is a very capital-intensive business, the government will then grant local monopolies to different providers and regulate them as utilities, much as it does today with telecoms.
Uber provides no value in this scenario. The winners in this space are going to be car manufacturers and the developers (licensers) of the self-driving software that get legal approval (and it seems extremely unlikely that this will be Uber).
[1] Full disclosure, half of this is a repost of what I wrote on another thread earlier today.
By the way Bezos himself says Amazon was his lottery ticket.. and mind you all Lottery tickets have an expiry date :). May be this administration is going to tax the heck out of Amazon.
Uber's current business model:[1]
Uber is the middleman in a two-sided marketplace. It connects drivers with passengers, and takes a cut for this service.
Uber's competitive advantage is that it had the capital to attract drivers - with lots of drivers on its network, costs & wait times are lower for passengers, so passengers use Uber. Cue flywheel metaphor.
BUT Uber is still not profitable.[2] Unlike Amazon, there are no economies of scale in this business. Cities are local markets - Uber's dominance in A doesn't help it in B. And, as Uber acquires more customers, its cost of driver acquisition increases. Uber is so big that in many cities, it is churning through drivers and needs to incentivize the current drivers to stay on the platform.
Counterpoint: This is all a short-term concern! Once drivers are eliminated from the equation, Uber will be insanely profitable!
Wrong.
Once self-driving cars go mainstream:
Uber's competitive advantage completely disappears. As a passenger, all I care about is getting from point A to point B safely, quickly, and cheaply.
As a manufacturer of self-driving cars, why would I sell or lease them to a middleman (or if we're getting extreme, even to consumers!) to take the profits in this space? As Tesla, GM, etc. I am going to pump out a fleet of self-driving cars and have consumers pay for a subscription plan (X number of minutes / miles per month on my fleet). Because this is a very capital-intensive business, the government will then grant local monopolies to different providers and regulate them as utilities, much as it does today with telecoms.
Uber provides no value in this scenario. The winners in this space are going to be car manufacturers and the developers (licensers) of the self-driving software that get legal approval (and it seems extremely unlikely that this will be Uber).
[1] Full disclosure, half of this is a repost of what I wrote on another thread earlier today.
[2] http://www.businessinsider.com/ubers-losses-narrowed-in-q4-b...