A commenter writes,
It’s not that *SOFTWARE* suddenly let Uber and Lyft do things previously undreamt of so they took over the old fuddy-duddy cab business. It was a power play.
If one of the standard cab companies had wanted to operate like Uber, the city administration which licenses cabs would have shut them down immediately. Because “That isn’t how cab companies operate” and to hell with your fancy software and lineup of venture capitalists. But Uber never tried to operate as a cab company. It just merrily put up ads and flyers and signed up drivers and was happily ferrying passengers hither and yon while the established cab companies were trying to get somebody in city government to answer the damned phone and listen to a complaint. By the time the typical city bureaucracy reacts to the existence of Uber, it’s generally gotten itself established in most users’ minds as old and legitimate, and very few cities have the … anatomical features …. needed to clamp down. So Uber prevails.
We had a useful discussion of this in my high school econ class the other day. I made a point similar to the commenter’s, that Uber’s success consisted of changing taxi regulations to allow unlicensed cars and drivers to operate.
There are many other areas where one can imagine a profitable business model could be generated by getting rid of regulations that restrict would-be suppliers from entering the market. For example, suppose that you set up an Uber that connected prostitutes with customers, and it became accepted and popular, so that the authorities decided against shutting it down. Or an Uber for capable but unlicensed health care providers. Or an Uber for liquor. Or an Uber for medications, including medications not approved by the FDA.
One student looked up the market valuation of Uber and found it to be somewhere north of $50 billion. Where does that value come from? (My first thought, by the way, is investor irrationality.)
If what Uber has is a superior algorithm for dispatching cars, then taxi companies could simply hire software developers to build such an algorithm. I don’t think that is the answer. Of course, I remember that when Amazon said that it was going to branch out from books to selling everything, somebody remarked that it would have difficulty competing with Wal-mart, because it is cheaper to start with Wal-mart’s logistics system and build a web site than it is to start with Amazon’s web site and build a logistics system. It is worth thinking about how Amazon managed to overcome that apparent disadvantage, but that is a separate post.
A student pointed out that the remarkable accomplishment of Uber was convincing riders that it is safe to use. “Can you imagine what my mom would have said a few years ago if I told her that I was using my phone to find a stranger to pick me up in a car? And yet people are ok with that now.”
I think that is the real key to Uberizing an industry. Take a business where the public has come to fear unregulated service providers, and find a way to overcome that fear before the incumbents find a way to use the political system to stifle the business.
Why don’t competitors come in until Uber’s profit margin shrinks? The students think that Uber has powerful brand recognition. One way to think about this is to ask why competitors do not come in to challenge Google.
I think that the analogy between Google and Uber breaks down because consumers do not pay to use Google. To take customers from Google, you have to offer consumers something at the same price (free) that provides a better user experience. That’s tough.
To compete with Uber, what you have to offer consumers a similar user experience at a lower price. That strikes me as not so hard to do.