I do wonder what will happen once Uber starts charging market rates. Right now, your ride is subsidized by Uber. Once it comes time to turn on the profits, you'll have to pay more - substantially more in some markets.
Will you still use Uber? Probably. But many who started using Uber instead of, say, taking their own car or using public transport, just might go back.
> I do wonder what will happen once Uber starts charging market rates.
That's an excellent question and the answer is it wont be cheap. That's why, in countries where Uber operates, a clear legal framework is needed so that Uber doesn't end up with a monopoly. If Uber is allowed to operate somewhere then anybody should be able to do that without the need for an army of lawyers and lobbyists or it's just replacing the old boss with a new boss and in the end nothing's going to change for the consumer. That's what I hate with the whole situation.
Private monopolies are largely unproblematic as they will be destroyed by more effective competitors eventually. I'm way more afraid of government monopoly. Point in case: The protectionism and government interference that has kept the taxi business shitty for so long.
Private monopolies are in some theoretical circumstances unproblematic because according to extremist free-market ideologues they are destroyed by more effective competitors. In reality they are broken up by governments, regulated into the ground, or destroy a nation/society, and they manage to make a society/market a whole lot worse before this long-term and extreme regulatory action obliterates them and fixes the problem.
How is "ride-sharing" any kind of natural monopoly? Uber can't lock in either drivers or riders.
They have to consistently provide a good experience for both drier and riders, who can switch literally by opening a different app on their phone.
Uber probably had the market strength to contractually demand that you couldn't be on the Lyft network while on the Uber network. If they had done that, they would have lock-in effects. Maybe they didn't because they were afraid of monopoly accusations.
> they manage to make a society/market a whole lot worse
I can imagine this argument holding true for resource-based businesses, say, oil and gas. I can't imagine a taxi services aggregator having that substantial an impact on a nation
You're right the argument is less strong for a non-natural monopoly, but Microsoft, say, when they had a monopoly, held back computing by years and we're still seeing the aftereffects of their monopoly; it has warped an entire industry in not only the US but the world.
I find it ironic that people are warning about 'oooh, Uber monopoly' when their business model is all about deconstructing actual government monopolies.
Uber already has competitors in major markets. The market has very low switching costs. A new competitor doesn't even have to educate the customer on what to expect, or how it works, or even how to find drivers. All this has now been worked out, so any price gouging can be easily competed with.
I can only conclude those who want to 'regulate' Uber for the 'betterment of society' are severely long Taxi licences, or are hardcore socialists who abhor any economic freedom of agency, or maybe both.
I can only conclude those who want to 'regulate' Uber for the 'betterment of society' are severely long Taxi licences, or are hardcore socialists who abhor any economic freedom of agency, or maybe both.
That's a pretty stupid thing to say.
Regulation of taxi services does exist for a reason other than corruption or general malfeasance. On the one hand, deregulation might increase competition and reduce fares. On the other, regulation might help to avoid price gouging or ride refusals. There's a coherent discussion to be had there.
Your shallow dismissals of all attempts as regulation as by 'hardcore socialists' or 'Taxi licenses' contributes absolutely nothing.
I'm talking about the ability of Uber to become a private monopoly. My comment about monopolies is meant to highlight the disconnect of people arguing they might form a monopoly when most places already have a monopoly.
Many countries, eg much of Europe, already have largely deregulated taxis, eg the complaints in London are just about the legal requirement to declare the fare upfront for private hire vehicles. In Sweden taxis are completely deregulated. People seem to assume that the situation is like the US taxi monopolies everywhere.
You bring up an interesting point, though - Uber could very much suffer from being the first to break through all of these regulations, only for a second comer to step in, debt-unhindered, and destroy their business.
This is actually something that is pretty straightforward to find out (assuming you actual want to know the answer). You just jack up the prices in a single market and see how much price elasticity there is.
My feeling is that the taxi-like market is a commodity market, but if I was going to invest at a $50 billion valuation I would want Uber to tell me that have looked into this in detail and can provide me with some hard data.
Yes it should be possible to modelled this out from the surge data. Of course you have to be careful doing this sort of modelling since you might find your model won’t support a $50 billion valuation.
No it should not. Because surge pricing requires supply crunch. But the moment they jack day to day prices you will have supply glut. And creating an Uber like app for just one city is not that hard.
Surge pricing allows you to model the price elasticity of the service. You can do all sorts of experiments and regression analysis on this data. If I had access to the data I could tell you exactly how elastic the pricing is.
The problem is not that you can't extract the price elasticity from the surge pricing of an Uber-like service, it is that you might not like the answer. Down rounds are not nice to founders.
Uber is making money off of each ride. "Money they charge the end user" minus "money they pay to the driver" is a value that increases significantly each quarter.
They have a bunch of other expenses, but those are expected to lessen in the future. Training (of both customers and drivers) should fall to near-zero, for example, over time.
There is evidence of this all over the press if you want to search for it. Take for instance The 'non-profit' "People's Uber" in China. They guaranteed wages for drivers and capped rates at auto rickshaw prices. This spring in Guangzhou I was taking 20 minute rides and paying around $1.50. It was ridiculous. While they were trying to maintain a foothold in Germany as more than a legal taxi hailing service (which is what they are now, competing with apps like mytaxi) they were limiting prices to legal Mitfahrgelegenheit (private ride share) prices. What was normally a 70€ cab ride between Düsseldorf and Köln cost 12€ (Less than taking the regional train for 1 person though the driver was paid much more of course. This went on for months.
I'm sure they are making money in markets where the existing taxi service was truly dreadful and where they don't have to compete on price and have been able to raise their rates to on par or higher than taxi rates, but they are definitely paying a price for expansion.
> they are definitely paying a price for expansion.
Of course, that's the whole reason to raise capital (so you can expand rapidly on a model which has attractive unit economics).
The point is that we don't have to speculate about what will happen once Uber raises prices. Just look at their mature markets, where pricing is on par with taxis, and you can see a profitable model.
I think that the profitability in mature markets has a lot to do with how sane existing taxi regulations are. Even with the subsidized prices in Berlin, taxis there are so plentiful and relatively affordable that aside from heavily subsidized rides Uber didn't have a huge edge over the taxi+mytaxi combo. It was never really faster to get a car via Uber than with MyTaxi, or more often than not, just walking to the street and waiting 1-2 minutes. They've never had close to the same participation from Taxi drivers as MyTaxi and others have had. Incidentally, most Berlin Taxis are independent and pay only a small fee to get licensed. They must carry commercial insurance, but almost no one thinks that is unreasonable.
It's ironic because if the cities where Uber is madly profitable actually responded to their criticisms and reformed their protectionist taxi regulations, Uber would lose much of their pricing edge to competition.
Will you still use Uber? Probably. But many who started using Uber instead of, say, taking their own car or using public transport, just might go back.