Uber: Capturing the Market
https://www.businessinsider.com/uber-needs-buy-merge-lyft-survive-make-profit-2019-11
It’s no secret that Uber is operating at a loss, which makes one wonder about their long term business plans. The article above claims that rideshare apps like Uber currently don’t have viable business models, and so touches upon a few points on how they can become viable. For one, while Uber is currently the dominating company in terms of rideshare apps, they cannot rely on the network effect to stay on top. The network effect describes how Uber’s value goes up the more users there are, but while it’s true that more users means more potential drivers and therefore more availability in finding a ride, it’s not enough. This is because there is nothing “proprietary” about Uber’s business model that other companies like Lyft can provide. Users can just open up both apps at the same time and see which have the closest or cheapest ride. There is no reason to exclusively use one app over the other. Otherwise, it would be a case of network diffusion where Uber tries to convince users to switch from one app to another. Instead, the article argues that Uber needs to buy out the competition directly.
Another aspect of Uber is how they underprice rideshare fees, which causes them to lose a lot of money. But by doing so, they are able to overcome the tipping point to capture the majority of the market. Afterwards, they can experiment with raising the price from there at the cost of losing only a little bit of users. Lastly, Uber needs to expand beyond ridesharing to turn a profit. Uber is already exploring other app ideas such as Uber Eats and Uber Freight, but they also have a lot of potential for selling opportunities for targeted advertising: Uber knows exactly where and when users go by tracking ride histories. This touches upon a previous topic with search behavior: knowing what users are looking for could allow Uber to sell spots to certain advertisers, since advertisers can buy “slots” that generate more clicks for relevant users, increasing the amount of traffic to their site. By taking advantage of network ideas, Uber will be able to eventually turn a profit, but that may be far into the future.