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Uber, Lyft, Who Cares?

Recently, Uber's business practices had me a little worried. Several issues seemed to converge: Uber was trying hard to edge out its established competition. Uber was expanding quite quickly internationally, attempting to become a market-dominating first mover. Uber had far more cash on hand than its competition, a full $1.5B in funding, which it could use to lobby against opposing regulations, and competitive pricing so as to undercut its competition. Considering these factors, it seemed as if Uber was well-poised to effectively become a monopoly. I found this prospect troublesome, because Uber's aggressive competitive tactics (e.g. sabotaging competitors like Lyft by requesting and cancelling rides) did not inspire consumer-level trust: once a monopoly for this near-essential service is established, there's nothing that would stop Uber from raising prices.

Naively, my first response was to support the competition. I decided to stop using Uber, and to instead use Lyft, which hadn't been accused of unethical business practices, and generally seemed a great deal more friendly toward the consumer. However, this was not practically feasible at peak times, as Lyft operated on a smaller capacity than Uber. So I reevaluated my position, and investigated how likely Uber actually is to become that worrisome monopoly.

In short: I think Uber will not be able to maintain a dominant market-share in the ridesharing space. This space will become divided among many ridesharing services. Here's why:

I have attempted to lay out the reasons why the rideshare market will likely become fragmented between competitors, implying that Uber will cease to hold a dominant market share within the next few years.

This does not imply that Uber's current valuation ($18B) is mistaken. The global taxi industry is notoriously hard to value, with conventional estimates often around $50B, but it is worth noting that people who previously did not take taxis are now taking Ubers. Some people are leaving their cars at home, and others are taking Ubers rather than public transit, due to a continuously diminishing price differential. Some people even use Uber to shuttle their kids to school. It is difficult to predict where this trend will go, but I would not be surprised if the rideshare market turns out to be much more valuable than the global taxi industry, which means that even if Uber were to only control some fraction of the market, it could still justify its current valuation.


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[0] I've been asking Lyft and Uber drivers about their experiences when I get rides from them. I have informally collected data from approximately 40 drivers in New York, New Jersey, and Chicago in the past two months.

[1] A comparison would be to flight search engines: there exist websites that will, given a set of dates and departure/arrival cities, query many airlines, and return the cheapest flights. These are commonly used by consumers in lieu of manually researching flights.

[2] I do not know if this is consistent across different geographic areas — in New Jersey, this cut appears to currently be 31%, and I've heard of other amounts elsewhere.

[3] At least now, while the profit margins are still large.



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