1 month, 13 days ago

Uber and the Economics of Disruption

Link: http://rvsoapbox.blogspot.com/2022/05/uber-and-economics-of-disruption.html

In a previous post on Uber Mathematics, I asked how the magic of digital would allow a centralized company with international overheads (Uber or Lyft) to provide a service more cheaply and cost-effectively than local cab companies.

Uber once promised it would achieve economies of scale, thanks to network effects. But then, as Ali Griswald comments,

What is scale if not a company that operates in 72 countries and more than 10,500 cities, which last year had 118 million active users every month and completed 6.3 billion rides/trips/deliveries? Uber is the definition of scale, yet it is still nowhere near consistent and reliable profitability.

Uber appears to retain an advantage over local cab companies in terms of consumer convenience, which we can frame in terms of the economics of alignment. But as Henry Graber points out, it remains to be seen how much consumers are willing to pay for this convenience when they are no longer being heavily subsidized by over-optimistic investors, and Uber is no longer the cheapest option.

Another point Graber makes about Uber is that it has disrupted alternative modes of transport, by a combination of predatory pricing and political influence, and the regulatory environment in many cities has been altered in Uber’s favour.

There are processes here that operate at different tempos. There is a demand tempo – getting sufficient numbers of drivers to a specific location at a specific time to satisfy peaks of demand. And an acquisition tempo – how long does it take to increase the number of available drivers, given the necessary investment in vehicles and equipment, driver training, and a whole range of safety issues.

Because there’s a big difference between these two tempos, the challenge for a healthy ecosystem is in the intermediate tempo, which we call the integration tempo. What are the options for cities to restore requisite variety to local transportation?

Aaron Gordon, Uber And Lyft Don’t Have A Right To Exist (Jalopnik, 30 August 2019), Uber and Lyft Are Out of Ideas, Jacking Up Prices in Desperation for Profit (Vice, 27 May 2022)

Henry Grabar, The Decade of Cheap Rides Is Over(Slate, 18 May 2022)

Ali Griswold, Uber wants to show you the money(Oversharing, 10 May 2022)