Namely, I see 3 primary flaws:
1. A marginally lower price is not by itself enough to achieve market penetration. If it takes 5-10 minutes longer to get a ride on your platform (due to fewer drivers), I'm not going to use it—even if you are 20% cheaper (wiping out Uber's entire margin).
I think you have assumed that I would not have as many drivers on the road as Uber. I would have as many or more - hence the need to go after mid-size markets to begin with. The time for the driver to turn up with my service would be the same or better than Uber.
2. You're ignoring the pooling savings which come from being able to easily coordinate shared rides due to a huge installed rider base.
I am not ignoring it. If there is demand for this service and I have as many cars on the road as Uber then I can offer the same pool service. I will still have the same unit cost advantage.
3. Uber can spend you into the ground. They have a massive war chest and continued huge revenue from their mature markets—enough to undercut you until you run out of oxygen.
The biggest flaw of these 3 is that I just don't think price alone is sufficient to overcome network effects. If it were, the $100+ vouchers which I see also-ran competitors giving out would have made a dent in Uber's market share.
If you limit the size of the markets you go after then there is a limit to what even Uber can spend trying to kill you. You just need to be able sustain any loss over the length of time that you think Uber can fight you for. The key to success here is have enough resources to survive the level of damage anyone can throw at you. Personally I would hold off until Uber just goes public when they can’t afford to waste as much money anymore.
More fundamentally the reason none of Uber’s competitors like Lyft (or even Uber itself) has pursued this model is that you can’t sustain it at the capital cost that VCs demand. It is a model which will only be pursued by businesses with a low cost of capital in much the same way the container shipping industry is run. The problem for Uber long term is once a business enters with this model they will be hard to fight.
I have to say these discussions are lots of fun :)
I think you have assumed that I would not have as many drivers on the road as Uber. I would have as many or more - hence the need to go after mid-size markets to begin with. The time for the driver to turn up with my service would be the same or better than Uber.
2. You're ignoring the pooling savings which come from being able to easily coordinate shared rides due to a huge installed rider base.
I am not ignoring it. If there is demand for this service and I have as many cars on the road as Uber then I can offer the same pool service. I will still have the same unit cost advantage.
3. Uber can spend you into the ground. They have a massive war chest and continued huge revenue from their mature markets—enough to undercut you until you run out of oxygen. The biggest flaw of these 3 is that I just don't think price alone is sufficient to overcome network effects. If it were, the $100+ vouchers which I see also-ran competitors giving out would have made a dent in Uber's market share.
If you limit the size of the markets you go after then there is a limit to what even Uber can spend trying to kill you. You just need to be able sustain any loss over the length of time that you think Uber can fight you for. The key to success here is have enough resources to survive the level of damage anyone can throw at you. Personally I would hold off until Uber just goes public when they can’t afford to waste as much money anymore.
More fundamentally the reason none of Uber’s competitors like Lyft (or even Uber itself) has pursued this model is that you can’t sustain it at the capital cost that VCs demand. It is a model which will only be pursued by businesses with a low cost of capital in much the same way the container shipping industry is run. The problem for Uber long term is once a business enters with this model they will be hard to fight.
I have to say these discussions are lots of fun :)