The limits of Uber's network effects and a "Sharing Economy" book



I know what you’re thinking: The sharing economy is so hip and cool and awesome that as much as I love this newsletter, I sometimes wish I could just read an entire book about it. Well, you’re in luck, because “The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism” by Arun Sundararajan comes out today. Sundararajan is a professor at NYU’s Stern School of Business and he’s been writing about this stuff for quite a while. His book has a good balance of anecdotes and data (surprisingly hard to come by in a business book), and is academic without being too didactic (ditto). Sundararajan tends to be a bit rosy on the sharing economy as a whole—one of his core theses is about how sharing platforms and ratings systems are helping to create a new era of trust—but I suppose there’s a place for that. Also, as sharing economy misnomers go, “crowd-based capitalism” is actually a pretty solid phrase. It fits companies like Uber and Airbnb, but also Craigslist and Kickstarter. And it’s a hell of a lot better than “digital matching firms.”


The saga of life after Uber (and Lyft) continues in Austin, and it does not disappoint. Last week, two lawsuits were filed in federal court in San Francisco alleging that Uber’s and Lyft’s departures following the May 7 referendum amounted to a “mass layoff” and that they violated labor law by not giving their workers 60 days notice. As with most claims against Uber and Lyft, this one hinges on the crucial assumption that drivers are employees and therefore protected by various state and federal labor laws. The companies consider their drivers to be independent contractors, and both are currently seeking to settle major class actions on that point.

Meanwhile, ride-hailing in Austin is reportedly alive and well. No fewer than nine startups are vying to fill Uber’s and Lyft’s void, and they’ve been welcomed by all the drivers who are anxious to get back to work. Harry Campbell of The Rideshare Guy spent some time on the ground and has good rundowns here and here.

The real takeaway, though, is I think what Austin teaches us about the limits of network effects in ride-hailing. It’s often said that Uber benefits from network effects—i.e., that it becomes stronger and better as more people (riders and drivers alike) join the platform. That’s certainly true, but what can get lost in the analysis is that these effects are largely hyperlocal. People don’t use Uber to travel between states, or even really between towns and cities. And so that Uber has won New York has little bearing on its operations in Boston, or Denver, or Austin. Sure, if Uber is making money elsewhere it can use those profits to subsidize cheaper fares in a contested market, but widespread US dominance doesn’t make it invulnerable in specific localities. Uber and to a smaller extent Lyft might be the ride-hailing Goliaths of the US, but that status is doing them little good in Austin. By leaving in protest, they’ve only opened the market for new competitors to claim.

Silicon Valley.

If you haven’t read it yet, I highly recommend this piece from the New Yorker, “How Silicon Valley Nails Silicon Valley.” It’s perceptive, deeply reported, and, of course, well written. It also includes this absurd anecdote about when actor T.J. Miller encountered Elon Musk:

Miller met Musk at the after-party in Redwood City. “I think he was thrown by the fact that I wasn’t being sycophantic—which I couldn’t be, because I didn’t realize who he was at the time. He said, ‘I have some advice for your show,’ and I went, ‘No thanks, we don’t need any advice,’ which threw him even more. And then, while we’re talking, some woman comes up and says ‘Can I have a picture?’ and he starts to pose—it was kinda sad, honestly—and instead she hands the camera to him and starts to pose with me. It was, like, Sorry, dude, I know you’re a big deal—and, in his case, he actually is a big deal—but I’m the guy from ‘Yogi Bear 3-D,’ and apparently that’s who she wants a picture with.”

Happened in a taxi.

A while ago, we talked about a type of story I like to call Happened In An Uber. Usually, these are local police blotter stories, but because they involve Uber they gain national attention, i.e., “Uber Driver Napped as His Passenger Led Highway Chase, Police Say.” Personally, I feel like this line of coverage has exaggerated the safety concerns about Uber, and that just as many if not more incidents probably Happen In A Taxi, but that the media doesn’t tend to care, and the data aren’t well kept. Anyway, here is the rare example of a taxi assault story someone actually bothered to write up, and it’s scary stuff. A New York cab driver picked up a woman, took her the wrong way, screamed at her, nearly ran over her foot when she jumped out of the still-moving vehicle, and then chased and grabbed her as she ran away. Ten dollars says this would have been all over the news had it Happened In An Uber. But it didn’t, so the story never made it past the Observer.

Elsewhere: Naked Virginia Man Swings Hatchet After Being Mistaken for Uber Driver, Police Say.

Other stuff.

Era of Lean Startups Nears an End. Your CAC Math Is Wrong, Too. Didi Chuxing raises even more money. Ditto Andreessen Horowitz. UberEverything comes to South Africa. Uber fined $900,000 in France. Uber unblocks Honolulu International Airport. Uber was shady (allegedly). Uber VR. Ride-hailing bill hits bumps in New York. Ride-hailing is shamelessly derivative. Airbnb holds “OpenAir” conference. Travis Kalanick has an expired license. Larry Page’s secret flying-car factories. Maple adds wine. Déjà vuber. LinkedIn’s LinkedIn. How Not to Fail. “In its own ride-hailing niche of the transportation market, Uber’s stance is ironically absolutely anticompetitive.”

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