Use Lyft whenever you can, instead of Uber (for the record, I’m referring to UberX, not black cars). Not because Lyft weirdly decided to put pink mustaches on the front of their cars as an initial marketing ploy, and as a society we should support that level of silliness, but because if Uber wins, they will have a monopoly on a service that we will have grown to rely on, and that’s going to suck.
You know how we all hate taxis now? If Uber wins, it’s going to be “meet the new boss, same as the old boss”.
Ride services that get you from point A to point B (Taxis, Uber, Lyft, Sidecar, etc) are fundamentally a commodity industry. One car may be slightly nicer than another, one driver might be cooler than another, but 98% of the value we get from ride services is that we get from one place to another and don’t perish on the way.
With a commodity industry, you have two main types of costs:
1) Raw Input Costs
For Uber/Lyft the main input cost is paying drivers (for now, until they cut them all out in favor of driverless cars). For an oil refiner, the input cost is the price of oil.
Generally, everyone in a commodity industry has the same input costs, and they can’t really compete with each other on inputs alone. It would be extremely difficult for Uber to pay its drivers less than Lyft pays its drivers (because drivers would switch companies), and for Uber/Lyft there is no option to vertically integrate and own the inputs at the source because they can’t own people. (They’ll be doing their best to fix this in the future, by the way, by owning some sort of proprietary technology around driverless cars…but that’s for a different post.)
2) Operating Costs
Operating costs are everything required to add value to those raw inputs in order to resell them for a profit. For Uber/Lyft, this is software development, marketing, HR, accounting, etc…all the functions of the company required to turn a willing driver into one unit of you getting a ride somewhere. For an oil refiner, it is the plant, marketing, HR, accounting, etc.
In a commodity industry, input costs as a percentage of price remain constant as sales increase, more or less. If Uber/Lyft rides increase 10x, the amount it has to pay its drivers also increases 10x. However, operating costs don’t remain steady as a percentage of price as rides increase because they often have a technology component that allows them to efficiently scale. If Uber/Lyft rides increase 10x, software development costs might only increase 2x, and accounting might barely increase 1.5x.
This means that in a commodity industry, the biggest company has the lowest costs per unit/service/good sold. And because firms can’t fundamentally differentiate their offering (it isn’t like Uber or Lyft can get you somewhere faster or better), the only way they can compete is on price. This means that the biggest company competes the best because they can afford to charge the lowest price.
This advantage in turn helps the bigger company sell more units/service/goods, bring down costs as it grows even bigger, and be more competitive by lowering prices. This is the stage we are in right now with Uber/Lyft, they are competing hard, and it is awesome…until Uber wins because they’ve raised more money, grown more quickly, and can grind Lyft down until Lyft agrees to be acquired. Then suddenly Uber is the Standard Oil of ride services, loosely-regulated-at-best, and we are all screwed. Prices will go up, innovation will slow down (except in ways to attract value from customers) and service will go to hell (see: Government Services). At least taxis, as terrible as they are, are regulated to protect consumers in some way.
Uber, like every tech company scaling for the masses, is your best friend at first – subsidizing services with investor money and making you feel all sorts of loved while they build consumer habits and market share (while snuffing out the competition). Once this power has been realized, they will turn on the monopoly switch and exercise that power for their financial benefit, not yours (see: Google, Facebook, any business that relies on ads).
There are long-term positives and negatives of this cycle that are for another post…but the important thing is that people are aware and don’t get duped into thinking any of these companies really love them. They want to build monopolies, and then they want to exert their power to your detriment.
So, when in doubt, take a Lyft, and keep ride services competitive as long as possible!