What I meant by “winning”
Why I think the personal driver marketplace will be owned, not just led, by one single service.
After reading my last post, @ldubost took issue with my use of the word “winning”. His main argument is that “winning” implies a single company owning a market, which will not necessarily be the case — several actors could split the personal driver market between themselves. He suggests that I could have used the word “leading” instead. I stand by my choice of words. Here’s why.
In my article, I hinted at the fact that I believe there will be one actor that will own the personal driver market. This stems from my analysis that the leading service will be the first to achieve marketplace status.
This is a topic touched by Peter Thiel in one of his CS183 class sessions:
For a company to own its market, it must have some combination of brand, scale cost advantages, network effects, or proprietary technology. […] What’s understood is that if you manage to build a brand, you build a monopoly.
Peter goes on to apply these principles to tech companies:
There are three steps to creating a truly valuable tech company. First, you want to find, create, or discover a new market. Second, you monopolize that market. Then you figure out how to expand that monopoly over time.
Quickly followed in the same article by this practical bit of advice:
The best kind of business is thus one where you can tell a compelling story about the future. The stories will all be different, but they take the same form: find a small target market, become the best in the world at serving it, take over immediately adjacent markets, widen the aperture of what you’re doing, and capture more and more. Once the operation is quite large, some combination of network effects, technology, scale advantages, or even brand should make it very hard for others to follow. That is the recipe for building valuable businesses.
I believe this is exactly what will be taking place in the personal driver space. On the demand side, the user base for that type of service is global. A Uber user in Paris, France is the same guy who will be using Uber on his next trip to San Francisco. Similarly, on the supply side, a driver for Uber is the same as a driver for chauffeur-privé (it looks like it’s currently common for drivers to subscribe to more than 1 service).
Once a service starts having a clear lead over others, a self-reinforcing phenomenon will be taking place. Word of mouth increases exponentially with the number of users. Convenience increases for users with the added number of vehicles. The marketplace becomes more and more liquid. People start using the service because their friends use it. Drivers flock to the service. With more data and more drivers, the leading service will be able to significantly improve its user experience over competitors (shorter waiting times, precise ETAs…). Once it reaches critical size, the service can start lowering its fee while still generating significant revenue, out-pricing competitors in the process. The network effect imposes its full force on the market.
Peter Thiel goes on to list a number of services that lead in their respective fields (eBay, Amazon, Twitter…). Each of these services has succeeded in creating its own kind of monopoly, at the expense of their competitors (Borders, anyone?). That’s what I meant: a service completely dominating its market, in the same way that Facebook owns casual social networking and LinkedIn owns professional social networking. In other words, they won.
I’m sure Andy Swan would agree.