Uber being Uberized
A lot has been written around Uber and AirBnb as case studies of abnormal valuations — $31 billion in the case of Airbnb or $48 billion in the case of Uber. These are clear examples of how the concept of Multi-Sided Platforms hype has risen to the attention of every decision maker.
Common statements such as “Your industry is going to be disrupted” and “My startup is the Uber of Insurance” are present on every morning business news. But what does this new arrangement really stands for?
Multi-Sided Platforms (MSP)
This concept can be shortly summarised as the ability of connecting two or more participant groups. This was made possible as internet has massively reduced search costs and the smartphone enabled this unlimited access on the go.
Today when you have a heated argument with your friends around one topic, you can quickly validate the answers in your phone and move on.
The following image clearly captures the business changes that are happening:
However, there are some caveats to all this innovation. Topics such as the number of the sides present on the platform, how to price the products/services and how governance is applied will massively affect the resulting service.
Uber is a flagship reference on this domain and gave rise to a new way to approach mobility. In the absence of big entry barriers, if Uber wants to survive they need to look at the problem from another perspective.
Entry-deterring strategies
There are three commonly discussed entry-deterring strategies:
- Limit pricing – low price before entry
- Predatory pricing – low price to force exit
- Strategic bundling – combine services at a lower cost that the joint purchase
Uber usually introduces low prices when they enter. They have positioned themselves in multiple categories (e.g. UberX, UberBlack) to accommodate multiple price segments. However, recent market entries show that when we look at traditional companies/taxis, Uber is not the cheapest.
So, Uber is now trying to push up the costs to compete in this industry by strategically bundling more services in the ecossystem.
If the first step was trying to disrupt themselves on a segment (self-driving cars), now the focus is on delivering the ultimate app for mobility services (exemplified by the acquisition of Jump Bikes).
Their strategy appears to be now to integrate every kind of transportation instead of just focusing on the cars/motorcycle segment and diversifying on the goods transported (e.g UberEats for food)
I will take the risk and say that we will probably witness the creation of a Uber membership monthly fee with access to cars, bikes, custom route buses…
Another way of delaying entry is to “informally” agree with regulation. I say informally because they cannot publicly agree as it will affect their cost structure. But as regulation is proven to defend the incumbents it is clear what will be the path.
Meanwhile, a Uber cost structure disruptor is being created…
Technology advances lay the ground for the new David
As previously stated, any market will invite entry if profit can be made. Therefore, any macro-event that disrupts the costs of delivering this service will certainly invite even more entrants and that is exactly what is happening, being Blockchain one of influences.
Blockchain has been also a topic on the hype train. Normally, people dismiss it because of Bitcoin and all the cryptocurrency frenzy. However, when there is smoke there should also be fire. That is what I went looking for.
I am currently focusing my research on the economics affected by Blockchain. Although this topic is clearly just starting to hit the academic agendas outside of computer science, I was able to find two MIT researchers that published “Some simple Economics of the Blockchain”.
In this paper, there are two clear conclusions:
- Costs affected: cost of verification and cost of networking;
- Marketplaces can be deployed without the needed of trusted intermediaries.
Yes, you have read it well. All the intermediaries that are now trying to scale will soon be disrupted by decentralized platforms. Is the 30% fee that they want to take threatened? We will see.
Examples such as Arcade.City for Uber, BeeToken for Airbnb can be easily found and results verified as lower cost structures for platforms businesses.
Should I be worried?
- Do you depend on networking? Are you connecting different business sides?
- Do you have simple business relationships that depend on contracts to mediate trust? (e.g. tight supply chains as in the automobile industry will probably take more time to be affected as they are already very complex and interconnected)
If your answer is yes for any of these scenarios, you should investigate further.
PS: At the time of writing, I didn’t have any stake on any project mentioned. They are mentioned just as examples and not as investment suggestions.
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