Uber's Gett Problem

Moneybox
A blog about business and economics.
Jan. 24 2014 3:50 PM

Uber's Gett Problem

114649290-travis-kalanick-and-sarah-lacy-interview-at-techcrunch
Let's just hope nobody copies the idea.

Photo by Charles Eshelman/Getty Images for AOL

A startup called Gett had a pretty good idea for a business, provide basically the exact same service Uber does but introduce a measure of product distinction by not doing the surge-pricing thing. It's not in nearly as many cities as Uber, but it is in New York City and Sam Biddle has the story of how Uber's NYC office tried to kneecap the competition by creating lots of fake accounts to call for Gett rides and then cancel them. Now that the truth is out and the story's getting covered, Gett is receiving a nice surge of publicity which should help it break into the market.

Uber's shall-we-say hypersensitivity about facing competition reflects what may be a very serious problem with its business model.

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Traditionally the cab dispatch or fleet-ownership game has been lucrative precisely because of the regulatory barriers to entry that Uber is trying to hack or tear down. Drivers don't make very much money, because the supply of potential drivers is large. The real scarcity is permission to drive, and so the people who own the permits make the money. But Uber's basic tactic for busting down those taxi permit monopolies can be turned against it easily enough. And in a highly competitive marketplace between rival car-hailing apps, more and more of the revenue is going to end up flowing to the drivers since you'll essentially be in a war to maximize car availability and therefore ridership.

Now I suspect Uber's official answer to actual or potential investors would be that this isn't a problem since Uber's routing algorithms and other technology or so good that they're hard to copy. And maybe they are. But if they're really that good, then it's hard to see why it needs to resort to pranking Gett.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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