New ride-sharing alliance shows network effects

Uber’s rivals are now teaming up in a new effort to overtake the ride-sharing giant. We’re witnessing a fundamental shift in the way the ride-sharing game is played. This change demonstrates the importance of both local knowledge and the network effects of the sharing economy.

network

An article in The Australian today told of the joint venture between the US-based Lyft and the new Chinese Didi Kuaidi:

Uber’s biggest rivals around the world are banding together to launch a counterattack by linking their apps and effectively creating an international ride-hailing service.

San Francisco start-up Lyft and Chinese start-up Didi Kuaidi Joint Co. have formed an alliance to allow users of each app to hail rides from drivers of the other app while they are traveling to the other country.

This makes economic sense. It is fairly well considered among economists that sharing economy platforms—such as Uber and Airbnb—yield significant network effects (i.e. where the more people using a service make it more efficient).

In terms of transportation these network effects are clear — more riders and drivers on one application mean more efficient transactions through shorter wait times and fewer idle cars.

Up until this point, the winner here has clearly been Uber. But the new Lyft-Didi partnership changes things.

This partnership works precisely because it economizes on the regulatory costs of establishing in each country. Local regulatory and political knowledge is especially valuable here — assuming a Chinese company is more effective at navigating Chinese authorities, and so on. As Reuters reported:

The companies will take advantage of each other’s knowledge of local regulations, especially important in China, which has stymied many tech companies’ attempts to enter that market, and share new technology and products.

The partnership gives both companies their first opportunity to serve ride-hailing passengers when they travel overseas and allows them to pay for rides in their native currency.

These political benefits (which are of course a major concern) combined with the potential network effects associated with more riders and drivers, could signal a fundamental shift in the structure of the industry.

While this is only the first in these alliances, it could be interesting to see how far Uber’s rivals can take their agreements.


Meanwhile, I’m in Vancouver at the moment and there is no Uber to be seen. But what marvelous things competition does — the taxi companies have recently launched a mobile app in an attempt to keep Uber off the streets.

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