Network effect as business model

Uber reported a $2.2 billion loss in the last nine months. Since it was founded in 2009, it's lost money every year. How can they keep going?

This article in Vox points out that Uber seems to be following Amazon's model.

Amazon’s unprofitability during the 1990s was an illusion created by Amazon’s aggressive investment in growth. Amazon was spending a lot of money on things like warehouses and new software that were going to take a few years to pay off. The company could have turned a profit earlier by spending less on these things, but Bezos convinced Wall Street that it was worth prioritizing growth over profits (indeed, when investors briefly soured on tech companies after the 2000 stock market crash, Amazon simply shifted to a lower gear and began showing modest profits).

Tim Lee figures this is part of the plan:

The other possibility — one that seems more likely to me — is that Uber really has figured out ways to make the taxicab market more efficient. I see three big ways that Uber’s model is superior to conventional taxicabs.

The most obvious one is that smartphone hailing is inherently more customer-friendly than having to call an old-fashioned taxi dispatcher. The Uber app gives customers a realistic estimate of how long it will take for a car to pick them up. And once a customer hails a cab, it allows him to track a car’s progress.

That’s much nicer than the traditional taxicab model where you’d call for a cab and then have to wait an unknown period of time for it to arrive — with no way to track the car’s progress. Before Uber came along, calling a cab was so inconvenient and confusing that many people didn’t even bother.

And Uber’s pickup times have gotten even shorter as the company’s fleet has grown. The more drivers a ride-hailing company has on the road, the closer the nearest car will be to any given customer — and hence the less time customers have to wait to get picked up. This creates a virtuous circle: More drivers improve the customer experience, which attracts more customers. And more customers attract still more drivers. In short, Uber is expanding the market for taxi services. It’s not just taking business away from traditional taxicabs.

A similar virtuous circle operates on the driver’s side of the market. As Uber gets more customers, it reduces the average distance a driver must drive to reach a customer — and hence the amount of time they waste driving without getting paid. A larger market also helps to smooth out demand, reducing the average time a driver spends waiting for the next customer call. The result: As Uber grows, its drivers are able to complete more fares per hour of work.

Here is one potential positive outcome:

If Uber’s dominance is cemented by lower costs made possible by network effects, that would imply that Uber could become profitable without ever raising fares to pre-Uber levels. An Uber-dominated market might be a lot more efficient than a competitive one, leaving room for lower fares, higher driver compensation, and healthy profits for Uber shareholders.

Here is the link to the full article:  Vox: Why Uber lost $2.2 billion in 9 months

Networking tips: how to start an email

This article gives three different ways to start emails with networking prospects.

https://www.fastcompany.com/3066116/how-to-be-a-success-at-everything/the-only-three-networking-emails-you-need-to-know-how-to-w

To link or not to link?

Original post:  Jul 1, 2013

Like many other business professionals, I have a LinkedIn account. The easiest way to describe this is to call it a business version of Facebook. While I don't post daily activities, it is useful as a way to keep in touch with some of the contacts that I may only see from time to time. It even helped me in one situation where someone from another organization needed to contact me because their phone was stolen and they weren't sure when our meeting was supposed to be. They reached out to me via LinkedIn and we were able to connect successfully!

Social networking for business can be a delicate area. LinkedIn users often post a business résumé. No one is required to add any data, but most people freely contribute. The more information you put about yourself and your job, the more useful the tool is for the others in the network. For the most part, only individuals in your network can see your full profile. There is one major exception. While membership is free, there is a paid side of the service as well that allows individuals and companies to see everything that is posted. That can sometimes lead to unwanted solicitations.

Everyone has to come up with a strategy that works for them. I found an article that has some helpful tips and an interesting rule that the author uses to decide whether or not to accept LinkedIn invitations. I thought the "would you do a favor for this person or ask them to do a favor for you" a good rule of thumb.

Here is the link to the full article:  http://blogs.hbr.org/samuel/2013/06/should-i-accept-that-linkedin.html?goback=%2Egde_42218_member_253236061

Why I blog

This blog will mirror the blog that I keep in our Jive PulseConnect area at work. I'll try to limit it to my favorite posts. This post was originally created on October 17, 2011.

My wife recently asked me why I blog. It's not as if I spend hours every day doing it to the detriment of the family. It usually takes just a few minutes to jot something down. The challenge (for me) is to do it at least once per work day.

I guess there are two key reasons from my perspective.

First, I remember reading a sobering statistic about blogs in general. Over 60% are abandoned in the first month and up to 95% are abandoned after 120 days. Nearly all of the people who read blogs never post or comment. This little blog is my own way to help populate PulseConnect with tiny bits of interesting things that may help keep people curious or interested. I find that committing myself to putting a thought down on electronic paper helps my own focus and makes me think. It's almost like mental exercise for me.

Second, I am also a firm believer in the "network effect." This is a phenomenon that establishes that the value of individual items increase as it becomes more pervasive. Think of a telephone. It's not valuable unless you can use it to call someone else. As you are able to call more and more people, it grows in value relative to the growth of the overall users and connections.

Perhaps it is simply hubris on my part, but I believe I have a lot of ideas. In and of themselves, ideas are not valuable. In my mind, ideas are like little seeds. If they remain in their safe, comfortable capsule, they will never amount to anything. They have to be digested and dispersed widely. If I am lucky, my little idea might grow into something more than just another thought. Maybe someone else will shepherd my idea and take it on. If it is fed and watered by others in the community, perhaps it can spark some kind of cross-pollination. As more and more of these ideas grow up and out, they generate a virtuous cycle of even newer ideas.

PulseConnect has the potential to become a microcosm of innovative activity within our company. It can only achieve that destiny if it is used and valued by the larger community.

And so I blog....