I went to Perth in Australia for a holiday with my family early last week.
In searching for accommodation, online marketplace Airbnb was a natural choice as the apartments offered on the platform are usually more spacious and come with facilities such as balcony, kitchen and laundry room.
Also, you have far more choices at better prices, compared to hotels. No wonder, the service has become popular both among the old and young.
When it comes to ride hailing service apps, Uber has been described as the Airbnb of the taxi market.
The New York Times estimated that Uber was valued at US$62.5 billion as of December last year. However, the company has yet to make a profit.
It’s quite normal for start-ups to burn money initially in order to snap up market share. And technology giants are aware of the “winner takes all” phenomenon in the new era.
That said, I remain skeptical about the strength of Uber.
In contrast, Airbnb’s success has been assured since there is limited supply of properties and the assets are also unmovable.
Holiday makers had limited hotel options in the past if they wanted to stay in a particular district. But now, they have far more choices and supply as more private hosts are willing to share their houses.
Also, customers have diverse options on aspects such as apartment interiors and services. By contrast, the service offered by Uber drivers is pretty much the same.
In addition, Airbnb hosts and tenants care a lot about online reviews on them.
If a tenant, for instance, steals or has a noisy party at midnight, or if the host behaves rudely, there would be unflattering reviews.
Hence, the online platform provides useful information for both tenants as well as hosts.
By contrast, Uber’s car hailing website is less useful in terms of reviews due to the short service period.
Also, Uber has many competitors, including taxi, public transport vehicles as well as similar apps. The industry has low entry barrier, and Uber has very limited distinction in terms of price and services when compared to other replacements.
Let’s use Uber’s indirect competitors, GoGoVan and EasyVan, as example.
I talked to a young van driver who has been in the business for four years. The person dismissed the common perception that more apps would bring him more orders and convenience.
Also, the driver complained that it’s quite dangerous to be watching the mobile always and fight for orders while driving.
Surprisingly, the driver prefers the traditional taxi call center, where drivers do not need to fight for orders as the orders are distributed by districts.
However, the drivers need to pay a membership fee of HK$3,000 up front, as well as a monthly fee of HK$1,400. The call center is expensive relative to free car hailing app.
Uber is more suitable for densely populated cities, even though the places may already have well-developed public transport networks.
But the low entry barrier means far more intense competition.
This article appeared in the Hong Kong Economic Journal on March 30.
Translation by Julie Zhu
[Chinese version 中文版]
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