The technology financier, has a funny way of defining a monopoly—”the
kind of company that is so good at what it does that no other firm can
offer a close substitute.” While not exactly useful for consumers, it’s
good advice for entrepreneurs: Strive for monopoly power, he says.
Otherwise, competition drains away your profits.
Google is a monopoly, Thiel says, just as Microsoft once was. Now we face the question: Is Uber?
I’ve argued before that the car-service platform has developed as its
primary product something of a commodity business: That’s why Uber has to be so aggressive
about under-cutting its competitors’ fares while still guaranteeing
driver wages, moves that put pressure on its profit margins, just as
Thiel worries. The technology behind matching mobile customers with cars
just isn’t that difficult to implement at scale—at least, not difficult
enough to keep competitors out.
Of course, this isn’t to diminish Uber’s successes or the strength of
its network: Like Facebook in the social world, it is the dominant
platform, in part because of momentum—it has the most regular users, the
most cars and the most brand visibility. Its strategy has been to ride
that early lead to a dominant position in the market. And so far, so
good, even if regulatory battles are boosting its burn rate.
But now it may face an even larger challenge: Bloomberg
reports that Google,
an investor in Uber, is developing its own car-sharing app—designed to
take advantage of the company’s development of self-driving car
technology—and has proceeded far enough that the company’s top lawyer is
considering stepping down from Uber’s board.
While
a cryptic tweet and
a Wall Street Journal story cast
doubt on whether Google is all that close to launching an Uber
competitor, it’s likely not coincidental that Uber is going for broke
and
hiring an entire lab of Carnegie Mellon engineers and scientists to develop its own self-driving cars.
Uber CEO Travis Kalanick
has talked about
putting self-driving cars on the Uber platform before, though he walked
back those comments in the face of criticism from the human drivers he
still needs to keep his business afloat until we reach a driverless utopia. But even Google is years away from street-legal robot cars—for one thing, they just don’t
handle adverse weather conditions all that well.
In the meantime, however, there’s no reason Google couldn’t launch
Google Cars to start building out its own network. It surely has the
capital and the technical expertise to do so, and with so many Google
users in the world, it has a waiting market.
But perhaps Google’s executives realize that, using Peter Thiel’s
logic, the car service business isn’t that profitable because it’s so
competitive. Perhaps Google and Uber alike feel the real killer app to
protect a car service’s juicy profit margins is ditching the labor
altogether and making automatic cars—a truly difficult product to
substitute—even if putting a fleet on the road is massive capital
investment. Pity the poor drivers.