Can Uber ever become profitable?

11

October

2022

5/5 (1)

Uber is a company that has been talked about a lot. When we talk about platforms in business schools, Uber is one of the most frequently cited examples. We might think of Uber as a successful company because we have heard about it so often, but I would argue that this is not the case. In fact, Uber has suffered immensely with profitability. Despite having its best ever quarter in terms of revenue in Q2 2022, it still racked up losses of 2 billion dollars (Browning, 2022). So let’s look at a couple of possible explanations why Uber is struggling with profitability.

First, Uber is a two-sided platform, with drivers on the one side and riders on the other. One of the reasons why Uber has struggled to make a profit is that people on both sides can switch between different platforms easily. For example, in the US it is not rare to see drivers with both Uber and Lyft logos on their cars (Santoro, 2018). The drivers have both apps and can easily compare to see which one offers a higher fare. If they are not happy with Uber, they can change to Lyft in a few seconds. Same goes for the riders. I find myself doing this quite a lot as it takes only a minute to check across multiple platforms for the cheapest ride or the fastest pick up time. Because the switching costs are low, Uber faces a problem of retention and has to compete for both riders and drivers.

Second problem with the Uber business model is that it is fairly easy to imitate and barriers to entry are low (Cohan, 2019). We have seen lots of local competitors copying the business model. Examples of these are Yandex in Russia, DiDi in China, and Bolt, an Estonian company, with strong presence in Europe (Keane, 2022). Tough local competition combined with low switching costs means that prices are pushed down, customer acquisition becomes more expensive, and Uber (along with the whole industry) faces challenges with profitability. Due to these reasons I believe that Uber will continue to struggle with profitability in the foreseeable future. Do you think that the business model and industry characteristics are such that there is no way for Uber to achieve sustained profitability? Or do you see Uber sustaining profitability in the near future?

Browning, K. (2022, August 2). Uber Posts Record Revenue but Loses More Money From Investments. The New York Times. Retrieved October 8, 2022, from https://www.nytimes.com/2022/08/02/business/uber-quarterly-earnings.html

Cohan, P. (2019, April 13). Why Uber Lacks A Sustainable Competitive Advantage. Forbes. Retrieved October 8, 2022, from https://www.forbes.com/sites/petercohan/2019/04/13/why-uber-lacks-a-sustainable-competitive-advantage/?sh=17c3307f2065

Keane, J. (2022, March 1). Uber And Bolt Sever Links To Russia But Didi Stays Put. Forbes. Retrieved October 8, 2022, from https://www.forbes.com/sites/jonathankeane/2022/03/01/uber-and-bolt-sever-links-to-russia-but-didi-stays-put/?sh=2553c50c75c4

Santoro, P. J. (2019, June 11). Uber Switching Costs Could be A Lyft. C[IQ] Customer Intelligence Solutions. Retrieved October 8, 2022, from https://www.c-iq.com/blog/2018/11/2/uber-switching-costs-could-be-a-lyft

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This is why there is a new European law for platforms

28

September

2022

5/5 (2)

There are 2 new laws proposed by the European Commission revolving digital services in the European Union. These laws are the Digital Services Act (DSA) and the Digital Markets Act (DMA) (The Digital Services Act package, 2022). But why did the European Commission planned new laws? In this part, the digital services act will be discussed. The evolving environment and fundamental rights of the users are important when considering the effect of platforms.

Digitization and platforms are becoming more important in the daily lives of individuals. Individuals use platforms for shopping, communication and many other purposes. For users, higher transparency, pricing and better content are some of the benefits of digitization of various services. However, these emerging trends are not all coming up roses. Individuals can also be exposed to some issues that come with digitization. Examples are illegal trade, limitations on self-expression or discrimination. Because these issues are in contradiction with the Universal Declaration of Human Rights (the same principle for which the GDPR is also developed), a new law is proposed to protect individuals, the Digital Services Act. By this law, platform owners obtain more responsibility for the content on the platform. The DSA requires organisations to have the right procedures at hand in order to deal with illegal content, such as fake news. An important note is that various “categories” of organisations revolving digital services or platforms have additional obligations. In order form the least obligations to most obligations, the categories of platforms are as follows: provider of intermediary services, hosting, online platforms and “very large online platforms” (Digital Services Act, 2021; PricewaterhouseCoopers, n.d.). An example of additional obligations is to allow conducting of external audits by authorities and crisis response. Moreover, the firms could be forced to share or be transparent about the algorithms used in advertising or recommendations systems. This creates more transparency for the users regarding online advertising.

To conclude, the Digital Service Act is developed for the increased risk of individuals online and on online platforms. The new law requires firms, dependent on their category, to implement processes to deal with illegal content and be transparent about algorithms and decision making.

In the opinion of the author, the new law will have an impact, but in small extent. The predicted trend of these new laws is similar to the GDPR. According to the GDPR, organisations may not process personal data unless an individual checks a box, which is often done without hesitation. The transparency of algorithms could be impactful, however most individuals are probably not focused on these decision-making processes. However, the GDPR did increase the recognized interest of privacy of European citizens. The DSA has the same opportunity regarding the risks of platforms and digitization and the increased power some platforms obtain in our daily lives.  

References

The Digital Services Act package. (2022, July 5). Shaping Europe’s Digital Future. Retrieved 27 September 2022, from https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package

Ministerie van Economische Zaken en Klimaat. (2021, November 25). EU-ministers akkoord met regelgeving voor digitale diensten en markten. Nieuwsbericht | Rijksoverheid.nl. Retrieved 27 September 2022, from https://www.rijksoverheid.nl/actueel/nieuws/2021/11/24/eu-ministers-akkoord-met-regelgeving-digitale-diensten-en–markten

PricewaterhouseCoopers. (n.d.). Grondige herziening van regels voor onlineplatforms. PwC. Retrieved 28 September 2022, from https://www.pwc.nl/nl/actueel-en-publicaties/themas/digitalisering/grondige-herziening-van-regels-voor-onlineplatforms.html

Digital Services Act, (2021). https://eur-lex.europa.eu/legal-content/en/TXT/?uri=COM%3A2020%3A825%3AFIN

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Finally action against social media platforms?

6

October

2021

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Over the last couple of years, scandal after scandal regarding the blatant disregard for mental health issues by social media platforms like Facebook have been brought to the public’s attention. The 2020 Netflix documentary The Social Dilemma, where several industry experts give insights into how social media platforms are exploiting users by manipulating their mental health for their own profits, brought great attention to these issues, but over time these effects subsided. This week, again, Facebook whistleblower Francis Haugen came out and stirred the pot by testifying before Congress the dangers of Facebook for children, and how the company put profits before the safety of users. Finally, it seems that governments are listening to society’s cries for help, but will it be enough to enforce stricter regulations?

It is not “news” that social media heavily manipulates its users to try and keep them on the app as long as possible, improving their own profits. For years it has been publicly known that platforms like Facebook hire people who’s main aim is to make the website as addictive as possible, without regard for the implications these might have on the mental health of users. As a result, increased anxiety, depression, and isolation are associated with excessive social media usage. Multiple employees have gone public to try and gain attention for this issue; some successfully, some to no avail. Recently, it was discovered that Facebook tried to cover up an internal report which researched how their products affects users. The report finds that 32% of young girls who felt bad about their body felt worse when they went to Instagram. Furthermore, the report concludes that Instagram negatively affects mental health in both young boys and young girls. With an app so commonly used among children, and (young) adults it is staggering how legislators are not cracking down on this extremely damaging industry. After all, (mental) health should be a main priority for governments.

This latest scandal has again put the power of social media in the media’s eye. Finally, legislators in the U.S. have put forward new, and expanding regulations that could have a bit of an impact on the negative effects of social media, such an expansion of the Children’s Online Privacy Protection Act which makes it illegal for platforms to collect data from under 13-year olds without consent of their parents. However, I am not very optimistic as other initiatives have often failed to become accepted into regulation, or fail to really serve the purpose of the legislation. Furthermore, the power of the platforms is enormous, and these are heavily involved in the funding of political parties, which poses another interesting question: should these gigantic (tech) corporations be allowed to be this involved in politics? However, that is a topic for a different blog.

Source: https://www.ft.com/content/e9e25ff3-639a-4cc1-bb81-dedf24d956e3 https://www.ft.com/content/febd8adc-8729-4e50-889d-f22a109fd44e

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Does Uber have a future?

30

September

2019

5/5 (1)

Uber has updated its app in a way that CEO Khosrowshahi has branded as the beginning of Uber’s step to becoming the ‘Amazon of transportation’ (Hawkins, 2019). The app includes new elements such as Bike lane alert, Improved Real-Time ID check and Verify your ride (Vasile, 2019). Besides new safety features, the app will now integrate UberEATS so riding and ordering can be done in one app, under the same Uber umbrella. More about the safety features later, first let’s take a look at why the company decided to also integrate public transit information into its app and why it believes that this will be useful since we already have an app for this (Google Maps, anyone?).

Uber is trying to expand from simply being an app to becoming a true platform business, targeting city life and transportation. As Khosrowshahi put it: “We want Uber to be the operating system for your everyday life” (Nuttall, 2019), meaning that it is attempting to build a complete experience for their consumers and aims to become a city life partner on all fronts: food, ride-hauling and even public transit. In a recent interview with The Verge’s reporter Andrew Hawkins, Uber’s CEO revealed the company’s ambitions in providing a platform that not only provides information but allows you to take action, advancing previous CEO Kalanick’s goal to brokerage all human movement in cities (Hawkins, 2019). However, what makes the Uber app more special than for example Google Maps or Citymapper? Khosrowshahi demonstrates the app and explains how it will be a comparable experience but provide all services in one place and allows customers to take action in the application, increasing app engagement which will provide more business (read: data) down the road (Hawkins, 2019). The choice to integrate public transit information, and eventually ticketing, into the app was not motivated by money: Khosrowshahi simply explains that it hopes to complement transit, offer Uber users all options and therefore cater to the individual user’s needs, whether that be timeliness or budget. Khosrowshahi says the company aims for profitability in the long run, achieved by creating “the right solutions for consumers, even if it’s not making them money” (Hawkins, 2019).

The decision to incorporate transit information is not entirely random, as Uber, Lyft and other ride-hailing apps have been proven responsible for declining rates of public transit usage; both rail and bus ridership falling by 1-2% after the entrance of a ride-hailing app into the market (Graehler et al., 2019). As clarified by the CEO, Uber wants to complement transit, beside the fact that it has competition anyways, it merely wants to provide its users with all options, not compete or draw customers away from public transit. Uber released its beta version where users can see transit schedules, directions and some ticketing options in a few cities like San Francisco, Mexico City and Paris on September 27th (Hawkins, 2019).

Some other features in the app were included to improve the privacy and safety of both riders and drivers. The most important feature being Verify Your Ride, which uses a four-digit pin code that needs to be verbally communicated to drivers, to ensure riders meet their paired drivers and do not take the wrong car (Vasile, 2019). Other features encompass a 911-alert function through the app, as well as Bike lane alert that notifies riders when they get dropped off near bike lanes to prevent ‘dooring’ bicyclers. Lastly, the company incorporated a better Real-Time ID Check to guarantee Uber drivers match the account in the company’ systems. All these features are implemented to increase safety surrounding Uber after significant security-related issues in the past.

This update sounds good, but these new features also sound like they should have been incorporated all along and are targeted at relieving the pressure the company has faced around privacy and safety issues in the past, think Grey Ball and God View (Hawkins, 2019). The company has improved its firewalls and introduced a Report Safety Incident function that allows riders to report concerns during their trip (instead of only after), to regain riders’ trust and prevent future reports of kidnappings, sexual assaults and sometimes even deaths that have occurred in the past (Silicon Canals, 2019).

Uber has not only struggled with safeguarding its users but also has reported billions in losses over the past years and is of yet unable to turn its business profitable. With a $3 billion operating loss and an accumulated deficit of almost $8 billion in 2018, the company could be in serious trouble now that its earnings are being monitored as it has issued its IPO earlier this year (Poletti, 2019). Since the innovative self-driving cars will most likely not arrive soon enough to save Uber business model, their unprofitable business model will probably result in price hikes for rides to cover costs and improve profitability, but will riders accept these higher prices or simply revert to one of the many alternatives (public transit, Lyft, grab etc.). Further, major investors’ lockup periods are about to end in early November, which might have disastrous consequences for the company’s stock. The financial and security matters are enough to get investors worried, yet Uber also faces legislative and environmental challenges. A few examples are the AB5 California bill undermining its current business model by enforcing drivers to be recognised as employees that receive benefits, democratic candidates placing blame on Uber and Lyft for increased congestion problems, and prolonged efforts to retain its operating licenses in European cities like London (Hawkins, 2019).

This leaves the question if Uber will survive the existential crises it is currently strung up in. Despite Uber’s positive claims that it expects to be around in the future, it will first need to survive the present. With many global and local challengers like autonomous driving, Grab, Lyft or Bolt (Silicon Canals, 2019), competition has arrived and a simple app update will not solve the bigger existential threats that are attacking Uber from all fronts: legislative, financial and environmental. Do you think Uber will crawl its way to the top and become the urban city life-app it desires to be, or will it fall from grace and be forced out of business by financial and legal difficulties?

Leave your thoughts and comments below!

References

Graehler, M., Mucci, A., & Erhardt, G. D. (2019). Understanding the Recent Transit Ridership Decline in Major US Cities: Service Cuts or Emerging Modes?. In Transportation Research Board 98th Annual Meeting, Washington, DC, January.

Hawkins, A. J. (2019). Exclusive: INSIDE UBER’S PLAN TO TAKE OVER CITY LIFE WITH CEO DARA KHOSROWSHAHI. [online] The Verge.  Available at: https://www.theverge.com/2019/9/26/20885185/uber-ceo-dara-khosrowshahi-interview-exclusive [Accessed 30 September 2019).

Nuttall, C. (2019). All hail Uber’s everything app. [online] Financial Times. Available at: https://www.ft.com/content/85e5b38e-e149-11e9-9743-db5a370481bc [Accessed 30 September 2019].

Poletti, T. (2019). Opinion: Uber and Lyft IPOs mean the cheap rides are coming to an end. [online] MarketWatch. Available at: https://www.marketwatch.com/story/uber-and-lyft-ipos-mean-the-cheap-rides-are-coming-to-an-end-2019-05-09 [Accessed 30 September 2019].

Silicon Canals (2019). Uber to focus on rider’s safety with new features, but here are 7 alternatives if you’re in London. [online] Silicon Canals. Available at: https://siliconcanals.com/news/startups/uber-focus-on-riders-safety-new-features/ [Accessed 30 September 2019].

Vasile, C. (2019). Uber launches new mobile app, adds important new features. [online] phoneArena.com. Available at: https://www.phonearena.com/news/Uber-new-mobile-app-new-features_id119278 [Accessed 30 September 2019].

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Spotify Defeated Microsoft’s Groove Music

9

October

2017

No ratings yet. Have you ever heard of Groove Music? Probably not. Groove Music is a digital music streaming service owned by Microsoft, where users can purchase songs or buy streaming subscription. Groove Music was first launched by Microsoft in 2012 as Xbox Music, and earlier got renamed as a part of rebranding strategy. Users of Microsoft 10 operating system have probably seen Groove Music on their laptops, as it came preinstalled.

Despite Microsoft’s attempt to make their music service widely accepted, the company announced in October 2017 that it will kill the service on the upcoming New Year’s Eve (Fingas, 2017). Groove was unable to compete with Spotify, and Microsoft’s officials have been honest acknowledging their loss. They publicly confirmed that the customers wanted “access to the best streaming service, the largest catalogue of music, and a variety of subscriptions” (Roetgers, 2017), which Groove service was unable to provide. In order to make Groove’s customers a bit happier, Microsoft has partnered with Spotify to allow them to transition their music collection and playlists to the Spotify service.

Microsoft has shown its weakness in making technology for consumers. It has never released specific user numbers or revenue for the Groove service (Weinberger, 2017), which makes us think that the numbers were not worth being mentioned. Despite its technological wisdom, Microsoft was unable to compete, as it seeks to partner with Spotify instead of creating its own rival services (Warren, 2017). Unlike the past, there isn’t another Microsoft-branded service waiting in the wing.

Meanwhile, Spotify has once again confirmed its winner-take-all position. Music streaming market is characterized by low demand for differentiated services since one platform typically has all music genres; high strength of network effects for both users and studios; and high multi-homing costs as users must purchase subscription for each service. Therefore, competing with a leader in this market is extremely difficult, which is confirmed by Microsoft’s example. Multiple tech experts have confirmed that Microsoft has wasted resources in Groove Music, and it should have quitted earlier (BBC, 2017). With Microsoft’s exit, Spotify has won huge chunk of consumers, who will boost its leadership position even further.

Do you think Microsoft had chances to beat Spotify with Groove? What has it done wrong?

 

References:

BBC, (2017). Microsoft axes Groove Music service. Available from: <http://www.bbc.com/news/technology-41483492> Accessed [09-10-2017].

Fingas, J., (2017). Microsoft gives up on Groove Music, switches customers to Spotify. Avaiable from: <https://www.engadget.com/2017/10/02/microsoft-drops-groove-music-in-favor-of-spotify/> Accesses [09-10-2017].

Roetgers, J. (2017). Microsoft Discontinues Groove Music, Partners With Spotify Instead. Available from: <http://variety.com/2017/digital/news/microsoft-groove-music-dead-1202578189/> Accessed [09-10-2017].

Warren, T., (2017). Microsoft retires Groove Music service, partners with Spotify. Available from: <https://www.theverge.com/2017/10/2/16401898/microsoft-groove-music-pass-discontinued-spotify-partner> Accessed [09-10-2017].

Weinberger, M., (2017). Microsoft is killing its Spotify competitor, will partner up with Spotify instead. Available from: <https://www.businessinsider.nl/microsoft-discontinuing-groove-music-pass-2017-10/?international=true&r=US> Accessed [09-10-2017].

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Technology of the Week – The Housing Industry

5

October

2017

5/5 (3) The video below describes how online platforms revolutionized the housing industry and the way in which house owners, house buyers, and tenants connect with each other in the Dutch housing market:

Group 45: Rosanne Baars, 406184 ; Roy Ouwerkerk, 459406 ; Yuxin Sun, 406080 ; Pieter Vreke, 372189

1. History

The first real estate brokers in the Netherlands arose in 1284. They acted as the connecting party between trading partners. They earned money from commissions. In the home-rental industry, homeowners initially connected with tenants via physical notes in public spaces. In the 19th century housing corporations and social housing emerged. Consequently, private homeowners struggled to find tenants and started using the intervention of brokers, who received a fee for every contract signed (Van den Elzen, 2013).

2. Current Situation

Decades later, the rise of two-sided online brokerage platforms completely changed the way in which homeowners and tenants communicate. The emergence of these platforms weakened the role of offline brokers, which has several benefits:

  1. For online brokerage platforms, the physical infrastructure and assets that offline brokers use is no longer needed.
  2. Building and scaling networks became cheaper.
  3. Homeowners have access to a larger customer base.
  4. Tenants have access to a larger number of houses and it is easier for them to compare, due to more transparency.
  5. Transaction costs decreased, since most of the physical communication is replaced by online communication.

These eventually led to a decrease in effort and time needed for the rental process. However, for the process of buying/selling a house, offline brokers still coexisted along with online platforms, because buying a house has a large impact on people’s lives, which increases one’s willingness to pay (Bloomberg, 2013).

3. Platform Properties

Current housing platforms have several properties:

  1. A triangular structure, composed of four parties:
          Demand side users: Tenants or buyers
          Supply side users: Homeowners
          Platform providers: Online platforms/communities
          Platform sponsors: Technology providers
          Platform providers and platform sponsors are mostly employees the same company
          (Eisenmann, Parker, & van Alstyne, 2009)
  2. Strong cross-side network effects. A large number of house-owners offering houses on a website attracts tenants, and vice versa.
  3. Subsidies for either the demand or supply side of the platform, while charging the other side. In this way, more users are attracted and network effects increase. The reason why the same part of the platform is not charged consistently, is that different platforms target different niches with different willingness to pay.
  4. Interoperability; many platforms redirect demand side users to related platforms.
  5. Targeting of niches, who have needs for different features.
  6. Low homing costs. Subscription fees are reasonably priced and currently reducing.

4. Future Expectations

Housing platforms are expected to change in the following way:

  1. The number of housing platforms is expected to keep increasing due to existence of niches and low homing costs niches exist and homing costs are low. At the same time, population growth, internationalization and increasing transparency may lead to an increase in housing rental as opposed to buying property (Independent, 2016).
  2. Platform’s profit margins may increase, since increasing demand and decreasing supply for housing rental might lead to increased willingness to pay of demand side users (De Volkskrant, 2014). However, increasing competition among platforms might drive margins down. These two effects can eventually cancel each other out.
  3. Smart-home devices will increase efficiency for both landlords and tenants (Independent, 2016). This will make property management easier, since it might eliminate physical communication and provides more information.
  4. Increasing use of big data analytics. For example, Housing Anywhere is experimenting with this. (Statsbot, 2017).
  5. Convergence of the house rental and real estate industries, because house buyers might get more comfortable with online approaches (Harvard Business Review, 2016).
  6. Companies from adjacent markets may envelop incumbents.

References

Bloomberg. (2013, March 8). Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers. Retrieved from Bloomberg.com: https://www.bloomberg.com/news/articles/2013-03-07/why-redfin-zillow-and-trulia-havent-killed-off-real-estate-brokers

De Volkskrant. (2014, November 2014). De kloof met de Randstad is niet meer te dichten. Retrieved from De Volkskrant: https://www.volkskrant.nl/binnenland/de-kloof-met-de-randstad-is-niet-meer-te-dichten~a3780161

Eisenmann, T., Parker, G., & van Alstyne, M.W. (2009). Opening Platforms: How, When and Why? Platforms, Markets and Innovation, Gawer, A. (ed.), Northampton, MA: Edward Elgar, 131-162.

Harvard Business Review. (2016, November 17). Real (estate) disruption: how technology may change the housing market. Retrieved from Harvard Business Review: https://rctom.hbs.org/submission/real-estate-disruption-how-technology-may-change-the-housing-market/

Independent. (2016, August 10). How technology could revolutionise the future of renting. Retrieved from Independent: http://www.independent.co.uk/money/how-technology-could-revolutionise-the-future-of-renting-smart-meter-landlord-bills-a7182306.html)

Rabobank. (2017). Rental housing: Rising prices in a high-potential market. Retrieved from Rabobank: https://www.rabobank.nl/bedrijven/cijfers-en-trends/vastgoed/real-estate-report-2017/sub-markets/rental-housing

Statsbot. (2017). Housing Anywhere discovered the best way to share data across a team and help them stay on track with key metrics. Retrieved from Statsbot: https://statsbot.co/customers/housinganywhere

Van den Elzen, W. (2013). The future of the Dutch housing corporations.

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The Difficulties of Dominating the Dark Net Black Markets

3

October

2017

5/5 (2) “Not since the days of the now legendary Silk Road has a single site dominated the dark web’s black market as completely, and for as long as the online bazaar Alphabay. With the news that the site has been torn down by a law enforcement raid —and one of its leaders found dead in a Thai prison— the dark web drug trade has fallen into a temporary state of chaos.” (Wired, 14th July 2017)

In July 2017 the US and Dutch authorities shut down the two major illegal marketplaces Alphabay and Hansa with the aim to crack down the sales of drugs, weapons and malware. However, the shutdown was accompanied by increased traffic at other black markets (BBC, 2017).

This blog looks at the platform properties of a black market on the dark net and asks the question whether another black market can dominate and attain a winner takes all scenario? In this blog the term black market is used to refer to the markets which mainly trade in illegal products and are hosted on the dark net.

Platform location and product nature

Alphabay and eBay both provide a platform which connects buyers and sellers. The main difference is that one sells illegal products and the other does not. For that reason eBay can have its platform on the searchable web, the Surface Web, while Alphabay operates from the dark net. The dark net (also called dark web) which is intentionally hidden and inaccessible through standard web browsers (Sing, 2014).
The majority (70%) of illegal products sold are cannabis-, ecstasy- and cocaine-related products. There are black markets which are specialised in a certain product, and markets which offer a wide variety of products. Specialisation can for example occur with respect to drugs, weapons or counterfeits (Soska & Christin, 2015). This indicates that niche specialisation seems possible and worthwhile, which decreases the odds for a winner takes all game.

Risk mitigation function

The black market does not sell any products itself, but has as main function to manage risks for its users while they participate in transactions (Soska & Christin, 2015). Risk is mitigated in four ways:

  1. Abolishing physical interactions to eliminate physical violence during transactions
  2. Providing superior anonymity guarantees compared to other modes of transactions
  3. Holding payments (often in bitcoins) in an account until for example the receiving party confirms that his order has arrived. This idea is referred to as escrow and some black markets work with a more advanced multi signature escrow. Financial risks are also mitigated by allowing its user to hedge against bitcoin value fluctuations.
  4. Requiring feedback for the quality of goods received

Power of a feedback system

The fourth method, a feedback system, ensures that buyers and sellers behave in an honest way. In case of a scam on the black market there is no where to turn to. There are no contracts, no physical interactions, and no government who will help you. Hardy & Norgaard (2016) write that reputation based on a feedback system is a strong self-enforcing mechanism to sustain transactions on black markets. Furthermore, the existence of feedback systems make it possible for researchers to investigate the size of sales on black markets.

Positive network effects

In order to thrive as black market you want to increase the number of buyers an sellers to achieve a higher number of transactions and a better match between buyer and seller. Strong positive network effects are found in a multiyear study on black market transactions. Either marketplaces manage to get initial traction and then rapidly flourish, or they never manage to take off (Soska & Chrstin, 2015). The increase user base enhances the value of the platform for users which stimulates a further increase in users. This effect contributes to a winner takes it all scenario.

Access and long-tail 

Complete open access to the platform comes however with the risk of a drop in quality goods offered and more user misbehaviour (Alstyne et al., 2016). Silk Road allowed its buyers, the subsidised party, to create free accounts. Sellers needed to either bid for an account or pay a fixed fee (Dread Pirate Roberts, 2011). In this way low-quality sellers would be deterred from the platform and it would be costly for sellers to keep recreating accounts after they received negative feedback. At the same time the fee for sellers provided income for the owners of the platform. In addition, the owners profit from a commission on sales.
Although a few big sellers are very successful with respect to sales, the majority of sellers earns little revenue. Soska & Christin (2015) state that the long-tail phenomenon can found in in the seller population.

The end of a black market

Since the rise and fall of Silk Road, multiple black markets came to existence and vanished. There are three main ways, one forced by government and two voluntarily chosen by the administrators, in which these black markets closed:

  1. Take-down: The black market was shut down by government and the bitcoins are confiscated.
  2. Exit-scam: The black market owners ran away with the bitcoins of its users. Sometimes the owners try to blame technological failures for the disappearance of the black market and its bitcoins.
  3. Exit-in-Fear: Some black markets close down and give back bitcoins or freeze when the owners suspect that the governments are close to a take-down.

Network effects and take-down

In 2011, the existence of Silk Road, the most popular black market at that time, became more known on the Surface Web when an article was published on Gawker, a US Blog. Silk Road started to be a topic of discussion. At this time a US Senator requested the FBI to shut down Silk Road. The existence of online market, where thousands of drugs transaction took place per day, was a slap in the face for law enforcement.  The extra attention for Silk Road boosted its traffic even more. (Wired, 2015).
Silk Road was eventually taken down in 2013. Temporarily negative network effects were witnessed for other black markets, when the technology of their sites could not cope well with an overflow of new users which moved away from Silk Road. Since the fall of Silk Road only Alphabay was able to dominate the market for as long as Silk Road did. (Wired, 2017) However, in the summer of 2017, also this black market has been shut down by the government. The probability of getting on the radar for law enforcement increases with the popularity of the market. In addition, the priority for the law enforcement to take you down increases also with the popularity of the market. In this way the upside from network effects come suddenly to an halt when the FBI knocks on your door.

The growth of the black markets ecosystem

Although some black markets have closed down voluntarily or through external force in the past years, the total sales of all the black markets still in existence keeps on growing  (Saska & Christin, 2015). Buyers and sellers quickly move to another existing market or start a new one. Saska & Chrstin (2015) argue therefore that new crackdowns of marketplaces might not help in an effort to reduce online drug trade.
Sellers are often active on multiple black markets, a case of multihoming, in the anticipation that one of them will eventually end. This means that the threat of a close down stimulates multihoming and undermines the ability of a winner take it all scenario in the black markets ecosystem.

How to escape the government?

Before a take-down happens, a game of hide and seek is played between the government and the administrators of the black market. The ability of the administrators to hide themselves, and their access to the marketplace, depends on the technological sophistication of their marketplace and the  human behaviour of the administrators. In theory it could be possible to have superior technology and perfect human behaviour which would allow the administrators and their marketplace to hide forever. This is however a difficult bet since you only know when your security is flawed when someone breaches it.
Another scenario which would improve the sustainability of black markets is when the government accepts the existence of black markets and shifts its resources away from take-down operations. As Saska & Christin (2015) suggest, it might be more worthwhile for the the government to reduce the demand for drugs or focus on the sellers of drugs rather than trying to fight the marketplaces itself. However, so far there are no indications that that the government will take this position.

Conclusion: can a winner takes all scenario materialise?

Positive network effects contribute to the rise of black markets as major players while other black markets remain small. However, buyers have a wide variety of demand for illegal products allowing niche markets to remain. In addition, sellers are present on multiple markets indicating that multihoming is not too costly and hence enforces the existence of multiple black markets. The multihoming behaviour is incentivised by the threat of black market closure. Popularity of a black market, due to network effects, make a black market more likely for government take-down. So far the two most dominant black markets Silk Road and Alphabay have both ended in this way. There are many threats preventing a winner take all scenario and even sustaining a position as major black market seems to be difficult. A potential for more sustainable black markets might arise with new technological developments or a change government strategies.

 

References:

BBC (1 August 2017) “Dark web markets boom after AlphaBay and Hansa busts” http://www.bbc.com/news/technology-40788266

Dread Pirate Roberts (26 June 2011). “New seller accounts”. Silk Road forums., Source copied from references at https://en.wikipedia.org/wiki/Silk_Road_(marketplace)#cite_note-10

Hardy, R. A., & Norgaard, J. R. (2016). Reputation in the Internet black market: an empirical and theoretical analysis of the Deep Web. Journal of Institutional Economics, 12(3), 515-539

Sing (27 March 2014). “Clearing Up Confusion – Deep Web vs. Dark Web” https://brightplanet.com/2014/03/clearing-confusion-deep-web-vs-dark-web/

Soska, K. & Christin, N. (2015). Measuring the Longitudinal Evolution of the Online Anonymous Marketplace Ecosystem. 24th SENIX Security Symposium

Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 94(4), 54-62

Wired (April 2015) “The Untold Story of Silk Road, Part 1” https://www.wired.com/2015/04/silk-road-1/

Wired (14 July 2017). “The Biggest Dark Web Takedown Yet Sends Black Markets Reeling” https://www.wired.com/story/alphabay-takedown-dark-web-chaos/

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The battle of Image Messaging.

6

October

2016

3.5/5 (2) In august, Instagram released its Stories feature, allowing its users to take, edit and post photos or videos that disappear in 24 hours. This caused a wide spread debate considering the fact that Instagram didn’t hide Stories was copied from Snapchat. In fact, Instagram CEO Kevin Systrom even admitted that the Stories where a direct imitation by saying that Snapchat deserves all the credit.

However, next to the obvious similarities, the image massaging platforms also have a lot of differences. Instagram’s Stories for instance have a much wider reach. Where Snapchat is the ‘new guy’, Instagram has double the users as Snapchat, users who come to life because of these Stories. Because you already have your followers on Instagram, it’s easier to get your Stories to a larger crowd. As an example, Nike generated 800.000 views in 24 hours for an Instagram Story, posted on the first day the feature was available. The most popular post of Nike on Snapchat got only 66.000 views.

Where Stories is better at some areas, Snapchat beats it at others. Snapchat is, apart from the basic Instagram Stories drawings and colour filters, big on its geofilters, face-mapping filters and motion filters. Snapchat also has a much better approach for advertising. Where Instagram doesn’t have any non-aggressive space for companies to advertise trough Stories, Snapchat created a whole separate page with plenty of space for companies to advertise.

 

Joining the game

WhatsApp also noticed that the photo editing feature in social media is getting more and more important. Therefor they released a function that allows users to draw on their photos and videos.  They also added the option to put stickers on top of your photo, again just like snapchat. However this could possibly be a distraction for a bigger issue, since WhatsApp received a lot of criticism when it changed its privacy policy in order to share user’s phone numbers and data with Facebook.

 

Who do you think is going to win the game?

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Ford: From Building Cars, to Building an Ecosystem

4

October

2016

5/5 (1) Ford is changing its focus: from being a carmaker to being a mobility company. The first step into that direction came with their app: FordPass, and now two more recently done announcements makes this suspicion stronger:

  • Ford is buying a rideshare startup called Chariot.
  • They are partnering with Motivate (the company behind all those Citibikes in NYC) to expand the San Francisco’s bike share program.

With these two investments and the app Ford’s plan becomes clear: evolve from being only a (old-fashioned?) carmaker to both a car and mobility company.

 

So what is Chariot?

Chariot is a company that operates a shuttle service around San Francisco.

What makes it a good alternative to public transpiration is that the shuttle costs around the same price as a normal buss ($3) and is equally reliable.

Chariot operates on 26 routes right now, which they got in an interesting way: the crowdsourced it. This way they only serve the neighborhoods that really need the shuttle service.

With the acquisition Chariot’s team will now join Ford and expand in other markets to grow further.

 

The partnership with Motivate.

Ford will be partnering with Motivate. This will result in an increase from 700 to 7000 shareable bikes and hundreds of pick-up and drop-off locations in the San Francisco area by 2018. This partnership will go further under the name “Ford GoBikes”.

 

And it comes all together in an app.

The FordPass app is an app that is quietly becoming a one-stop shop for all transportation needs. Ford owners can schedule maintenance with it, but also non-Ford owners can use the app to find parking, plan the most efficient route home and soon now: locate the nearest bike pick-up or book a shuttle. As Ford’s CEO explains: “We’re thinking about this as an ecosystem. How do the bikes not only serve a need… but also feed data that will allow us to provide them even more services? For example, if it’s going to rain, we can send them a note that says ‘you should take the shuttle, and here’s an incentive to do that?

 

As Henry Ford said: “If I had asked people what they wanted, they would have said faster horses.” Now, apparently, Ford moved to the rest of the farm.

Sources:

http://www.recode.net/2016/9/9/12860834/ford-chariot-motivate-gobike-san-francisco-mobility

https://www.motivateco.com/

https://techcrunch.com/2015/01/26/chariot-new-route/

http://www.recode.net/2016/9/9/12860834/ford-chariot-motivate-gobike-san-francisco-mobility

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Marktplaats and eBay, brace yourselves!

4

October

2016

5/5 (2) Most of you have probably seen the ‘For sale’ pages on Facebook, where people offer and buy second hand items. Believe it or not, these pages are being visited 450 million times each month, so Facebook decided to respond to this demand. ‘Facebook Marketplace’ is a marketplace inside the Facebook app that launched yesterday in the United States, United Kingdom, Australia and New Zealand on mobile devices. In these countries, the ‘Messenger’ icon in the Facebook app will be replaced by the ‘Marketplace’ icon. If it proves to be a success, Facebook will continue to expand their marketplace to other countries and also to the web platform. Should eBay, Marktplaats and other large players brace itself?

Nowadays when people want to sell a second hand item, they do not just place it only on eBay or Marktplaats, they also share it on Facebook. Does Facebook offer more advantages than the existing platforms? There are several advantages to Facebook Marketplace that could make users choose for Facebook Marketplace instead of for example Marktplaats or eBay:

  • Buyers and sellers can easily communicate through the already existing Facebook Messenger.
  • Posting items for sale is free, which is not the case on other platforms for some product categories.
  • Fraud can be reduced, as buyers can check the profiles of the sellers to see whether they are ‘real’ people.
  • Facebook can show their users second hand items based on their interests because Facebook knows these.
  • While on eBay or Marktplaats people search for specific items, Facebook users might go through Marketplace simply because they’re bored and could find something they like (spontaneous shopping). This could increase the range of potential buyers.

Besides aforementioned advantages, Facebook has the advantage of a strong brand name and the large amount of users.  It’s hard to place any predictions about Facebooks new feature, but I believe that Facebook Marketplace has strong advantages and will therefore be a big threat for platforms such as eBay and Marktplaats. However, we will see what future will bring us.

 

Sources:

http://www.makeuseof.com/tag/facebook-marketplace-sell-old-junk/

http://newsroom.fb.com/news/2016/10/introducing-marketplace-buy-and-sell-with-your-local-community/

https://www.iphoned.nl/nieuws/facebook-marketplace/

Facebook launches Marketplace, a friendlier Craigslist

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