- Platforms solve collective action problems
- Sort of
- Uber looks very different to drivers and riders
- What is the sound of one shoe dropping
- What will fix this?
Platforms solve collective action problems
I tried a restaurant in-store pickup app because I’m researching something in the space. It’s awesome. I showed up and my stuff was ready. People who don’t hate technology have probably been living this way for a decade.
Technology is good enough now that nobody should wait in a line for anything, but making this work well is a collective action problem that Ritual has solved on my behalf (and for others like me).
In gathering and representing a big blob of demand, Ritual gets to solve a collective action problem – at least at first.
They haven’t solved the problem, they’ve changed it. Vendors and consumers, or whoever is using the platform, have replaced some of their counterparty problems with platform problems.
Platforms initially offer lower transaction costs to all parties to attract everyone, because building a two-sided market is hard. In transaction cost I’m including things like lead generation, cost of acquisition, inconvience of waiting on a line, whatever.
Things I’ve done in a cab that I haven’t done in an uber:
Fielded questions like ‘do you think this car smells bad’ (yes, it smelled like someone farted into a propane tank). Listened to hold music at max volume for 30 minutes. Called the payment processing garage in Astoria on the driver’s behalf to get the card reader fixed. Met someone who invented the liquid soap dispenser. Met someone who wanted to tell me about his religion, that he created.
But we replace these problems with other problems. We replace them with platform problems, that grow over the time as the platform gains power and also runs out of VC has has to profitize. (Profitize != monetize, you should do the latter ASAP).
For paid services like uber, I suspect the gripes will be on the vendor side. For free services, it will be on the user side – facebook may be the example here. But in general, platforms take one-way or mutual gripes from a two-party transaction and replace them with inward-facing gripes towards the platform.
Uber looks very different to drivers and riders
I read a line during their rise saying recruiting riders is effortless, it’s an easy sell, but drivers needed more convincing. In retrospect, municipalities needed convincing as well and uber has been kicked out of their share of places.
The pitch to drivers was subsidies & high rates at first, when uber was a premium black car service. Later, when uber had a truly giant blob of demand, i.e. more riders than were hailing cabs on the street, they cranked down their rates to compete with other players like lyft and cranked up their vig to profitize.
I think the taxi medallion system was in several ways a bubble and was going to find a way to pop, but drivers aren’t totally wrong when they blame uber for ruining their lives. There were gentler ways to pop this.
I read a transcript of Travis Kalanick fighting with the DC city council about whether his business was legal or what and it was him saying “This isn’t technically covered by your licensing requirement and users are getting a horrible service” and the council saying “there are big reasons that we regulate this stuff and you’re undoing all of them”.
It degenerated to “you don’t understand politics / you don’t understand economics”, i.e. “you’re stupid”, which doesn’t go over well with city councils. I’m not sure how it resolved but guessing it was standard ‘fine you can drive here but we’ll mess with your margins somehow’.
It’s the same with amazon. I toured an amazon warehouse in new jersey. Everyone else on the tour did some kind of business with them, and they were universally pissed. One of them asked ‘is anyone who works here not just a cog in a machine?’. The poor guy leading the tour wisely let it slide off him, and it wasn’t a fair question because he’s as much a victim here as them.
But my point is that a lot of third parties that operate stores or brands on amazon are pissed, including major players like Hachette and Nike.
What is the sound of one shoe dropping
Ensuring long-term fairness in these three-way transactions is hard.
When the incentives in a market invert like this, the harms aren’t immediate. A new platform is in recruiting mode on both sides of the transaction, so we’re initially waiting for the other shoe to drop. Every platform you do business with wants to end up like uber or amazon, but has to hide that for as long as possible.
Also because the platform ostensibly represents each side to the other, they’re the arbitrator of disputes, judge jury and executioner. Not only does fairness go out the window, they can arbitrate in their own favor invisibly and at great scale. There’s no public reporting process for internal disputes. Even external disputes go to confidential arbitration
Two-party transactions are becoming three-party transactions everywhere in the economy, and this breaks the traditional ways that the law deals with problems. Like everyone else I’ll cite Lena Khan who said that one upshot of amazon’s ability to operate at a loss is that traditional antitrust doesn’t apply to them.
Apple’s Illinois Brick-based antitrust suit is the same – just getting a court to acknowledge the cause of action required exploring new legal territory. I think that case just went to the supreme court, but I’m on a plane and I don’t have internet.
What will fix this?
DOJ has just moved some cash around to fund antitrust efforts, which is interesting if it shines a light on platform behavior. I’m concerned that given Bill Barr’s public speaking, this cash will be used to chill speech instead of for actual police work. Still, a guy can dream.
Ultimately, the answer will be better information. I can see consumers banding together to share the prices that they pay for services and their relative experiences. This would be awesome for health in particular, where price transparency is a bridge too far for the players who benefit from its absence.
In general, more price transparency would let consumers play platforms and vendors off each other and create something more like a market, where service providers compete, and less like a tax, where a central entity charges what the market will bear.