Automation and the Sharing Economy

Sharing economics is not a new phenomena. In fact, the modern sharing economies catalyzed by Uber and Lyft, often touted as innovative, are a derivation of the most primitive economic structure: trade and barter. The Uber and Lyft S-1s have shed light on the vulnerabilities in the economics that underpin their business model. This has brought about discussion with respect to the long-term viability of these businesses, and at a cursory evaluation of the financials, it makes sense that people would draw that conclusion. The problem with that analysis, however, is that it takes a nearsighted view of a long term play.

Uber and Lyft are multi-sided platforms with two customers: service consumers (riders) and service providers (drivers). They have been pouring on incentives and subsidies to keep the drivers engaged while maintaining a low-cost service to riders. Wall Street has correctly identified this as unsustainable. The common thread being the inevitable day where Uber and Lyft will have to raise prices to reach profitability. There is extreme skepticism that they will be able to maintain the customer base when that day comes. But I’m not so sure that day will come.

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