The network effect is quite real.
Metcalfe’s Law tells us the value of the network is proportional to the square of the connected users. Attributed to past ITEXPO keynoter, Robert Metcalfe, this is the law which keeps competitors from easily taking out Facebook or Google.
Uber leverages its first-mover advantage in ride-sharing to have greater access to drivers and users. This lead allows them to have more drivers nearby. For drivers, there are more passengers nearby.
This power gives the company pricing flexibility others can’t match at the moment.
More importantly, it allows Uber to filter out poor drivers as there are enough drivers out there that they can be choosy.
This concept has now come to passengers.
Uber says customers with significantly below average rankings will not be invited to ride. Being rude, leaving trash, drinking beer and vomiting are just some of the offenses which will be held against drivers.
The reason why others are screwed is, guess where all the low-rated drivers and passengers will end up.
On competing services, in taxis, etc.
Metcalfe’s Law basically just screwed the taxi business as they are now more likely to be the recipients of customer vomit and heaven knows what else.
In a way, this policy reminds us of the social score in China – where citizens who act in a way which is disapproved of by the government lose access to public modes of transportation and other amenities.
We can’t fault Uber for making this policy change but we also wonder what happens if a person makes a few mistakes and then cleans up their act. Will there be an appeal process? Can their ranking be reset in the future?
Time will tell.