Uber’s Real Challenge: Leveraging the Network Effect

Just raised the $1.2 billion funding at $18.2 billion valuation, the on-demand car service Uber increased its value more than 300 times in 3 years. Uber currently operates in 128 cities across 37 countries. Although, Uber faces globally battle against legislators and traditional taxi and limousine firms, the key to main its success is network effect. How to leverage Uber’s first mover advantage and build up an strong network effect is Uber’s real challenge now.  

What is a network effect? It's what happens when the value of a product to one user depends on how many other users there are, as economists Carl Shapiro and Hal Varian put it. To get enough users on board to create network effects, you need to piggyback upon another network. Piggybacking on a thriving network works wonderfully as long as your platform is complementary to that network and delivers additional value to the users there. Once a company is able to build up a strong network effect, it creates the ability to generate sustainable profits, retaining its customers and fending off competitors.
This seems happening now with Uber – more cab drives are switching to Uber and more people are using Uber. To Uber, the key is whether their service has the same network effect as Internet giants such as Facebook, Microsoft, and Google.   

Moreover, Uber might face that competitors take smaller commission to offer higher rates to divers and lower prices for customers. We can image situations that both consumers and drivers compare with several similar services and choose the best deal at any given time. To overcome the challenges, Uber need to strength the advantages its has from being first: continually refining its offering to offer the best user experience, the greatest data analysis to match its drivers and customers whenever they need. To worth its $18 billion valuation, Uber need to keep building the network effect, make their service more and more common around the world and expand the aggregate taxi market.

http://www.nytimes.com/2014/06/14/upshot/ubers-real-challenge-leveraging-the-network-effect.html?_r=0