The Great Abstraction?

Last week in my Solving the “DoorDash Problem piece, I mentioned the following excerpt between Nilay Patel from The Verge and Uber CEO Dara Khosrowshahi:

Nilay Patel: So, I come to you and I say, “I want to be able to get cars from Uber.” What is the percentage toll? What is the extra margin you would have to charge me, in dollars and cents, to make it worth it for me to take the customer away from you in that way? Because when the customer opens your app, you get to cross-sell them into Uber One, or ask “would you like some food when you arrive?” There’s all of these other incremental opportunities you have to forgo if I take that customer.

Dara Khosrowshahi: So I have a weird philosophy on this. Initially, I charge you zero…People spend so much time trying to figure out what the economics might be when the first thing is to try it out. Is it going to be a good experience or not? Is your scheduling actually going to work, or is it going to be off and the driver has to wait for 10 minutes, which is terrible? Let’s just figure it out. Then, once you optimize the experience, we can measure. Are you an incremental consumer for Uber or are you totally cannibalistic?

If it’s cannibalistic, then I’m going to charge a lot of money. You can’t have any money because you’re getting the benefit and my content. You’re not bringing me any business at all. If it is incremental, then I would pay some take rate. Is it a 5, 10, or 20 percent take rate? It depends on the incrementality.

But I think so much innovation has slowed down because companies try to figure out the economics first. Figure out the experience first and then the economics. Listen, if I do a bad deal for a year, who cares? I’m going to renegotiate with you. I’m building stuff for the next 10 years. Success or failure isn’t going to be determined by my take rate being 5 or 20 percent in year one. It can set precedent, and precedents are dangerous. That’s why I would say to charge zero. Let’s try it out. Let’s see what the experience is. Let’s try to measure out what the value add is, and then the economics essentially will take care of themselves

I thought that was a very cogent response to the problem at hand until one of my readers made me re-think when he said the following:

“what happens if it’s not another application layer app trying but actually the OS layer doing that?

iOS and Android will set the rules for Uber et al to play. There may be no (re)negotiation. OS does it for the user whether Uber/DoorDash likes it or not?”

I promised him that I will think about his pushback a bit more. Well, I did and I will explore this more behind the paywall.

In addition to “Daily Dose” (yes, DAILY) like this, MBI Deep Dives publishes one Deep Dive on a publicly listed company every month. You can find all the 65 Deep Dives here.