(TechCrunch) – Geographic saturation is the key to network effects and profitability in the ridesharing business.
The more drivers Uber or Lyft have in a given region, the faster the pick-up times, the better the customer experience and the more rider demand — which in turn allows drivers to earn more money and attracts more drivers to the network.
David Sacks best illustrated Uber’s positive feedback cycle last year:
Uber's virtuous cycle. Geographic density is the new network effect. pic.twitter.com/NpmUnZgVfH
— David Sacks (@DavidSacks) June 7, 2014
If Sacks is right, that the ridesharing provider with the most geographic saturation ends up with the lowest costs and best rider experience, then the strategy is clear: Raise as much money as possible to subsidize both supply and demand in what, to some observers, appears to be a winner-take-all market.