That Uber, the limo and taxi replacement application, has just been valued at $17 billion ($18.2 after the cash actually hits) as they raise another round of investment is all terribly exciting of course. It’s also evidence of the vibrancy of technological change at present. The company is only four years old, after all. And it’s further evidence of the way that the Silicon Valley ecosystem, especially its financing, enables companies to gain the capital they need to expand.

However, there is a certain amount of headscratching going on. Because there’s really no “there” there. What is it that Uber has that is worth so much?

No, we don’t mean the basic business model itself: that’s just dandy. It disintermediates around the regulation and taxation of the current limo and taxi systems, this is good. Just the idea of electronic hailing increases capacity utilisation and thus overall system efficiency, this is also good. Passengers pay less, drivers earn more, Uber gets its slice, these are all good things.

But wherre is Uber’s edge? Fo9r what appears to have been forgotten here is the most basic point about business and competition. A great business model is not the same thing as a great economic model for a business. That latter is something that achieves the above: makes producers and consumers better off at the same time, we really love these sorts of things. But a great business model does this and also protects itself from competition. And that’s the thing Uber cannot do.

It’s easy enough (as hundreds of companies are showing) to write the basic app that performs the heart of the service. Most drivers in any one of them are in several of them at present. There’s not much reason for consumers to be loyal to any one or other of these services. There seems to be no way to stop competition once the value of the basic model has been proven.

Of course, for all of us this is just great: who cares about the producers? We care about the consumption opportunity and as that competition brings the prieds down and down again then we will all benefit.

But it appears that people are valuing Uber for the joy and genius of the model itself, not for what is actually important for a business, how much of that value can they appropriate for the business from that model? And in the long term it’s very difficult indeed to see that competition won’t reduce margins down to the cost of providing the srvice. Or, as often happens in feeding frenzies over new ideas, below it.

We the consumers make out like bandits of course but it’s odd to see this same mistake being made over again by investors. There’s no patent lockin, no network effects, no protection from comt#petition. So why the gargantuan valuation?