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Uber's Business Model and Future of On-Demand Transportation Market
- 1. Fisher College of Business, OSU ACCMIS 4660 E-Commerce Brett Miller | Kalman Heyn | Zach Schutts
- 2. Agenda • Market Overview • Uber's Business Model • Disruption Timeline • SWOT Analysis • Future of the Market • Recommendation
- 6. The Story of Uber Founders Meet in Paris Uber Takes Off Surge Pricing Development UberEATS, UberPool & Lime Criminal Investigations Self-driving Technology
- 9. Strengths • Brand Equity • Low operating cost • Convenience • Competitive Prices • Dynamic Pricing Strategy
- 10. Weaknesses • Controversies • Caters to tech savvy people • Low barriers of entry • Extremely reliant on manpower
- 11. Opportunities • Unorganized cab market • Increased income of middle class • Partnering with hotels • Poor public transportation • Logistics • Smartphone use increase
- 12. Threats • Public Relations • Increase in competition • Government regulations • Low margins
- 13. Future of the Market • Market very elastic – consumer preferences & price competition • Lots of potential growth • Winner take most market
- 14. Uber Recommendations Lyft Cuts into Uber dominance Change company culture and Image
- 15. Uber Recommendations • New global strategy • Focus on strategic alignment with local users • Cautious of cultural dissonance
- 16. Recommendations
Editor's Notes
- The emergence of new and innovative user-friendly mobile applications has led to a transformation of the ride-hailing market where customers can order on-demand transportation services. The market is fragmented with a considerable number of companies, but the four leading companies are DiDi Chuxing (Choo-shing), Uber, Gett and Lyft. Uber is the market leader in the US and DiDi in China.
- Uber exists in 80 countries and currently has over 1 million drivers worldwide, and 40 million monthly active riders. It is currently valued between $70 to $120 billion dollars: more than all of its competitors combined. However, they've also generated billions of dollars in losses in developing markets, minimizing their overall profits. Their strategy is to expand as fast as possible while foregoing short-term profits in the hope of long-term returns. For example, last March, Uber announced that it merged its Southeast Asia operations with Grab, a Singapore transportation company. And people can expect many more strategic alliances like this in the ride-hailing services market.
- These new ride-sharing platforms follow the On-Demand Service e-commerce business model which is sweeping up billions of investment dollars and disrupting major industries. You see it in shopping (Instacart), maintenance (Handy), house cleaning (TaskRabbit), doctor visits (Heal) and hotels (AirBnB). Uber doesn't sell goods. Instead, it is a smartphone-based platform that enables passengers who want a taxi service to find drivers. Uber is not a "sharing economy" company nor true peer-to-peer e-commerce since Uber drivers are selling their services as drivers and the temporary use of their car, and Uber is considered a third-party when it takes a cut of all transactions. Finally, Uber's business model is much more efficient than a traditional taxi firm. Uber does not own taxis so it has no maintenance and financing costs. Uber calls its drivers “independent contractors,” not employees, to avoid costs for workers' compensation, minimum wage requirements, driver training, health insurance, and commercial licensing.
- Uber’s story began in Paris in 2008. Travis Kalanick and Garrett Camp were unable to get a cab at a tech conference. Initially, the idea was for a timeshare limo service that could be ordered via an app. After the conference, Camp returned to San Francisco and bought the domain name UberCab.com as a side project. The service as we know it was tested in New York in early 2010 using only three cars. The ease and simplicity of ordering a car fueled the app’s rising popularity. 2011 was a crucial year for Uber’s growth. Early in the year, the company went on to expand to New York, Seattle, Boston, Chicago, Washington D.C. and Paris. In 2012, the company broadened their offering by launching UberX, which provided a less expensive hybrid car as an alternative to black car service. Earlier in the process, Uber developed an algorithm to increase prices based on supply and demand in the market. Now Uber sets a cap on their surge pricing during emergency situations, but there was plenty of backlash in the beginning, such as during New Year's Eve 2011 and a 2013 snowstorm in New York. As most of you know, Uber has a more recently developed a program for food called UberEATS, as well as UberPool, which allows drivers to pick up multiple riders on one ride, as a cheaper transportation option. Also, after attempting their own bike-share service, Uber decided to invest in Lime scooters. 2017 was a rough year for Uber. Most of their problems were unrelated to the technology, so I won't go too into it. However, Uber was sued by Alphabet's Waymo, claiming that a former employee of their's stole secrets relating to self-driving technology. Now, like Google, Apple and Tesla, Uber is also gearing up for a future of driverless cars. And, although a self-driving Uber fatally struck a pedestrian last year, Uber's self-driving cars have made their return in Pittsburgh.
- During its expansion, Uber has met fierce resistance from the taxi industry and government regulators. In London, taxi companies were able to ban Uber from operating. They claimed Uber created unfair competition by avoiding expensive license fees. The ban was eventually removed as it restricted consumer choice. Competition has been ferocious between Uber and Lyft, its closest rival. In fact, both Uber and Lyft claimed that drivers and employees engaged in sabotage by regularly hailing and canceling rides on each other’s services. Kalanick, the Uber's former CEO, also openly admitted to trying to undermine Lyft’s fundraising efforts.
- Brand Equity - Well-known brand name and recognized globally Low operating cost - Does not have to spend as much on physical infrastructure - Does not have to purchase vehicles and maintain them Convenience - User-friendly app - Easy to book rides - One click payment and ratings Competitive Prices - Higher the demand, higher the price - Drivers earn more at night, during bad weather, and holiday nights Dynamic Pricing Strategy - Higher the demand, higher the price - Drivers earn more at night, during bad weather, and holiday nights
- Controversies - Reports of poor driver behavior - In some markets uber shunned laws and regulations openly - Aggressive strategies to take down competition Caters to tech savvy people - Mostly used by professionals and millennials who use internet based services regularly - Elderly generation still depend on traditional transportation services Low barriers of entry - Easy for others to join industry - Others in India, Meru, and Ola are giving tough competition to Uber Extremely reliant on manpower - Drives are the face on the company - How the company looks depends on how the drivers behave - Highly uncontrollable situation
- Unorganized cab market - Customers unhappy with current cab market - Local cab drivers can be rude and non-compliant Increased income of middle class - With more disposable income, customers are willing to spend more for convenience Partnering with hotels - Serve tourists who regularly use taxi services while staying at a hotel - Could benefit both the partnering brand and uber Poor public transportation - Some Asian cities do not have the best quality public transportation - People are getting tired of using public transportation - Uber provides a more private way to travel Logistics - Offer moving and packing service - Could use Uber to search for movers and packers nearby Smartphone use increase - Expand services to more cites and enlarge its footprint
- Public Relations - Bad press could damage Uber’s public image Increase in competition - Lyft and other transportation services have greatly affected Uber - Some locations already have own local players Government regulations - Should they be treated as a taxi company or IT company? - Should drivers be treated as individual contractors or employees? Low margins - Only takes small share of payment (5%-20%) - Unless they keep selling at a large scale, the profits can decline
- Market very elastic – consumer preferences & price competition Lots of potential growth 70% of rideshare market untapped Diversification of scope High capital investment Winner take most market
- Change company culture and Image PR initiatives Better employment policies Fair pricing Lyft Cuts into Uber dominance
- New global strategy Focused market targeting Strategic alliances Focus on strategic alignment with local users Cautious of cultural dissonance
- Revenue growth slowing and projected to slow Reduce costs 2 yr net loss Leverage technology innovation