Examine the Reasons for Uber's Success in the Taxi Market.
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sercanak54hotmailcom (student)
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TABLE OF CONTENTS
ABSTRACT 2
INTRODUCTION 3
LITERATURE REVIEW 3
BACKGROUND 4
ENVIRONMENTAL ANALYSIS 6
POLITICAL FACTORS 6
ECONOMIC FACTORS 6
SOCIAL FACTORS 7
TECHNOLOGICAL FACTORS 8
LEGAL FACTORS 8
INTERNAL ANALYSIS 9
SWOT ANALYSIS 9
EXTERNAL ANALYSIS 10
MARKET DYNAMICS 10
PORTER’S 5 FORCES ANALYSIS 11
Bargaining Power of Suppliers: 11
Bargaining Power of Customers 12
Threat of Substitutes 12
Threat of New Entrance 12
Rivalry Against The Competitors: 12
FUNCTIONAL ANALYSIS 13
SIZE, GROWTH AND PROFITABILITY 13
CORPORATE AND BUSINESS LEVEL STRATEGIES 15
VALUE-CREATING STRATEGY 15
INTERNATIONAL LEVEL STRATEGIES 16
UBER IN EUROPE AND TURKEY 16
BIBLIOGRAPHY 17
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ABSTRACT
In this study, we purpose to research Uber Inc. as a market leader in ride sharing application market and sharing economy with considering internal and external factors that might be effective on the company’s development process. Besides, we try to collect recent news about Uber to illuminate its strategy has been taken according to circumstances.
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INTRODUCTION
The aim of this research is comprehend the strategies behind sharing economy industry leader Uber Technologies Inc.’s unrestrainable success despite of all legal obstacles, law suits, protest upraised by taxi drivers that it is facing everyday. Since on-demand ride sharing mobile application Uber lunched by Uber Technology Inc., a number of companies copied its business model and that trend has been referred as "Uberification" (Boland, 2014). Today, Uber has reached $62.5 billion valuation with more than 8 million users in 68 countries that include Istanbul, Turkey (Newcomer, 2015). Uber’s rivalry competitor Lyft follows Uber as a market follower with attempt of new service innovations to became competitive in the market.
LITERATURE REVIEW
In this project, current published sources and daily news will be mastering us to prove our statements since Uber is an ongoing social innovation that catches a big trend and popularity around the world. We also consider users comments.
Contemporarily, Uber face with various number of legal issues that we need to consider in our study. And in order to fit in the law, Uber has made several changes on their business model. In this sight, we need to mention law cases that Uber was one of the sides to make an inference about its strategies.
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BACKGROUND
Carpooling technics has been using since World War II. At the beginning, it existed as a rationing tactic in the United States during the war years as a huge propaganda with the slogan of “When you ride alone, You ride with Hitler.” (Pursell, 1943) . Then ridesharing idea had been operated by Chrysler and 3M companies as employee vanpool during the 1970s due to 1973 Oil Crisis and following 1979 energy crisis.
Figure 1 World War II Propaganda Poster by Weimer Pursell, 1943. Printed by the Government Printing Office for the Office of Price Administration
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After 30 years of decline, with the advantage of developing technology, we started seeing carpooling idea again in 2000s. This time, users stand to benefit of communication opportunities. There are also times that ridesharing had occurred naturally in some places and more slagging way. For instance, people had been getting line in certain points to get ride share on their way to work, in Washington, DC.
Also as an innovative idea of slagging carpooling, people started using e-mail services to communicate with each other to get ride share. First in 2002, eSLUG had been created as a yahoo e-mail group list for the employees who want carpooling, in Navy Yard Area of Washington, DC. Destination was determined as Horner Road Park and Ride Lot. After a short time, RosslynSlugs had been created by Yahoo listserv in Rosslyn Area, Arlington to serve Route 17 Park & Ride, Stafford County on February 2004. It was only one way ride-matching system for about 45 miles distance with log in requirement. Especially in the United States, in an effort to reduce traffic and encourage carpooling, some governments have introduced high- occupancy vehicle (HOV) lanes in which only vehicles with two or more passengers are allowed to drive. In the mean time, all became conduced toward carpooling kind of applications for future.
Then, real-time-on-demand dynamic ride sharing has taken place in the market and now it shows themselves as mobile applications, since late 2000s. One of the most known transportation network company Uber has been established in 2009 in San Francisco, California and spread the world in 7 years. Beside the big success of Uber, they have had to face many lawsuits and protests against them. But still, Uber’s continues to increase its market share as a market leader.
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ENVIRONMENTAL ANALYSIS
POLITICAL FACTORS
Uber is challenging with some political issues due to state policies in ...
This is a preview of the whole essay
Then, real-time-on-demand dynamic ride sharing has taken place in the market and now it shows themselves as mobile applications, since late 2000s. One of the most known transportation network company Uber has been established in 2009 in San Francisco, California and spread the world in 7 years. Beside the big success of Uber, they have had to face many lawsuits and protests against them. But still, Uber’s continues to increase its market share as a market leader.
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ENVIRONMENTAL ANALYSIS
POLITICAL FACTORS
Uber is challenging with some political issues due to state policies in the US. Since the sharing economy is a new trend on recent years and the lack of regulatory law about this subject lead to many problems for each side. Even during the Presidential Debates in the US, Democratic presidential candidate Hillary Clinton shared her approach the ride-hailing app and the “on- demand economy,” also referred to as the “sharing economy.” in her economic policy speech. Clinton referred his concerns about Uber, which is focusing instead on the implications for the labor market and the risks faced by drivers who aren’t shielded by benefits and job security (Che, 2015).
“This ‘on demand’ or so-called ‘gig economy’ is creating exciting opportunities and unleashing innovation, but it’s also raising hard questions about workplace protections and what a good job will look like in the future. (Clinton, 2015)” she said.
Also in other countries, Uber has found itself running up against investigation. While it is banned in Spain and in Delhi, India while German city of Berlin, France, Netherland, Thailand courts attempted to ban Uber.
ECONOMIC FACTORS
With the sharing economy takes significant place as a hybrid market, it created new independent workers who works on-demand economy or as also referred as gig economy. Nevertheless, while some approaches refer that it is what future economic world will look like, others like Jacob
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Morgan’s, who is author, speaker and contributor in Forbes Magazine, supporting opponent ideas as he said: “While we will indeed see the trend towards independent workers increase, this trend will by no means reach the exorbitantly large levels that some are reporting.” (Morgan, 2015).
Uber’s effect on the economy cannot ignored as we observed it as upraising toward the Uber by taxi drivers around the world. While it is received as a threat that will end the traditional taxicab business, it brings many conflict into current taxation system and even it triggered some regulatory for revising taxation system.
In Turkey, taxation obstacles are lying in front of sharing economy for growing and spreading.
SOCIAL FACTORS
Uber has faced criticism along at least six dimensions:
. It is unfairly competing with taxi drivers by entering their market without following regulations or fare schedules.
2. It aspires to become a monopoly
. Its cars or drivers are unsafe or underinsured
. It may invade customers’ privacy
. It enables discrimination by drivers and passengers
. It is undermining working standards for taxi drivers and compensating its own drivers poorly.
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Behind all those unfavorable situations, Uber is the most used ride-sharing app in the United States and also in the world. The word “Ubering” took place in daily language and also as we observe in well known television shows that has high ratings like Modern Family, Saturday Night Live, South Park, etc. this word has been mentioned many times during the shows. Young American rap musician MadeinTYO released a song with name “Uber everywhere” and it peaked at number 61 at Billboard Hot 100 list, which made it very popular song.
TECHNOLOGICAL FACTORS
Developing technology will be always favor in Uber Inc. In Silicon Valley, Uber is also leader on its classification with their work on During the initial development of the Uber app, the company created a think tank consisting of a nuclear physicist, a computational neuroscientist, and a machinery expert who worked on predicting demand for private hire car drivers and where demand is highest (Bacon, 2012) . Therefore, Uber is also a company that leads technological developments beside being a market leader.
LEGAL FACTORS
Uber Company has been suffered many times due to legal issues. Most of time, It caused bacuse of drivers’ status on Uber since regulatory rules does not fit to sharing economy. And frequently, Uber was supposed to come face-to-face with the drivers. There have been lots of cases on this issue.
Recently, Uber accepted to settle down on a case about Uber driver status with concession. According to New York Times reporters Mike Isaac and Noam Scheiber, “ Uber will let it
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continue to categorize drivers in those states as independent contractors — a landmark agreement that could have lasting implications for the long-term viability of the ride-hailing service.” (Isaac & Scheiber, 2016)
INTERNAL ANALYSIS SWOT ANALYSIS
. STRENGTHS
* It is a well-known brand all around the world.
* It offers high standard of service with verified drivers and cars.
* Regular Taxi service regulations are not applicable for Uber.
* Lower prices compared to taxi cabs
* Uber does not hire drivers and it does not responsible them as employees.
* Operational cost is low.
* Competition is low. There is one rival is Lyft.
* Cashless payment system.
* Dual rating system boosts trust and safety.
* Offering better travel conditions.
. WEAKNESSES
* The business model can be easily imitated.
* There are ethical questions on relationship between Uber and drivers.
* Loyalty between drivers and Uber is quite low.
* Privacy concerns
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* Legal issues
. OPPORTUNITIES
* Traditional taxi cab’s high prices and long waiting time.
* It can exploit new and big markets in countries like India where taxi services are inconvenient and expensive.
. THREATS
* Drivers aren’t happy with the low-profit margins.
* Legal regulations
* Uber is highly dependent on political and economic changes.
EXTERNAL ANALYSIS MARKET DYNAMICS
Finite oil supplies, rising gas prices, traffic congestion, and environmental concerns have recently increased the interest in services that allow people to use personal automobiles more wisely. The demand for ride-sharing services, which aim to bring together travelers with similar itineraries and time schedules, has increased sharply in recent years (J.Saranow, 2006) Ride- share providers across the globe are offering online notice boards for potential carpoolers, whether for daily commutes or for one-time trips to festivals, concerts, or sports events. Some online services, such as Nuride, provide incentives like restaurant coupons, gift certificates, or retail sales discounts to participants (Niels Agatz, 2009)
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The annual cost of congestion in the US in terms of lost hours and wasted fuel was estimated to be $78 billion in 2007. Private automobile usage is also the dominant transportation mode producing carbon dioxide emissions. Vehicle emissions give rise to problems both on a local and global scale. Locally, the health effects of air pollution represent a serious problem in many of the most densely populated regions worldwide. Globally, carbon dioxide emissions are associated with climate change and global warming. (Niels Agatz, 2009)
Demand of the ridesharing is increased day by day. Just for Uber; as of April, 2016, the service is available in over 60 countries and 404 cities worldwide. By late-2015, Uber was estimated to be worth $62.5 billion. (wikipedia.org/wiki/Uber, 2015) Competitor of Uber, Lyft, In 2014, announced that it had grown ride numbers and revenue by five times (Nagie, 2015).
A 2010 survey at the University of California, Berkeley found 20% of respondents willing to use real-time ridesharing at least once a week; and real-time ridesharing was more popular among current drive-alone commuters (30%) than transit or non-motorized commuters.The top obstacles to using real-time ridesharing were short trip lengths and the added time of ride logistics (Elizabeth Deakin, 2012).
PORTER’S 5 FORCES ANALYSIS
Bargaining Power of Suppliers: Since Uber works with individuals, there are many suppliers with limited bargaining power. Low concentration of suppliers positively affects the company. Uber will have a long-term positive impact on the suppliers, which adds to its value. This
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qualitative factor will lead to a decrease in costs. This statement will lead to an increase in profits for this entity.
Bargaining Power of Customers: the company have large numbers of customers, so any customer tends to have bargaining leverage. Limited bargaining leverage helps Uber to create powerful affect among the users. They also have low dependency of distributer as well. On the other hand, customers have limited choices they end up paying more for the choices that are available.
Limited buyer choices are a positive for Uber case.
Threat of Substitutes: When products and services are very different, customers are less likely to find comparable product or services that meet their needs. However Taxi, Public Transportation, Subways and other private companies are the ones that can be threat of the operations of Uber. Threat of New Entrance: Regulation is the most important issues for the industry to enter. On the other hand Brand Image and strong distribution network is must for the industry to survive. Since the sector is required economies of scale, we can say that entrance barrier is high. However Uber’s Business Model is easy to copy.
Rivalry Against The Competitors: Lyft is the main competitors of Uber in Us. Both allow you to hail cars from your phone. Prices for the basic service tend to be similar - they fluctuate frequently, but the companies generally try to match each other. As a points of differences Uber is larger and available in more places. Lyft's brand is more about community and friendliness so drivers interact with passengers more, Uber's brand is more about a professional service so drivers interact less. Uber has more upscale options like luxury cars, private town, cars and
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SUVs. However in Turkey there are Bitaksi and blablacar which can excepted as a threat of substitutes.
FUNCTIONAL ANALYSIS
SIZE, GROWTH AND PROFITABILITY
Uber is one of those few tech companies in the world that has been valued over $50 Billion. Uber has already received an equity funding of $8.2 Billion and is present in 60 countries. (wikipedia.org/wiki/Uber, 2015) These facts surely shows the trust of investors in Uber’s business model and make it easy for us to imagine how much revenue will Uber be making once it attains liquidity.
What has made Uber so successful is the fact that the revenue model of Uber is as unique as their business model. It can be explained as:
. Different cab models to cater to everyone:
Uber has not limited itself to a particular segment of cars or to a particular segment of people. There is Uber X, Uber Black for those who love to travel in a black car, Uber Taxi for those looking for cost-efficient solutions and Uber SUV for those who want luxury.
. Surge Pricing Technology:
Variation in cab fares according to situation is an important aspect of Uber’s business model. Whenever the demand increases, per mile prices are automatically increased. The new price
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depends on the number of available drivers and the number of requests made by people who want to travel. Uber has applied for a price surge technology patent in the US.
. Other Uber rides:
Uber has come a long way from cabs. It now offers boats, helicopters as well as some other transportation means on demand. Uber recently launched a motor-cycle-pickup service in Paris, a delivery service in San Francisco, and an ice-cream-truck-delivery service in 7 other cities.
However, these means are available in selected geographical locations but it has led Uber to add new streams of revenue into its business model
In less than 6 years, Uber has managed to become the best example of a city-by-city mobile service company roll-out. Many generic pointers that I talked about in this Blog Post regarding scaling User Acquisition efforts for On Demand platforms borrows elements right from Uber’s playbook.
The underlying principle here is that for every city it launches, it faces the same chicken and egg problem. The advantages that Uber has as compared to new startups in this space are:
Lot of money to incentivize both drivers and customers.
Rock solid processes or playbooks that have evolved through experience launching Uber in 311 cities till date. Already known brand that gets early curious adopters.
Everything starts with a small city launch team. Every city has a general manager who heads the customer acquisition as well as driver acquisition. The first cabs to come on board are generally
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professional drivers who are already associated with local taxi companies and have their own cars.
First customers come from various local advertising channels like FM radio, newspapers, online advertising etc. Uber is such a large name that people are already waiting for the cab company to start services in their city.
Main Growth opportunities tapped by Uber Party people who go to clubs, parties or events. Business Travellers and Tourists.
Cab at doorstep in bad weather conditions. City’s Nightlife.
CORPORATE AND BUSINESS LEVEL STRATEGIES VALUE-CREATING STRATEGY
As a value proposition for customers, Uber offers no need to wait for a taxi for long times. Additionally, free rides on certain occasions and discounts from time to time. Since the prices lesser than the normal taxi fares it is more attractive on customers mind. Uber’s tagline says – Your personal driver. It lets customers travel in style. And they determine fixed prices for common places like Airport etc.
As a value proposition for drivers, Uber has additional source of income and flexible working schedules. Drivers also can work part time or simply whenever they like.
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Easy payment procedure helps everyone to use Uber easy. Those who love to drive can earn money while pursuing their hobby. And Uber pays drivers to be online, even if they don’t get any request.
INTERNATIONAL LEVEL STRATEGIES UBER IN EUROPE AND TURKEY
Uber starts to operate in 2015 in İstanbul. UberBlack is the product that they establish for Turkey. As a marketing, National basketball player Sinan Güler is chosen as a testimony. Uber take Sinan Güler with a Mercedes S Class car via its application.
UberBlack starting price is 11,20tl and for each kilometer 3tl will charged. (Webrazzi.com, 2015) It’s operating just only in İstanbul and they are try to work with taxis as well. Even for the market penetration Uber uses 20% off, legal issues may affect their performance badly for the near future.
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Bibliography
Bacon, J. (2012, February 3). Innovation Uber Alles; Personal-Driver Service Can Revolutionize Transportation Services. The Washington Times.
Boland, M. (2014, 12 01). Apple Pay’s Real Killer App: The Uber-ification of Local Services.
THE HUFFINGTON POST. Retrieved from THE HUFFINGTON POST :
http://www.huffingtonpost.com/michael-boland/apple-pays-real-killer- ap_b_6233828.html
Che, J. (2015, July 16). Why Uber Is An Easy Target For Politicians. The Huffington Post.
Retrieved from Huffington Post: http://www.huffingtonpost.com/entry/politicization-of- uber_us_55a67c17e4b0c5f0322bf245
Clinton, H. (2015, July 14). Washington, DC.
Elizabeth Deakin, K. T. (2012). Dynamic Ridesharing. Access Magazine.
Isaac, M., & Scheiber, N. (2016, April 21). Uber Settles Cases With Concessions, but Drivers Stay Freelancers . New York Times.
J.Saranow. (2006). Carpooling for grown-ups.
Morgan, J. (2015, December 17). Are Uber, Airbnb And Other Sharing Economy Businesses Good For America? Forbes.
Nagie, E. (2015). Increased Shares: Lyft's Rides and Revenue Grew Five-Fold in 2014.
Newcomer, E. (2015, 12 3). Uber Raises Funding at $62.5 Billion Valuation. Retrieved from BloomberBusiness: http://www.bloomberg.com/news/articles/2015-12-03/uber- raises-funding-at-62-5-valuation
Niels Agatz, A. E. (2009). Sustainable Passenger Transportation: Dynamic Ride-Sharing. Pursell, W. (1943). "When You Ride Alone You Ride With Hitler.". Office of Price
Administration.
Webrazzi.com. (2015).
wikipedia.org/wiki/Uber. (2015).
by
sercanak54hotmailcom (student)
