Uber is an online transportation company. Travis Kalanick and Garrett Camp initiated the idea of Uber began in San Francisco, Carlifornia in 2009. In 2008, Kalanick had borne the idea after not being able to find a cap in Paris. On his return to San Francisco, he and Garrett Camp started the service and launched Uber in June 2010 (Olson 21). Uber has expanded over the years across various part of the world. Opening for the first time outside the U.S in Paris in 2011, the business operation has spread to other countries all over the world from different continents. Uber now has the service in more than 50 countries, and they plan to expand the service to more countries.
The way that Uber works is that a driver has to apply to Uber. Once he or she is accepted to be a driver, he or she can then download the app. The driver has the option to be online or offline, so he or she does not have specific hours to work. When the app is turned on, the driver will have a request from the customer to pick him or her up. The driver has 15 seconds to accept the request otherwise it will go to another driver (Watanabe 54). In the other hand, a rider has to download the app, sign up with Uber, and then connect the credit card with the account. After that he or she can request a ride.
Ubers business model which is one used often by E-commerce businesses it is the brokerage type of business model, the reason for this it is that in the brokerage type of business model, a broker he or she acts as a go between for a consumer and a seller in Ubers case the driver of the vehicle is the supplier while the rider is the consumer river.
With a current post money valuation of $62.5 billion (Isaac & Picker, 2015) Uber, a mobile application that connects drivers with people who need a ride, has in fact experienced a huge popularity among investors. What is interesting is that this stellar valuation occurs at a time when the company has never been profitable yet, and it is currently fighting numerous battles on more than one front.
What can be said with certainty is that Uber has undertaken a series of interesting managerial strategies. These strategies, whether sustainable or not has yet to be discovered, have led the company to its incredible success. In fact, if Uber has on the one hand boosted the growth of its platform by relying on third parties, on the other hand it has decided to stand alone on the competition front, declaring war both to the legislative entities defending the taxi lobby and to its competitors that are now joining forces to hinder its expansion. In this report, many aspects of Uber will be discussed including its business environment, strategies, management and HR strategy, industry survival and others.
Analysis of the Organization’s Business Environment and of Industry Survival and Success Factors
Uber’s Porter’s Five Force Analysis
The supplier threat for Uber is high, in Uber is the driver of the Uber taxis, this person he is the only supplier for Uber and this it is not such a good thing, the reason it is because the supplier if he realizes he has more power over Uber can make things difficult for Uber, the only hold that Uber they have over its suppliers it is that they give various incentive programs like commissions on rides driven and on good ratings given, but the competition like zip car or side car can also match this kinds of incentives (Olson 17). To be able to change this supplier strength the company can train more drivers so as to have a ready source of replacement for the drivers that leave their service but also this it is not a sustainable thing.
Buyers Power (high)
The threat from the buyers of Ubers services who are the consumers of the taxi service it is pretty high, the reason for this it is that Uber it prides itself in providing low prices for its can and so it attracts users who are price conscious and therefore whenever they feel that they are being overcharged by Uber or they have another problem with the company they can move to another provider like zip car since there are no barriers to moving from one provider to another (Perry 6). Uber customers they have complained about surge pricing which is done during periods of high demand using a certain algorithm developed by Uber and this could be one period when customers they could move.
The substitute threat it is moderate because Uber it has threats from local substitutes but in the 53 other countries it is found in only the local taxi services they pose a problem. There are many substitutes to Uber who use the same business model as the ecommerce company this include its most prominent rival who is Lyft, and then there is side car and zip car, Ola cabs, and Haxi. This substitutes offer lower prices in the American market and even though Uber has introduced services such as Ubergo in Nov of 2014 there is still room for improvement (Watanabe, Naveed, and Neittaanmäki 42).
Ubers main competitors are the various cab service providers in America and abroad, the only way the competitors can challenge Uber is by ganging up against it as international taxi service providers they have done in other countries and also on using price wars which companies like zip car and side car used but Uber (Perry 18). They neutralized with the Uber go product which is a low cost product, also forming of partnerships with existing bodies like it did with the Uber Taxi which it was a partnership with New York local taxi commission and also rolling out of Uber X.
New Entrants (High)
The threat of new entrants is high for Uber. This is because the main business model of Uber is based on an application platform, and in this age of technological revolution a new tech idea comes out so often, this can be been seen with the likes of social media platforms from Face book to Twitter to Whatsap and snap chat. It is the same in the networked travel industry as seen with the emergence of Lyft in 2012 only four years after Uber was formed and later on Zip car, Haxi, side car Ola cabs and many others that are coming up (Watanabe, Naveed, and Neittaanmäki 67). In fact presently, the concept of doing things like Uber it has been called Uberification because of all the people using the Uber concept showing that more will still come out and challenge Uber in the taxi and other businesses it might use its business model in.
Industry Survival and Success Factors
The battle between Uber and Lyft, its biggest US rival, has become vicious. The two companies are trying to steal drivers from each other, while they compete to become the platform of reference.Uber is surely one of the most praised companies of our time. It is not just a taxi company; it is a terrific platform, now widening its horizons beyond the market where it all began. From the first glimpses of this visionary idea, Uber ferociously attacked the chicken-egg problem and grew to become the most valuable venture backed company in the world. Travis Kalanick was able to build an empire now valued at around $62.5 billion dollars, an amount mostly based on Uber’s great potential and future growth (Hall and Alan 176).
Uber’s successful value proposition, that has been globally recognized, is entrenched into a two-sided platform. Differently from many companies that have the need to build a platform around their product in order to grant supremacy in their market, in Uber’s case the product can be considered as the platform itself. In particular, Uber is a two-sided platform that connects drivers and people that need a ride, providing both of them with network externalities (Honig et al. 87). This platform is characterized by the presence of transfers between the parties, which exchange information, money and the transportation itself
Analysis of the Organization’s Strategy
Kalanick and Camp, taking inspiration from their own daily life and the inefficiency of the taxi service in the Bay area, revolutionized the whole customer experience of taking a cab and managed to make private transportation a pleasant journey again. In fact, by pushing a button on the Uber app, a car would come to pick the customer up thanks to the GPS location of his mobile phone. The rider can have access to the name, picture and past feedbacks of the driver that accepted his request, and if this information do not convince him, he has the possibility to cancel the ride (Perry 19). Most importantly, at the end of the trip, he simply gets off the car without needing to pay directly, since the cost of the ride has already been charged on his credit card.
Not only will the riders have advantages from using this app, but also the drivers benefit from the platform. In fact, Uber drivers have more flexibility than normal taxi drivers: they can turn the app on and off whenever they want, allowing them to decide their own work schedule. Also, through “surge pricing”, the pricing method that varies according to real-time conditions of supply and demand, they are able to earn more whenever there is higher demand than offer, for example during the Super Bowl or on Christmas Day (Olson 44). Drivers’ down times waiting for passengers to request a ride are also lower compared to taxis, making their hourly earnings higher despite the average lower price.
In particular, Uber is a two-sided platform that connects drivers and people that need a ride, providing both of them with network externalities (Honig et al., 45). This platform is characterized by the presence of transfers between the parties, which exchange information, money and the transportation itself. As a two-sided platform, Uber has managed to grow its network by subsidizing the side of the market that is more price sensitive (the drivers) and that can provide network growth to the other side, the riders, which is charged full price instead. Drivers, in fact, do not have to pay anything in order to use the app and they are rewarded through surge pricing when there is a higher demand than supply.
In this way, Uber can manage to leverage direct network externalities proportionally at both ends (Perry 77). In fact, if on one hand the number of drivers positively influences the ride availability and the variety of riding options, on the other hand an excess in drivers’ availability may lead to an insufficient number of riders, which would leave drivers unhappy. At the same time, as the number of riders influences the possibility for drivers to earn money, too much growth on the buyer side could also lead to an insufficient number of sellers, leaving buyers dissatisfied
Analysis of the Organization’s Culture, Structure, Management Systems and HR Strategy
Uber creates enormous value due to the increase in competition. Economists refer to this as a deadweight loss in situations like this where anti-competition is in place. Also, Uber releases much economic value by utilizing people and thereby free time to create extra output in the country. However, this service has been controversial across the globe. Firstly, the protests and legal actions from local drivers and governments on this unfair competition and illegal taxing continue to present today. Since most Uber drivers are not professional drivers, people criticize the skill and safety in using their services (Perry 76). Also, almost everyone with a driver’s license and a car can be an Uber driver by registering online. Uber itself does not interview and has only minimal checks on the driver’s background. For example, there are cases where passengers were murdered or sexually abused by Uber drivers. Therefore, we are yet to see how this business model or so called “Uberification” can work around the globe.
Due to the great extent of outsourcing its resource demands or the raw material it requires to provide a product or service, which in this case are both the drivers and the automobiles, Uber can operate with a significantly less cash outlay. The initial costs are primarily the production of the software that is to be deployed on to the cell phones of the users of the service. There will be ongoing maintenance of the software required and other feature extensions as well (Econbrowser and Hamilton 45). This reduced initial outlay brings with a significantly flat organizational structure, where a few key employees can monitor the daily operations of the company. Freelancing seems to be the way of the future, where employers and employees both prefer the flexibility of being able to maximize their investment of time and resources. Employers do not need to maintain costly employees on their payroll reducing costs and impacting the bottom line. Employees have the flexibility of choosing their work hours.
Management Practices and HR Strategy
Due to this heavy dependency on external resources, Uber offers incentives to drivers for completing rides as a way of ensuring that it can fulfill the demands of its passengers and also to ensure that transportation can be made available with a few minutes of booking a service, which is one of the key promises of Uber. A ride is any completed paid transaction and could be for any distance (Olson 21). Rides are dispatched automatically by the software system to the drivers based on their location and demands of passengers.
A system of rating by passengers’ helps management keep track of good drivers and the software automatically route more rides to better rated drivers. A driver that completes a certain number of rides in a day will receive a daily bonus. This bonus could potentially double the earnings of a driver. Based on an interview with some Uber drivers, we found that the drivers go the extra distance and many times perhaps the extra hour of work to earn the bonus. Drivers sometimes complain that Uber will not allocate them the last ride that would earn them the bonus even if they wait for a long time (Econbrowser and Hamilton 34). This seems to be a practice from management to dangle a carrot but withdraw it before the carrot can be eaten. Drivers have mentioned about the system becoming extremely slow when they are about to get their last ride despite it being peak traffic time such as evening or morning rush hours. Despite all claims of partnership, Uber is not really sharing the profits with everyone that might have contributed to its success. This is blatantly obvious from the lack of any profit sharing agreement with its key resource, the partner driver. Uber intends to capture the transportation market, by under cutting incumbents and it is able to do this due to its lack of initial capital investment.
Critical Appraisal of the Strategy
Despite the aforementioned positive social impact that Uber’s advent could have, several doubts have been raised with regard to the future of the company (Perry 77). Among the others, the most worrisome one is related to its strategy: is Uber’s business model sustainable in the long run? Uber’s motto has always been “more rides in more places”. In order to do that, the company is aiming at expanding as quickly as possible by undercutting the competition on price, even if this means losing money in the process. In fact, Uber’s pricing strategy has been increasingly aggressive. For example, a San Francisco ride that once costed $15 (and yielded $12 to the driver) is now priced at $11.25 to the final customer. In order not to lower its drivers’ income, Uber is covering the 75 cents difference (Olson 54). With this system, Uber is not only renouncing to earn a commission, but is also willing to compete at loss.
This approach is actually not new in the tech start-up scenario, where popularity is often more valuable than profitability itself, but whether this strategy will prove sustainable or not in the case of Uber is still a debated question. In fact, in order to grow Uber needs more and more drivers, but their recruitment might become difficult if prices (and hence drivers’ income) keep lowering (Perry 67). In addition, Uber’s drivers are not employees, but independent contractors, and therefore they are not entitled to benefits such as minimum wage, paid vacations or health insurance, leading to potentially dangerous contrasts among the two parties.
Uber’s decision to enlarge its customer base as quickly as possible giving up present profits gains more significance if we consider another aspect. As prices fall, demand for Uber rides increases and with it, the number of people that will complain if someone in power will try to ban “their” Uber. The company’s management is aware that if Uber succeeds in its aggressive expansion, it will likely become so radiated into the citizens’ routine that elected officials may face stronger resistance when trying to restrict one or more services of the company (Olson 21). This concept comes to relevance when considering that Uber is constantly facing threats from regulators and lawmakers, which are pushed by the taxi lobby to put the company to the curb. However, Uber’s reaction strategy to this kind of issue is plain and simple: keeping wheels on the road (Olson 24). By keeping its business going despite the controversial situation it is in, Uber has been able so far to win its battles in many different cities. As Arun Sundarajan, professor at NYU’s Stern School of Business, explained: “The more they sort of popularize themselves, the stronger their argument becomes”. Uber is in fact trying to become “too big to ban” (Perry 56).
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Hall, Jonathan V, and Alan B. Krueger. An Analysis of the Labor Market for Uber’s Driver-Partners in the United States. Cambridge, Mass: National Bureau of Economic Research, 2016. Internet resource.
Honig, Zach, Christopher A. Trout, Brad Molen, and Terrence O’Brien. “Uber’s About to Get into the Delivery Business.” Engadget Hd. (2015): 2015-4. Print.
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Watanabe, C.; Naveed, K.; and Neittaanmäki, P. Co-evolution of Three Mega-Trends Nurtures Un-Captured Gdp – Uber’s Ride-Sharing Revolution. Elsevier, 2016. Internet resource.