Innovation

The corporate world is not one to fall behind in the planet's ongoing evolution. Businesses are learning to stray from sticking solely to tried-and-true methods of operating. It is essential for both new and current firms to use innovations and create disruptive tactics since it will help them expand. In this essay, the taxi industry—particularly Uber—will be the main topic. In order to make money, Uber has benefited from innovations and innovative business models. In order to create cash, this essay will demonstrate how firms might take a tip from Uber.
Knowledge of Disruptive Innovations
A small business with few resources attacking already established, takes on existing established businesses and in the end successfully challenges these established businesses (Christensen, Raynor, & Mcdonald, 2015). The new entrants cause disruption when they target these segments that have been overlooked by established businesses. These new entrants penetrate the market by offering lower prices. The existing businesses do not respond well to the lowered prices seeing as most they are usually attempting to make high profits. Many customers of the existing companies then turn to the entrants, and this is when disruption can be said to have occurred.

Uber is one good example of a disruptive innovation. Uber entered the market in 2009 and caused a disruption to the existing traditional taxis. Uber made use of technology to make it easy to order a taxi by touching a button. The traditional taxis require a person to hail them or call the taxi company. This can be inconvenient for some users. Uber took advantage of the fact that customers wanted to access taxis more easily and conveniently. Uber also offered competitively lower prices than traditional taxis. This caused a move of mainstream customers from the traditional taxis to using Uber thereby causing a disruption. Other taxi businesses have tried to emulate the Uber model of ordering a taxi by the touch of a button but Uber continues to be the most successful of them all. One needs to understand the history of Uber in order to understand this disruptive innovation.

History of Uber

The Uber story can be traced back to the meeting of Travis Kalanick and Garret Camp in Paris while they were attending an annual conference for the tech industry known as LeWeb in 2008. It is while they were in Paris that they had trouble hailing a taxi and, therefore, decided to come up with an idea of how to get a taxi by a simple tap of a button. Both men had already sold their startup businesses that they had. Mr. Kalanick had sold Red Swoosh, while Mr. Camp sold Stumbleupon to eBay.

Mr. Camp returned to San Francisco from Paris with the idea of forming UberCab. In 2009, he started working on UberCab still being a CEO at StumbleUpon. He later convinced Mr. Kalanick to join him. They tested the service in 2010 using three cars in New York before launching it in San Francisco. The Uber app quickly became popular among people due to how easy it was to use. One could simply order a cab with a tap of a button. The Uber app works by identifying the location using GPS and charging the cost of the ride automatically to the user’s account (Blystone, 2017).

How Uber Works

There are three things that are needed in order to use Uber. One needs a smartphone, the Uber app, and internet connectivity. The Uber mobile app is downloaded and installed on the smartphone. The user then signs up and gets an account. The details that a person is required to put in when signing up include the person’s mobile number and information about billing. After this information is provided, a person can use the app to reserve a driver.

A driver is reserved by first of all choosing the type of vehicle on wants to ride in. The user then marks his location on the app where they want the driver to pick them up. After this, a person simply needs to wait for the driver to pick him/her. The amount of money that a user is charged for the ride depends on the distance travelled and the time used travelling. This money will be automatically billed to the credit card the user provided when signing up.

Growth of Uber in the Market

The beginning of Uber was faced with a lot of opposition from all sides. In the same year it began, it got a cease-and-desist order from San Francisco Municipal Transportation Agency. The main issue that San Francisco Municipal Transportation Agency was the use of the name cab in its name. This led to the changing of the name from UberCab to Uber. The company also subsequently bought the domain name Uber.com from Universal Music Group (Blystone, 2017).

Uber operates in the cab or ride-share market. Its main aim is to transport a person from one point to another conveniently, reliably, comfortably, and at a low cost. The growth history can be traced back to 2008 when Mr. Kalanick and Mr. Camp had an idea of sharing a limousine service (Blystone, 2017). The company received its first seed money in 2009 and it was USD 200,000 in value. The company’s major funding came in 2010 when it received 1.25 million US dollars. The year 2011 was a year that was crucial to the growth of Uber. Early that year, the company was able to raise 11 million US dollars in what was known as Series A round of funding. The funding was directed by Benchmark Capital. This funding allowed Uber to expand in New York, Chicago, Seattle and Washington D.C. It also allowed Uber to have its first expansion abroad by expanding to Paris. In the same year, it was also able to raise 37 million US dollars in its Series B funding. The Series B funding was led by Jeff Bezos, Goldman Sachs, and Menlo Ventures.

The company also broadened what it offered in 2012. It launched UberX which was aimed to be an alternative to the relatively expensive black car service. In 2012, it also expanded its services to London. The year 2013 saw it receive Series C funding of 25.8 million US dollars. Uber also expanded its services to India and South Africa in the same year. In 2014, Uber continued with its expansion plans abroad by expanding to China. It also introduced UberRush and UberPool during the same year. UberPool was aimed at allowing people to share a ride. The company received Series D and Series E of funding in 2014. Series D funding amounted 1.2 billion US Dollars and Series E amounted to 2.8 billion US dollars.

2015 saw the company expand its services to 58 countries and 300 cities. It also launched UberEats during the same year. The company went ahead to raise more funds in that year that amounted to over 7 billion US dollars. The company was valued at 62.5 US dollars in 2015.

In 2016, Uber expanded its services to over 60 countries and 450 cities. Uber continues to grow in its market share and its valuation. However, in April 2017, Uber opened up that they had made big losses in spite of its rapid growth rate (Newcomer, 2017). Uber is a private company and is therefore not required to reveal its financial reports. Nevertheless, it opened up for the first time about its financial situation to Bloomberg (Newcomer, 2017). The company revealed that they had doubled their bookings to 20 billion US dollars in 2016. It also revealed that it had a net revenue of 6.5 billion dollars. The net losses when adjusted were 2.8 US dollars. The revenue that Uber generated was nonetheless more than the losses but the losses were alarming to Uber. The company spent a lot of money in China and made 1 billion US dollars in losses. This brought the global losses for the company to 3.8 billion dollars (Newcomer, 2017).

In spite of the losses, Uber’s business activities are bigger than ever. As of April 2017, the company is valued at 69 billion US dollars and it operates in 75 countries (Newcomer, 2017). Uber sold its Chinese business to Didi Chuxing and obtained an 18% stake in that company. The company’s main competitors are Lyft in the USA, Grab in South-East Asia and Ola in India. Uber faces low threats from new entrants as it already has strong backing and it has an extensive network of its services. Uber continues to stay ahead of its competitors who have an almost similar business model.

How Uber Caused Disruption in the Taxi Industry

Uber has made use of the notion of sharing economy. The notion of sharing economy is one whereby goods and services are shared via the internet or using other ICT platforms (Martin, 2016). The effect of sharing economy can be felt by traditional goods suppliers and service providers. The traditional taxis are such service providers who have felt the impact of sharing economy of online service providers such as Uber. One such effect is the decrease in the price for taxi licenses and taxi medallions. For example, the arrival of Uber to the market led a decrease of taxi medallions in New York from 1.3 million US dollars to 850,000 US dollars in 2015 (Martin, 2016). The introduction of Uber to the market has also increased the effectiveness of car hiring services as transportation businesses try to acquire the Uber model. The closing of several traditional taxi companies has also been caused by the entry of Uber into the market. When traditional taxis started losing their customers, most of their drivers decided to join Uber leading to the closure of some of these traditional taxi companies. These are just some of the ways in which Uber has disrupted the taxi industry. Some of the disruptive innovation strategies it has employed to disrupt the taxi industry are discussed below.

Disruptive Strategies that Uber Has Used

There are several disruptive innovation strategies that Uber has used. First, Uber has eliminated different transaction costs. The traditional taxi industry had a monopoly in the transport industry. This enabled them to set charges that a person had no other choice but to pay them in order to access the service. For example, there were costs added to the fare when using rented cars or car-hires. Uber did away with such charges and such charges are no longer in existence. A person does not have to keep paying charges every step of the way when reserving or hiring a car. Drivers who use Uber in most countries where the company operates are also not tied down by local regulations that other traditional taxis have to comply with.

Another disruptive innovative strategy that Uber has used is that of enhancing the use of assets to make them productive and also improving employment rates. Uber has taken advantage of unused or underutilized assets and made them profitable. There were numerous private cars that were barely being used yet they were being maintained at a cost. Others were idly parked in parking lots yet the value of cars is always depreciating. Uber used this situation by presenting an option to car owners who barely sue their cars to earn an income from them. Uber also offers an opportunity for drivers who want to work part-time since they can work only when they are available. Uber also contract directly with the driver and it can be said that no employer-employee relationship exists between the driver and the company. This gives drivers a degree of freedom that cannot be found in the employment.

Uber also used cutting-edge technology as one of its disruptive innovation strategies. Uber developed a mobile app which they use to offer their services. The world we currently live in is technologically advanced and almost everyone owns a smartphone. Uber took advantage of this fact and made their service available at the tap of a button. Uber’s use of technology also made it easy for them to enter the market. The internet can be accessed from any part of the world and this made it easy for Uber to expand to the global market. It is also important to note that Uber made use of other innovations such as the GPS technology. The GPS technology allows drivers and passengers to track location. Traditional taxis require a passenger to call them and this is something Uber did away with. The Uber app matches the location of a passenger to the driver closest to them.

The pricing model is also another disruptive innovation strategy that Uber used. Uber has a flexible pricing model that allows increase and decrease in cost depending on demand. Uber does not fall under the regulations of taxis as it considers itself a ridesharing service. It is therefore not governed by taxi regulations on price rates and this gives Uber flexibility in its pricing. This, in the long run, has made Uber a cheaper option of transportation when compared to traditional taxis. The affordability of Uber has earned it a huge market share in the transportation sector as its users keep on increasing. The pricing model is additionally one that allows transparency unlike traditional taxis as passengers can receive an estimate on the fare they will use beforehand.

Uber also adopted the strategy of a convenient payment system. Billing information is taken during signing up. This allows a user’s credit card to be charged directly. The user gets to enjoy transacting without using any cash. The driver’s anxiety on whether a passenger might fail to pay is also reduced as the driver is automatically paid, unlike traditional taxis whereby a passenger can easily run off without paying.

Controlling the quality of the services they offer is another disruptive innovative strategy that Uber uses. Uber has a rating system which allows a driver to be rated by the customer when the ride comes to an end.

Lastly, one can say that Uber has used toughness and fearlessness as a strategy. Uber operates with no fear of controversies and more often than not disregards local laws when offering its services. This has led to numerous law suits against it even some bans on its services but it has continued to operate with no fear. This kind of aggressiveness is what has mainly contributed to its growth.

Conclusion

Businesses cannot ignore the fact that technology is changing how businesses used to be run. Start-up businesses have been taking advantage of technology to come up with new ways of conducting businesses. This has caused a disruption to traditional business models. One good example is how Uber has used technology to create a business model which has caused disruption in the taxi industry. This disruption can be seen in the lowering of prices for taxi licenses and the closure of some traditional taxi companies. Uber has employed disruptive strategies such as a flexible payment model, a convenient payment system, quality control, use of cutting-edge technology, and making use of underutilized assets. The disruption that Uber has caused can be felt globally seeing as Uber has expanded to 75 countries. It is hard to ignore this disruption, and new and existing businesses can learn a lesson or two from Uber.

References

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Christensen, C.M., Raynor, M.E., & Mcdonald, R. (2015). What is disruptive innovation? Havard Business Review .

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Martin. (2016, May 25). 7 Strategies Uber is using to disrupt the taxi industry. Retrieved from https://www.cleverism.com/strategies-uber-is-using-to-disrupt-the-taxi-industry/

Newcomer, E. (2017, April 14). Uber, lifting financial veil, says sales growth outpaces losses. Retrieved from https://www.bloomberg.com/news/articles/2017-04-14/embattled-uber-reports-strong-sales-growth-as-losses-continue.

Thomas, E. (Ed.) (2008). Innovation by design in public services. London: Solace Foundation Imprint.