Uber - A Strategic Analysis
Top 0.5%29615 Views29 Pages
1 File ▾
scribd. scribd. scribd. scribd. scribd. scribd. scribd. scribd. scribd.
Table of Contents
Introduction
…………………………………………………………………………………………
.1
Chapter 1 - How it All Began
……………………………………………………………………
...2
1.1 Life before Uber
……………………………………………………………………
......2
1.2 Uber’s F
airytale
……………………………………………………………………
.....2
Chapter 2 -
Uber’s
adventure
…………………………………………………………………
..
…
5
2.1 Building the Platform
…………………………………………………………………
..5
2.2 Product Differentiation
………………………………………………………………
...7
2.3 Building its own Complements
………………………………………………………
.8
2.4 Building the Ecosystem
………………………………………………………………
.9
Chapter 3
–
Uber
’
s vision: the Uber-All Economy
……………………………………………
.10
3.1 Evolving and inventing new platforms: Diversification
……………………………
10
Chapter 4 - Play the bulldog, not the puppy dog
………………………………………………
12
4.1 Uber’s expansion……………………………………………………………………
..12
4.2 Su
stainability of Uber’s strategy
in the long term:
“
Too Big to Ban
”
.....
……
...
…
13 4.3 Competitive strategy: stabbing its competitors
……………………………………
14
Chapter 5 -
What’s next
?....................................................................................................16
5.1 A Silicon Valley Unicorn?...................................................................................17
5.2 Future challenges
……………………………………………………………………
.18
Conclusion
…………………………………………………………………………………………
19 References
………………………………………………………………………………………
...21
1
Introduction
How did a start up entering the stagnant market of private transportation became the most valued private company in the world? 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. So what is it about this company that makes it such an attractive option for investors? Despite its numerous mistakes and not always fair behaviour, Uber has a spectacular growth potential. In fact, if you think of Uber as a car company operating in a few cities, it is not big; if you think of it as absorbing the taxi market, it gets larger; if you think of Uber as delivering both people as well as things it gets even bigger. But when you think of Uber as a giant orchestrating the delivery of millions of people and items all over the world, you get an idea of what could be one of the largest companies in the world (Wolfe, 2013). Notwithstanding its potentialities, Uber still has to overcome many obstacles: those self-inflicted with its arrogant strategies, and those that arise from the very essence of the market it is competing in. In order to better understand the potential a
nd the issues arising from Uber’s business model, it is worth to get
more into the details of its strategy.
“Uber is growing faster than eBay did … [it] is probably the fastest growing company that we’ve ever had.”
-
Bill Gurley
(Dillet, 2013)
2
Chapter 1 - How it all began
1.1 Life before Uber
It was a rainy night in San Francisco and Boris wanted to take a taxi to get to Tony’s Pizza.
He waited and waited under the rain until a taxi driver noticed him waving his hand. After he managed to get the taxi, Boris finally sat in the back of the car, right on top of the wrapping
of a chocolate bar that a previous young passenger left there, spotting Boris’ brand new Etro
trousers. While travelling, Boris started making assumptions about the possible cost of the
ride in order to calculate more easily the tip for the driver: “If it’s 15 bucks, a 20% tip would be calculated…. 5 times 2… No wait, 15 times 1.2.... Where is my phone… ”. Once arrived at Tony’s, Boris got his wallet to pay the $17.5 ride with h
is credit card, but the credit card machine was not present/magically stopped working. He just had a piece of $50 and the taxi driver only $30 change... Extra tip for the chauffeur, what a coincidence!
Before Uber, taking a taxi was a ritual that customers were forced to undertake each day, but that they did not enjoy and for which they had to spend a relatively high amount of money. There was simply no alternative (Brown, n.d.).
1.2 Uber’s Fairytale
In December 2008, Garrett Camp and Travis Kalanick, two entrepreneurs and friends, were in Paris to attend the annual tech conference LeWeb. That night, they had to go back to their apartment, but they could not hail a taxi because of the snow (Blystone, 2015). When they eventually managed to get back to their
house, they started one of their usual “jamming sessions”: they gathered with other entrepreneurs, looking for new business ideas until 5AM.
Among the many concepts that came out that night, there was also the one of a timeshare limo service that could be ordered via a mobile application (Swisher, 2014).
It was a particular moment for both founders since the year before Kalanick had sold his start-up Red Swoosh to Akamai Technologies for $19 million while Camp had sold his StumbleUpon to eBay for $75 million. Camp was ready to move on to the next big thing, and after going back to San Francisco he kept working on the idea and bought the domain name UberCab.com. Kalanick instead was not interested in participating in the project since he was still recovering from the fact that his first two start-ups had not achieved the results he expected. Camp knew that developing Uber would have taken a lot of guts and was
3
therefore determined to have Kalanick on board because of his “go for it” attitude. He
managed to convince him by the summer of 2009, and the following May Uber was launched
in San Francisco: anyone from that moment on would be able to “get a car with the press of a button” (Swisher, 2014).
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. 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 (Brown, n.d.).
Not only the riders will 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 p
ricing 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 (Uber Driver
Pros & Cons, n.d.). Drivers’ down ti
mes waiting for passengers to request a ride are also lower compared to taxis, making their hourly earnings higher despite the average lower price, as shown in Table 1 and 2: the average earnings per hour for an Uber driver are $19.19, while a taxi driver only makes around $12.90. 80% of what drivers earns through Uber stays with them, while the company retains the remaining 20% (Sydney, 2015). The value of the San Francisco-
based company’s service was immediately perceived by the
market, resulting in a notable success. Six months after the launch of its mobile application, Uber had already reached around 6,000 users, which drove between 10,000 and 20,000 rides (How did Benchmark Capital justify a $49M valuation for Uber?, 2012). Today, Uber is available in 412 cities and 70 countries worldwide (Isaac & Picker, 2015).
4
Table 1 - Uber vs. Taxi Pricing
Source: Silverstein, 2014
Table 2 - Uber drivers vs. Taxi drivers Hourly Wages
Source: Petropoulos, 2016
