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The Miracle Workers team

by Su Ng

Uber Technologies Inc.


as a Disruptive
Innovation
December 31, 2016
Abstract

Uber is an online taxi business that owns no cabs and has drivers as independent
contractors to serve customers via smartphone app. Since 2009, the company has disrupted the
taxi cab transportation by delivering an enjoyable experience of transfer payments and quick
response time to many customers tired of hailing street taxis. Many scholars examine such
disruptive innovation for its vast impacts on the sustainable development of humanly devised
systems, particularly on the economy, environment, and society. In this respect, the paper
introduces many concepts of innovation in a longitudinal analysis of secondary sources, such as
macro-environmental analysis, followed by an overview of Uber Technologies Inc. to eventually
discuss its innovation implications both at the present and the future.

The proposed Six-Stage Process of Disruptive Innovation places Uber at a consideration


at the stage disruption succeeds, but since the micro-environmental forces indicate strong
competition, the company still struggle to fend off new competitors with strong financial support
and existing incumbents with lengthy legal lobbying to earn profits and to gain monopoly in the
global ride-sharing industry. The paper then shifts the focus onto value chain analysis to show
the contrast between two business models, and new technologies involving geographic
navigation and cloud data to establish a strong base for a discussion on the three pillars of
societys sustainable development being disrupted by Uber. Finally, a conclusion is summed up
with three possible future paths facing Uber and their ramifications for the future generations
and existing incumbents.
Contents
Introduction ................................................................................................................... 1

Literature Review .......................................................................................................... 1

1) Disruptive Innovation ............................................................................................. 1

2) Impacts of Innovation on Society, Economy, and Environment ............................. 3

Uber Technologies Inc. ................................................................................................. 5

Uber Innovation Analysis ............................................................................................. 8

1) Ubers Nature of Innovation ................................................................................... 8

Value Chain Analysis ................................................................................................ 8

Ubers Technologies ............................................................................................... 10

Legal Disputes ........................................................................................................ 11

2) Ubers Disruptive Impacts.................................................................................... 14

On the Economy ..................................................................................................... 14

On the Society ........................................................................................................ 15

On the Environment ................................................................................................ 16

3) Ubers Future Innovation ..................................................................................... 17

Beyond Taxis .......................................................................................................... 17

Autonomous Cars ................................................................................................... 18

Mapping Function ................................................................................................... 19

Conclusion ................................................................................................................... 20
References ................................................................................................................... 21

Appendices .................................................................................................................. 27

Appendix A: PESTLE a Macro-Environmental Analysis .................................... 28

1) Economic ......................................................................................................... 28

2) Social ............................................................................................................... 30

3) Legal ................................................................................................................ 30

4) Political ............................................................................................................. 31

5) Technological ................................................................................................... 31

6) Environmental .................................................................................................. 32

Appendix B: Porters Five Forces a Micro-Environmental Analysis ................ 33

1) Threat of New Entrants (High).......................................................................... 33

2) Threat of Substitutes (High) ............................................................................. 34

3) Strength of Buyer Power (High) ....................................................................... 34

4) Strength of Supplier Power (High) .................................................................... 34

5) Rivalry between Existing Competitors (High) ................................................... 34

Appendix C: VRIO an Organizational Analysis .................................................. 35


List of Figures
Figure 1. The Six Stages of the Disruptive Process ................................................................... 3

Figure 2. Sustainable Development Goals ................................................................................. 3

Figure 3. Governing Responsible Innovation for Sustainable Development ............................... 4

Figure 4. Uber Business Model Canvas ..................................................................................... 5

Figure 5. Ubers Successful Timeline ......................................................................................... 6

Figure 6. Value Chain Analysis .................................................................................................. 8

Figure 7. System Service Flow Chart ......................................................................................... 9

Figure 8. Uber Rush Couriers ...................................................................................................18

Figure 9. Uber's Delorean Time Machine Delivery Service in September 2013 .........................18

Figure 10. Time Spent on Smartphone per App Category .........................................................32

Figure 11. Ubers Estimated Company Valuation ......................................................................36

Figure 12. The Great Game ......................................................................................................37

List of Tables
Table 1. Ubers Listed Services .................................................................................................11

Table 2. Ubers Regulatory Hurdles ..........................................................................................12

Table 3. The VRIO Framework: Is a Resource or Capability ..................................................13

Table 4. VRIO an Organizational Analysis .............................................................................36


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Introduction
Technological advancement is a potent force in the globalized economy that challenges
existing companies and industries to catch up with its new trends to meet the taste of modern
consumers, or them risking being left behind on the verge of extinction. Uber Technologies Inc.
as the camouflage of disruptive innovation is so significant that in case its belligerent cost-
cutting strategy and convenience offering are sustained, the taxi industry could be totally
revolutionized. Hence, this paper first introduces the concept of disruptive innovation and its
influences on the three pillars of sustainability and the taxi industry to then explore the possible
future directions Uber is heading.

Literature Review
1) Disruptive Innovation
Innovation is defined by Thompson (1965, cited in Voegtlin & Scherer 2015) as the
generation, acceptance and implementation of new ideas, processes, products or services,
which are a key mechanism for achieving corporate goals and specifically address many
sustainable development goals (SDGs). There are two labels: product innovation and
process innovation (OECD & Eurostat 2014). Product innovation is the introduction of a new
product, or a significant qualitative change in an existing product, such as smartphones and
tablets, while process innovation is the introduction of a new process for making or
delivering goods and services, such as a robotic machine to assemble cars with even
greater precision than a human welder. Anadon et al. (2016) further elaborate
(technological) innovation is at the heart of sustainable development that includes the full
range of devices, methods, processes, and practices to fulfill certain human purposes in a
specifiable and reproducible way.

Disruptive innovation is a type of innovation that can create a new market and
network values by introducing a new innovative technology and possibly change the
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customer demands and preferences. This would push existing firms and alliances to
the edge of being uncompetitive to eventually be wiped out of the market (Andersen &
Strandskov 2008). According to Rafii and Kampas (2005, cited in Reagan 2015), there are 6
stages in a typical disruptive innovation process as pictured in Figure 1. First, startups
explore gaining a foothold market entry by either observing an unsatisfied customer demand
or promoting technology development. Second, the firm successfully enters the market with
the newly innovated product propositions. Then, marketing and promotion take place to
assure the product is widely known. Fourth, after testing the products, customers with
positive responses start switching brands, which causes incumbents to retaliate via legal
issues, controversial opinions or even negative rumors. Withstanding the intense backlash
from incumbents, the disruptive innovation gradually replaces existing firms.

The Six Stages of the Disruptive Process


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Figure 1. Reproduced from: Reagan 2015

2) Impacts of Innovation on Society, Economy, and


Environment
Sustainable development is development that meets the needs of the present
without compromising the ability of future generations to meet their own needs (UN, cited in
Anadon et al. 2016) and consists of three sustainable pillars, being society, environment,
and economy at the macro (economy/society) level. Kolk (2016) calls these the
reconceptualized triple Ps People, Planet, Prosperity. For instance, multinational
corporations (MNCs) are increasingly expected to upheld sustainable development via
corporate social responsibility (CSR) or charity programs to serve various stakeholders in its
habitats because society, since the arrival of Internet, has been pressurizing companies to
address their impacts on the world on issues like fighting inequality, promoting ethics and
human rights, alleviating poverty, providing universal education and tackling climate change
(NewsRx Health & Science 2016).

Sustainable Development Goals

Figure 2. Reproduced from: Griggs et al. (2013, p. 306, cited in Voegtlin & Scherer 2015)

Nonetheless, Anadon et al. (2016) warn activities in the niches of the market (i.e.
startups) may eventually lead to regime-level (i.e. MNCs or traditional businesses)
transitions and disruption, resulting in the widespread use of new technologies because
technological innovation for sustainable development requires making fundamental changes
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to the rules of the game. For instance, Castellano (2016) states the Uber syndrome
represents many executives greatest fear; the taxi and limousine companies are being
disrupted (aka. Getting Uber-ized) because a digital startup turns an entire industry on its
head, making traditional business models and the companies that subscribe to them
obsolete.

Therefore, a new concept responsible innovation by Voegtlin and Scherer (2015) is


proposed to better integrate technological innovation into SDGs, and comprise three
dimensions, which are innovations avoid harming people and the planet; innovations do
good by fostering SDGs; and innovations require global governance schemes in place for
the first two dimensions. Anadon et al. (2016) comment the current technological innovation
does not follow a set sequence but rather emerge from complex adaptive systems involving
many actors and institutions operating simultaneously from local to global scales. These
systems are shaped by the social and technological factors, and institutions are not aligned
toward the SDGs of the impoverished, marginalized, and unborn population. This explains
why Ubers rise to stardom has been bullied by many industry players as mentioned below
and in Appendix A.

Governing Responsible Innovation for Sustainable Development

Figure 3. Reproduced from: Voegtlin and Scherer 2015


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Uber Technologies Inc.

Figure 4. Reproduced from: Juggernaut 2015

Uber Technologies Inc. is an on-demand transportation service and a mobile app (or a
technology solution) that connects passengers to the Uber-registered drivers nearest to their
pick-up location, in real time, via their smartphones (Mulligan 2015). It is an intermediary
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platform solution that facilitates P2P transactions, which allows them to bypass regulatory
requirements abided by traditional taxi companies without adding the fixed costs of owning cars
and having a manual middleman dispatch service MarketLine (2014). Its value propositions are
affordability, convenience, reliability, quality of service, and simplicity. Ubers ride-sharing idea
was born in Paris 2008 when founders Kalanick and Camp could not get a cab after returning
from a conference. On August 2014, the firm announced that it has launched the service in 45
countries (Gupta 2015). MarketLine (2014) discloses its 2014 pre-money valuation of over
$1.2bn was largely due to financial clout of Google and Goldman Sachs, which acts as a war
chest for any regulatory legal battles.

Uber turns two forms of underutilized assets into productive capital the car that we use
to go out on weekend and the leisure activities as a potential source of profit (Becchis & Nada
2015). By doing so, it presents a form of competition with lower tariffs in a typical non-tradeable
and heavily regulated service sectors through the use of smartphones GPS technology. Among
the largest startup online platforms, the ride-sharing app is mentioned by Evans and
Schmalensee (2016) to disrupt the platform of taxi and limousine companies, such as Yellow
Cab or Beijing Taxi. Ubers major efforts have been building a strong network of drivers (40,000
U.S. drivers in December 2014), and improving service for consumers (91% of UberX rides
arrival in less than 10 minutes).

Ubers Successful Timeline Figure 5. Reproduced from: Juggernaut 2015


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Uber Innovation Analysis


1) Ubers Nature of Innovation
Value Chain Analysis

Figure 6. Reproduced from: Coyle et al. 2013

Traditionally, customers can either hail a cab on the streets or call the taxi hotline
to book one. This traditional dispatch service creates long waiting time and missed
opportunities during peak hours (Zhao & Xing 2012). The driver must estimate their need
and then decide their work schedule. Incumbents have to invest in vehicles and recruit
drivers and operators, all of which result in overhead, HR and Admin expenses (Mitra
2003) as illustrated in Figure 6. Their high operation costs are passed down to end-
users in the form of taxi fares.
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System Service Flow Chart

Figure 7. Reproduced from: Zhao and Xing 2012

On the contrary, Ubers business model as exemplified in Figure 7 assigns


drivers as contractors, rather than employees, who use their own cars to work. Its online
app-based car-service model prides itself as the matchmaker, broker or intermediary
between the potential passengers and the third party private drivers (Uber 2015), and
takes a commission fee for its services, thereby eliminating most intermediary (or
Support) functions such as Call Center as both stakeholders rely on the app to
communicate (Hyder 2014). The independent contractors, who receive no formal
standard employment benefits, have to bear the responsibility for expenditures such as
gas and maintenance, and assume liability for any associated automotive accidents
(Bernhardt 2014). Uber only needs high investment in IT development to match
customers demand, which makes the cost structure significantly cheaper than that of
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traditional taxi operators (e.g. 40% cheaper taxis fares (Bremner 2015)). Demand
for the company' app appears to be insatiable (MarketLine 2014). In short, there is a
dark side of Uber that effectively shifts the risk from corporation to workers, weakens
labor protection, and drives down wages.

Ubers Technologies
The first innovative idea applied successfully is the sharing economy concept
(Appendix A). UberX is changing personal and public transportation by matching car
owners with spare capacities with riders who need to move around their cities (ride-
sharing), thereby replacing the need for car ownership. It brings sharing economy to the
people as underutilized resources (idle capacity or dead capital) are used efficiently
and productively for a small amount of money (Lampinen et al. 2015). Demand by
passengers to use others properties (e.g. cars, or apartments) has been heavy but
hostility from other taxi systems and even local governments has been fierce (Mulligan
2015).

Second, the flexible service offers multiple price points, for instance, the higher-
end UberBLACK service running alongside the cheaper UberX service (Mulligan 2015).
Its surge pricing policy allows rates increase during peak periods to coax more of their
drivers on to the roads, and prices stabilize once enough cars are on the road
(MarketLine 2014). The real-time fare adjustment (dynamic pricing model) is based on
fluctuations in demand. On the contrary, traditional taxi industry has a common formula
for pricing which is based on the distance and time of journey and some fixed costs (e.g.
drivers and taxi license) (Chen 2015).
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Ubers Listed Services

Table 1. Reproduced from: MarketLine 2014

Third, the app-based car-service company uses GPS coordinates for taxis to be
ordered via an app at a prearranged price within five minutes and effectively compete for
passengers hailing (traditional) taxis (Schechner 2013). The geospatial data and other
technologies outside drivers' cars calculate the cost of each ride (Scott 2015), while
incumbents use fare meters. Then, payment is handled through the cab's existing credit
card terminal or PayPal account, not the company's app (Nadler 2014). A receipt will be
emailed to users email accounts, and the passengers can also relay feedback regarding
the driver (MarketLine 2014).

Finally, the app as a bidirectional rating system ensures transparency,


accountability, and quality control in third-party vetting, in which unsatisfactory rating can
flush out bad drivers. This add more security and efficiency to the regulated market
(Mulligan 2015).

Legal Disputes
Because apps like Uber are disruptively upending the traditional taxi businesses,
incumbents in the regulated market lobby heavily in order to tussle these online
competitors (Schechner 2013) to introduce new decree such as waiting at least 15
minutes between taking a reservation in France (Appendix A). Bremner (2015) reports
governments restrict Uber with many institutional frameworks due to Ubers
encouragement of a black market (e.g. avoiding taxes, unregulated payments, few
insurance coverage, and absence of consumer protection). For instance, Lopes (2015)
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states a background check is required but the reality is Ubers system allows for
other people to use their cars to provide Uber rides without having registered themselves
as drivers.

Ubers Regulatory Hurdles

Table 2. Reproduced from: MarketLine 2014

In brief, Appendix C summarizes the strengths and weaknesses of Uber


Technologies Inc. The first competitive advantage of this mobile app is the valuable
service offering of affordability, convenience, reliability, quality of service, and simplicity
to both drivers and riders. The above GPS example demonstrates faster responses in
minutes, if not seconds, between two stakeholders with many choices of car types from
the economy package to the premium one. Yet, this service is not worldwide rare
anymore since 2009 because of plentiful competitors in the online platform, such as Lyft
and Sidecar (U.S.), GrabTaxi (Southeast Asia), Blue Bird Group (Indonesia), Easy Taxi
(Latin America), Didi Chuxing (China) or GetTaxi (Russia, Israel, U.S. and U.K.). In New
Zealand, Chu (2015) perceives this business is rare because Ubers practice is not
currently present in the taxi industry of this country. Players overcome legal barriers at
ease as most apps do not file for patents due to the difficulty to protect smartphone
apps code (Lopes 2015). Next, Uber and these players constantly poach drivers from
one anothers platforms as analyzed below in Disruptive Impacts on the Economy,
which can distort incentives of the ride-hailing app market for both independent
contractors and consumers, and cause long-term supply shortages of cars (MarketLine
2014). Hence, the app-based logistics platform is cheaply imitable for the high treat of
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new entrants, abundant substitutes, strong buyer and consumer power, and intense
rivalry from online competitors and existing incumbents as analyzed in Appendix B.
Furthermore, the fact that many incumbents in the taxi industry are starting to partner
with these app-based players, and Uber is forming strategic partnerships with Tata,
Bharti Airtel or Sidian Bank means the technologies are organizational exploited. Thus,
the competitive implications of the VRIO Framework analysis are Ubers resources and
capabilities are at a competitive parity with the industry players, and the firm global
performance is average, but the corporation is taking the lead in terms of global market
share due to its popularity and a strong base of social network users resulted from the
first-mover advantages in 2009 (Figure 11 & Figure 12). This explains Ubers
aggressive expansion plans for the monopoly position as mentioned below in Disruptive
Impacts on the Economy.

The VRIO Framework: Is a Resource or Capability

Table 3. Reproduced from: Peng 2009


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2) Ubers Disruptive Impacts


The companies that shape the landscape are the one seeking to fill customers' every
need, and work themselves into new markets whenever possible (Nadler 2014). Compared
with the traditional brick-and-mortar companies, Lopes (2015) comments Ubers mobile
distribution, if implemented, can optimize almost all axes of a business from distribution
possibilities to reduced operating costs, passing through centralized information gathering.

On the Economy
First is the aggressive expansion plan. Mulligan (2015) reports the companys
expansion into Africa will improve the transportation ecosystem, and supports the
economic growth, especially for SMEs, by empowering drivers with the tools to build
their own small businesses, while providing a safe and reliable transport option to
passengers. Ubers partnership with Tata car sales is mentioned by BMI (2016a) to
boost the Indian economy through higher passenger vehicle sales with attractive
financing deals to potential drivers, such as insurance from Tata AIG. Other partnerships
include Smart e-Money mobile wallets with PLDT, 4G Wi-Fi hotspots in Uber vehicles
from Bharti Airtel in Mumbai (BMI 2015b), and Uber Vehicle Solutions with Sidian Bank
to boost domestic vehicle sales of startups in Kenya (BMI 2016a). Such an aggressive
expansion plan towards monopoly creates new trends of employments globally, for
instance, some can have supplementary incomes during their free time after their official
jobs (Rosenblat 2016).

Second, the concept of sharing economy discussed above is reported by


Chase (2015) to bring huge economic benefits such as utilizing the diversity of labor
marketplace to increase employment, and removing underutilized resources, and faster
development in innovation. Uber service helps consumers avoid fuel, maintenance, and
repairs expenses, especially in Sub-Saharan countries where older imported used
vehicles (most popular for their affordability) are prone to more wear-and-tear, repair and
maintenance work (BMI 2016b).
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Third, as stated above, surge pricing adjusts the fares based on demands,
which affect incumbents and the economy (Dholakia 2015). An increase of 7-8 times the
normal fares during peak hours creates an efficient and productive market for the
economy by balancing prices between driver supply and customer demands with
minimum waiting time.

Finally, Appendix B reveals a low barrier to entry, which prompts Ubers


aggressive expansion plan and promotional campaigns to deter new entrants. For
instance, the tussle of ordering and cancelling each others cars at last minutes while
offering drivers cash sums to defect services between Uber and Lyft negatively affects
their Supplying Long-term Operations Growth (SLOG) (MarketLine 2014). For instance,
Lyft has lost over 5,000 fares due to Ubers ordering and cancellation tactics since
October 2013. To retaliate, Lyft offers $500 for 10 Lyft rides, while Uber offered $500
and a guaranteed wage of $45/hour until the end of June 2014. The upshot is a race to
the bottom in both fares and wages, which disadvantages the drivers because the fares
are reduced once the initial bonuses, such as lower commission rates, are waived. The
vetting competition may increase ride demands in the economy at the expense of
drivers income and their purchasing power.

On the Society
The first impact is workers welfare. Chu (2015) criticizes ride-sharing apps
contractor model that barely treats drivers as employees to avoid responsibilities in case
of mishaps between drivers and riders. As those online companies lower the prices to
beat competitors, drivers fall into a catch-22 situation between extremely price-
sensitive consumers, and wage-suppressed drivers (MarketLine 2014). As Uber and Lyft
cancelling each others rides and reducing driver availability, they may deter consumers
from using the services. Therefore, countries worldwide have been digging into rules and
regulations on licensing, training, and comprehensive insurance expenses to restrict or
even ban Ubers operations (Mulligan 2015) as analyzed above and in Appendix A. The
U.S. legal system, for example, once challenged its business model by specifying Uber
drivers as normal employees to protect their labor benefits (Rosenblat 2016).
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Nonetheless, the global taxi industry has been male-dominated, and Uber
minimizes some of the road safety concerns that can be a barrier to entry for women
(Cheney 2016).

Second, MarketLine (2014) addresses Ubers failure to vet qualified independent


contractors, pointing out its loose background checks are jeopardizing passenger safety,
for instance, an alleged rape of an Uber passenger by her driver in India in December
led to states country-wide banning Uber from operating. Concurrently, Mulligan (2015)
disagrees by citing new India-specific security measures (e.g. police verification of
drivers records, emergency response team, and share my ETA function) are being
implemented in the app. OByrne (2016) agrees the pros (from Uber) outweigh the cons
(by traditional services) due to ease of payment (cashless) via Credit Card and PayPal,
updated feedback system, and GPS tracking of the journey.

Finally, despite the backlash, the protests brought more attention to the app (e.g.
registrations in UK and Ireland rose 850% compared to a week earlier) (MarketLine
2014). Regulators in many countries begin to side with ride-sharing and multisided
platform technology businesses for its economical convenience through shorter wait time
(Cramer and Krueger 2016).

On the Environment
Appendix A shows mixed views on environmental benefits offered by ride-
sharing, but according to Oxford Analytica (2014), increased convenience and lower
prices will encourage customers to decrease car ownerships to eventually reduce air
pollution and traffic jams in large countries.
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3) Ubers Future Innovation


According to one general manager at Uber in the United Arab Emirates, the
company is constantly innovating their services to be more than just a leading technology
app and that we want to provide experiences at the push of a button (PYMNTS 2016b).
There are three areas guiding Ubers future disruptive path.

Beyond Taxis
The transportation networking company, whose new tagline is Where Lifestyle
Meets Logistics, is planning to expand its logistics fabric into new modes of
transportation and delivery. For instance, ice-cream trucks used Ubers platform to
promote Uber itself in London; Uber delivered kittens for National Cat Day in 2013;
corporate transportation via Uber for Business is introduced; and Uber Rush a courier
service trial in New York, are delivering both packages and passengers (MarketLine
2014).

Uber Rush Couriers


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Figure 8. Reproduced from: MarketLine 2014

UberCARGO in Hong Kong allows one to book a van within minutes, while in
Dubai, Uber has partnered up with a yatch company for users to book group trips
(PYMNTS 2016b). UberChopper flew vacationers from Manhattan to East Hampton with
SUV transfer for $3,000 (Nadler 2014) and served many at special events such as
Cannes Film Festival and Coachella (PYMNTS 2016a).

Uber's Delorean Time Machine Delivery Service in September 2013

Figure 9. Reproduced from: MarketLine 2014

Autonomous Cars
Ample opportunities come with their own obstacles. The paradox of maintaining
low-cost service while keeping the drivers after expired promotions baffles CEO
Kalanick, who once said The reason Uber is expensive is not the car, its the other dude
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in the car. (Griswold 2015) Thus, the tech giant following footsteps of Google,
Tesla and Apple is heading towards self-driving cars with pilot testing in Pittsburgh in
August 2016 where people can take free rides (Price & Reuters 2016).

Appendix A and the above analyses show major legal constraints for Uber
under its ride-sharing model from governments and incumbents because of the race
towards the bottom (lower costs for higher profits), as exemplified by lower wages for
drivers (a Societal Impact). The situation is deemed to be worsen by Smith and
Anderson (2014) as half of the experts on AI and Robotics (48%) envision a future by
2025 in which robots and digital agents have displaced significant numbers of both blue-
and white-collar workerswith many expressing concern that this will lead to vast
increases in income inequality, masses of people who are effectively unemployable, and
breakdowns in the social order; nonetheless, the other half (52%) are optimistic that
human ingenuity will create new jobs, industries, and ways to make a living, just as it has
been doing since the dawn of the Industrial Revolution.

Against all odds, Walsh (2016) boldly asserts autonomous cars could drive
Detroit job growth since 71% of 258,807 jobs in this city are held by employees in the
suburbs and 61% of employed Detroit residents travel outside the city for their jobs, so
unreliable transportation options for the city's residents precludes many from finding
those jobs in the suburbs. Thus, the automotive industry holds the solution in creating
low-cost or even free services for low-income Detroiters to move to work. The need of
the mass to commute to different geographic areas to work in different job categories
seems to eclipse the driver profession of the minority.

Mapping Function
As mentioned earlier, Ubers innovative business model is not only taking a
person from point A to B, but also the convenience and the accuracy offered to riders.
The map function helps Uber optimize their available drivers, determine the fastest
routes and give drivers an accurate ETA (McClendon 2016). Therefore, the future of
mapping at Uber is inevitable to become more accurate within pickups, traffic patterns,
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etc., especially in countries where online street signs and maps are
underdeveloped. Future maps will need to be tailored to the specific countries for many
ride-hailing apps and autonomous cars.

Conclusion
Technology can bring to the industry and the existing firms remarkable impacts. In the
case of Uber, the convenient app permits customers to pay a premium besides the economy
packages for an online ride-hailing service which is more reliable than the uncertainty of hailing
a traditional street taxi. Thanks to globalization, Uber makes its logistics network present in
more than 45 countries backed by global investors of different nationalities in the quest for
monopoly using the first-mover advantages. Despite backlash from different institutional
frameworks, Uber is constantly reinventing itself by expanding into AI and cloud technology
areas to secure a bold future. One concern addressed by MarketLine (2014) is if Uber manages
to harvest most of the taxi industrys passengers and beat Lyft to a distant record, the monopoly
on transportation services will bode ill for both drivers and riders.
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Appendices
Appendix A: PESTLE a Macro-Environmental Analysis .................................... 28

1) Economic ......................................................................................................... 28

2) Social ............................................................................................................... 30

3) Legal ................................................................................................................ 30

4) Political ............................................................................................................. 31

5) Technological ................................................................................................... 31

6) Environmental .................................................................................................. 32

Appendix B: Porters Five Forces a Micro-Environmental Analysis ................ 33

1) Threat of New Entrants (High).......................................................................... 33

2) Threat of Substitutes (High) ............................................................................. 34

3) Strength of Buyer Power (High) ....................................................................... 34

4) Strength of Supplier Power (High) .................................................................... 34

5) Rivalry between Existing Competitors (High) ................................................... 34

Appendix C: VRIO an Organizational Analysis .................................................. 35


Page 28

Appendix A: PESTLE a Macro-Environmental Analysis


According to Law (2009), PESTLE is an analysis of the external influences on a firm,
and the acronym stands for political, economic, social, technological, legal, and environmental
issues that could significantly affect the strategic development of a firm. Since Uber is a global
company, this macro-environmental analysis focuses on many news coverage from many
countries where Uber is present.

1) Economic
The concept of sharing economy is mentioned by PwC (2015) to facilitate reduction
of wastes arising from the ownership of a product, and technological innovation in
communication narrows the gap between supply and demand of this concept at an
unprecedented scale and efficiency, achieving sustainability. Also, utilization of (idle)
resources can be escalated to attain more efficient markets, where the community can have
more income-earning opportunities. Nonetheless, Schor (2014) disapproves this model for
the resulted less spending (due to lower costs) equals less economic growth.

Xe Om as Under-Utilized Resources

Investors in around 45 countries funded $1.4bn into ride-sharing companies


(MarketLine 2014) with the most recent example of Google Ventures $258mil into Uber that
incentivizes many taxi companies in New York City to work with this ride-sharing giant
(instead of against it in legal battles), representing a win for the customers and for the
Page 29

drivers (Nadler 2014). Growing corporate sectors brings much profits, jobs and growth
in economy.

Economic growth in foreign countries represents lucrative markets. For instance, the
middle 60% of the population net income per capita in Kenya is forecast to grow to
USD280.3 in 2016 and continue growing to USD363.9 in 2020 (BMI 2016b). Peer-to-peer
businesses are recommended by BMI to be able to tap into the demand for transport
services within this segment whose smartphone penetration, network quality, and supply of
vehicles are growing (Mulligan 2015).
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2) Social
The social aspect of sharing economy is reported by Parigi and State (2014) to give
rise to more dissatisfied relationships where this concept boosts economic relationships, not
social capital, via Internet. Also, price-sensitive tech-savvy consumers (i.e. mostly students
and young adults in the twenties) are segmented to show great interests in the smartphone
apps like Uber. They are active on social media and frequently seek referrals programs (e.g.
free rides). Car sharing brands have benefited from a convergence of trends, stemming from
the rise in peer-to-peer services, rising urbanization and a decline in car ownership, a move
towards mobile travel, and the importance of social reviews and online communities
(Bremner 2015).

3) Legal
Ride-sharing companies are described by Malhotra and Alstyne (2014, p. 25) to
enjoy regulatory loopholes where they receive unfair advantages over incumbents under
more stringent requirements created earlier. Uber argues it is a tech company and peer-to-
peer business (Transport Network Company) that eschews the traditional rules of the game
which involve obtaining a taxi license. Schor (2014) defends Uber in the belief sharing-
economy firms are capitalizing on the gaps of the legal systems, and achieving better
personal vehicles utilization in the economy.

Nonetheless, Schechner (2013) compares the differences between incumbents and


online app-based car-service companies to note traditional taxi companies have to buy
expensive licenses for exclusive rights to offer street-hail trips, whereas under Ubers new
rules, its drivers act as independent contractors rather than employees, so there are
significant risks to both riders and drivers to settle any disputes should accidents occur.
They are not entitled to the minimum wage, paid vacations or health insurance (Petropoulos
2016). Thus, the company undercut prices due to lower overheads (e.g. administrative and
running costs). Uber is reported to be banned in many countries (e.g. Belgium, France,
Germany, Italy and Spain) for its unique business model. The consequences are more
Page 31

regulatory restrictions, fines and bans as governments in Latin America crackdown on


taxi licensing that could derail its regional expansion plans (BMI 2015a).

4) Political
Traditional taxi companies lobby the governments in the US, France, Germany,
Spain, Italy, and the UK, to name a few, because the app-based companies are doing the
same work as taxis, but without the same constraints, such as high fees for license. For
example, in big US cities the price (before Ubers operation) varied between $350,000 and
$1,000,000, while in Paris licenses cost around 240,000 euros (Petropoulos 2016), and
Uber avoids any licenses to enter the market.

Hence, French taxi companies as an example lobbied heavily for the new French
decree on competition grounds on Uber, Chauffeur-Prive.com and Allocab.com that all car
services -- but not licensed taxis -- must wait "at least 15 minutes" between taking a
reservation and picking up a passenger, which is more than double Ubers normal wait time
(Schechner 2013).

5) Technological
The smartphone industry has a compound annual growth rate (CAGR) of 11.3%
between 2009 and 2013, and smartphones are a cheap effective way to access the Internet
(MarketLine 2014). This prompts more growth opportunities for Uber in terms of app
demands.

The Internet connects people without boundary barriers. Together with Google Map
integration and the development of GPS technology (e.g. improving accountability with an
estimated time of arrival), customers are increasing demanding boat service in the future to
connect with others and reach sellers (PYMNTS 2015). For instance, Figure 10 shows an
average user spent 6% of his time using a smartphone on social networking and 8% on
Utility. Electronic payment is deemed convenient to replace cash and ensures merchants
receive fee, which in turn, improves their safety (MarketLine 2014). Advances in satnav
(satellite navigation) shown in smartphones, to a degree, render local road knowledge
Page 32

obsolete, so less skill is needed to enter the taxi service industry. These explain why
Uber is beneficial to both drivers and customers.

Time Spent on Smartphone per App Category

Figure 10. Reproduced from: Flurry Analytics (cited in Lopes 2015)

Sustainable cars such as electric or driverless cars are being developed by Tesla
whose master plan is using fully autonomous vehicles to make money for the owners when
they aren't using them by picking up other riders (Cheney 2016).

6) Environmental
Through sharing economy, firms can promote the concept sustainability as a value
proposition via either reduction of new resources acquisition by fully utilizing existing idle
resources or reducing the carbon emissions as in the case of Uber as argued by Schor
(2014). Chu (2015) disagrees with this point, citing few documented results substantiating
the effects of sustainability from any such practices, and such claim are simply
Page 33

greenwashing because Ubers car-sharing has led to more demands of consumption,


and it has been partnering with financial institutions to induce more car ownerships.

Appendix B: Porters Five Forces a Micro-Environmental


Analysis
This is a framework for analyzing the balance of power within a particular industry and
hence its overall profitability (Law 2009) by identifying five forces in the microenvironment that
drive competition and threaten a firm's ability to make profits.

1) Threat of New Entrants (High)


Online: Barriers to entry are relatively low compared to traditional taxi businesses.
Lopes (2015) asserts investment costs are low since a developer can create an app and
incur low distribution costs associated with servers, storage and acquiring an official license
to release the app on the app store. Patents are ignored because of the difficulty to protect
smartphone apps code. Also, brand loyalty for social network apps that offer the best
service, constant promotions and easy access to information can be high. Thus, the threat
of new entrants is very high for easy access to distribution channels (app stores) of common
technology and no huge output requirements. MarketLine (2014) reports a range of app-
based competitors (e.g. Lyft, GrabTaxi, Blue Bird, Easy Taxi, Sidecar, or GetTaxi) from other
tech savvy incumbents in South East Asia, China, London, etc. are adapting Ubers
business model by offering their own apps because Uber has not yet monopolized the
market.

Offline: Public transport systems are often stringently regulated with a high barrier of
entry, leading to the limited growth and innovations in these niche monopolistic and
oligopolistic markets (Chu 2015). This means an opportunity for the ride-sharing businesses
as an alternative to public transport systems in urban cities.
Page 34

2) Threat of Substitutes (High)


Most apps have substitutes. Customers will switch to alternatives if the popularity
and presence of friends (for social networks) exist as the key determinants for the success
of an app (Lopes 2015).

3) Strength of Buyer Power (High)


Since users have abundant substitute apps, Lopes (2015) posits their cost of
switching is only attached to the price of the app they want to switch to (free in most cases)
unless it is a social network where the value is attached to the number of friends who are in
the platform.

4) Strength of Supplier Power (High)


Bargaining power of suppliers (servers and storage) has been gradually reduced
since new players can code the same products by taking advantage of cloud storage space,
meaning no scarce resources. Lopes (2015) further comments suppliers power is still
relatively high because there are a small number of new smartphone app developers who
can deliver good value propositions.

5) Rivalry between Existing Competitors (High)


According to Law (2009), forces (1), (2), (3), and (4) all feed back into force (5) by
driving up competitive rivalry. Nevertheless, Lopes (2009) found a distinction in the app
industry; that is, its rivalry is highly dependent on the app category but not in traditional
terms where high rivalry leads to possible price wars and extensive investment in promotion.
For instance, established developers in social networks and investment apps relish on low
competition, but other categories (e.g. travel, productivity, or games) face intense rivalry.
Page 35

Appendix C: VRIO an Organizational Analysis


Competitive Are the
Firm Performance Analysis
Advantages Resources

Uber offers great convenience to both riders and


drivers. The traditional taxi firms use a dispatch function
with outdated booking systems and bug-filled apps to
provide drivers, while Uber app provides details of route

1/ Valuable? Yes and destination with automated payment calculation,


and GPS navigation function to work out best routes for
riders and mitigate potential disputes on local street
knowledge between customers and drivers (Chu 2015).
Thus, Uber can undercut them on prices.

In spite of strong threat of new entrants, most


drivers are reported by Chu (2015) to love the flexibility
of choosing when to work without being penalized,
compared to the traditional taxi systems requirement of
straight 13-hour jobs, as there is no lease agreement or
2/ Rare? No
car rental controlling work commitment. Some drivers
said they can work as both a taxi and Uber drivers to
utilize their idle time to pick up more jobs, and some
work for both Uber and Lyft as mentioned in Ubers
Disruptive Impacts on the Society above.
Page 36

Competitive Are the


Firm Performance Analysis
Advantages Resources

Appendix B shows strong rivalry between


existing competitors.

Ubers Estimated Company Valuation

3/ Inimitable? No

Figure 11. Reproduced from: Chen 2015

Ubers final advantage is operational efficiency


Organizationally due to low regulatory expenditures at this point,
4/ Yes
Embedded? meaning low fares offered that make incumbents start
to lobby heavily as mentioned in Appendix A.

Table 4. Adapted from: Peng 2009


Page 37

Figure 12. Reproduced from: Chen 2015