Uber 2014
Uber 2014
Uber 2014
CASE
STUDY
UBER:
Driving Change in Transportation
April 2014
Introduction
It was a sunny spring day in San Francisco on March 18, 2014, when scrappy Uber CEO Travis Kalanick
emerged from a meeting to hear the bad news: the Seattle City Council just voted to place limits on the
number of drivers alternative transportation companies like Uber could have operating at any given
time. While Uber had faced many challenging regulations in other cities, this was the first time they
suffered from new restrictions in a city where they were already operational.
Since its start in 2009, Uber had spread its operations to over 80 cities in 35 countries.i As the company
battled local regulations and worked to understand the unique transportation culture of each city they
operated in, the tenacious Kalanick looked eagerly to the future to turn Uber into more than a car
service and leverage its logistics and technology capabilities into a lifestyle and experience brand.
At the same time, customers appeared to be growing more vocal in their complaints around surge
pricing, where users could be charged 1.5 to 8 times the normal fare price depending on the time of
day and number of UberX drivers on the road. While Uber was birthed from the desire to have a black
car service available to the upwardly mobile in San Francisco, it had become a service that maintained
its luxury feel, yet was somehow more democraticit brought together drivers and riders effectively
and efficiently, with UberX typically costing less than a traditional taxi in most markets. This luxury for
the masses approach made it a well-loved company, and Kalanick frequently leaned on public support
as he aggressively fought regulators and powerful taxi commission interests. Armed with a recent
infusion of cash, and poised to further expand internationally and offer new, innovative services,
Kalanick wondered: who should he bring the fight to next?
limousine to transport them safely to their hotel rooms. While limousines required pre-booking in
advance, Uber would grow rapidly in use and popularity because its smartphone application allowed
users to access clean and stylish vehicles at any moment and location. This early exchange between the
founders would coin the original Uber slogan: Everyones Private Driver.
UberCab: The First Launch
The transportation system prior to Uber forced people to access taxis by chance (hailing them on the
street) or by booking well in advance. The ubiquity of GPS systems and smartphones in the San Francisco
area encouraged UberCab, the original name of the service, to do a beta test in the Bay Area in March
2010 with plans to expand to other large U.S. cities by the end of the year. After advertising their
smartphone apps through websites and various deal promotions, UberCab finally served residents of
San Francisco by the summer.
UberX: A Low Cost Response to Competition
Despite ongoing battles with various local governments and taxi commissions, the success of ridesharing was clear and lead to other competing startups such as Sidecar and Lyft. In response, the lowercost UberX was launched in the summer of 2012 in San Francisco and New York.iii UberX provided lowcost hybrid cars to its users, providing environmentally friendly transportation services. At the time,
Uber was operating in a dozen cities, two of whichParis and Londonwere outside the U.S. The
motivation for UberX came after Ubers experience in Chicago where the citys taxi supply was limited,
and there was noticeable unmet demand for cheaper transportation services. Black car services were
still available and now under the label of UberBLACK. A chart of the range of Uber services can be seen
in Appendix A.
statistics like the number of times the smartphone application is opened to gauge supply and demand
for taxis. As a result, there are shorter wait times for users, and drivers can be more efficient with the
use of their time.vi
Depending on the city, there is usually a base fare (similar to a cab flag fee), and a price per mile and
minute. For example, in Boston, for an UberX, the base fare is $2.25 and then the user is charged $0.28
per minute and $1.45 per mile. A tip is included in the fare for UberTaxi, which the user can manage in
her user settings on the web (0-20%). There are no tips included for UberX or UberBLACK.
Uber instituted surge pricing in 2012. Surge pricing works by using a multiplier (1.5X, 2X, 3X etc.) to the
fare as an incentive to get more drivers on the road (increase supply) in order to clear the market, and
maintain the convenience value of Uber. For example, during a massive snow storm that hit the East
Coast of the U.S. in December 2013, users faced prices at more than 6 times the normal rate.vii
The Driver Experience
Unlike the taxi industry, Uber does not employ or license its drivers, but rather views them as
independent contractors. UberX drivers do not have traditional liability insurance like taxi drivers. There
are no specific regulations that specify that Uber drivers cannot discriminate against users. In fact, Uber
drivers receive ratings of users and may receive their photographs (users choose whether or not to
upload a photograph of themselves to their account). However, where regulations exist against taxi cab
drivers discriminating against riders, they are frequently flouted.
Drivers may choose to fill roles as UberX, UberBLACK, UberSUV, or UberTAXI depending on (1) the city
they are based in, (2) possession of a commercial driving license, and (3) the type of vehicle owned
(Appendix B).
competition turns into hatred and violence. In January 2014, during a Paris taxi-driver protest, angry
drivers attacked an Uber car transporting two passengers from Charles de Gaulle Airport, causing more
than 240 kilometers of traffic jams in the French capital.ix In other markets such as China, Uber is forced
to compete with car-sharing apps that are dominated by Alibaba Group Holding Ltd. and Tencent
Holdings Ltdcompanies with the added advantage of consumer trust among locals, effectively
threatening Ubers growth.x
Obstacles in International Markets
The major obstacles for Uber in international markets are poor infrastructure, low credit card use, and
low smartphone penetration. Transportation infrastructure is lacking in many emerging marketsa
challenge Uber did not face in the United States or Europe. Rates of adoption for more advanced mobile
and banking technologies also vary drastically by country. Taking India as an example, according to the
Reserve Bank of India, there are 19.6 million credit cards in circulationapproximately a 1.7%
penetration rate.xi As Uber only takes credit cards, this represents a huge challenge. Smartphone
penetration in India is only 18%, creating further obstacles to adoption.xii
Medallions are in essence taxicab licenses, which are for individual taxis or for taxicab fleets, and date back to the
1930s in the U.S. It was created in efforts to cap the number of taxis on the road. Medallions now sell on the
market for as high as $600,000 in Boston.
In cities from Seattle and Chicago, to DC, Uber faces ongoing lawsuits from incumbent taxi and
limousine companies. The most ardent opposition from public utility commissions and taxi companies
claim that Uber should be classified as a motor transportation company rather than as a technology firm
(such as Orbitz or Kayak.com). If Uber were to be classified as a transportation company and regulated
as such, it would likely destroy their business model predicated upon non-ownership of physical assets,
price control, and rapid scalability.xvi
According to many critics of Uber, safety, predictable prices, and adequate insurance are still important
public interest goals that could justify some level of continued government oversight.xvii The lawyer
representing the Liu family argued,new technology does not eliminate well-established legal
principles.xviii
Defining the Future of Uber
Uber faces a challenge in defining itself for the future is it a service offering democratic and
competitive pricing or convenience, service and luxury?
Initially, Uber did not set out to offer both super-competitive pricing and the convenience of having your
own private driverthe convenience and luxury aspect was the original value proposition. However,
with the introduction of UberX, the company attempted to balance both competitive pricing (in
comparison to cabs), and the convenience of the mobile application and rapid door-to-door service. The
implementation of surge pricing brought this tensionbetween rapid, convenient service and priceto
the forefront.
Surge pricing led to a backlash against the company, with users claiming that they were being gouged or
robbed. Ubers response on their blog was upfront and stated that the mobile application clearly shows
when surge pricing is in effect (Appendix C). Uber CEO Travis Kalanick stated:
Uber is ALWAYS a reliable ride. Being unavailable, inconvenient is the opposite of Uber. This is
a big part of why we do surge pricing. What good is it if we are as unavailable as a taxi system or
an unreliable muni system on NYE? Being Uber means being Always On and Always
Convenient.xix
The company also argued that the concept of surge pricing is very similar to dynamic pricing used by
hotels and the airlines.xx
Austin, sky-writing on Valentines Day, Christmas tree delivery in Seattle, and kitten delivery on National
Cat Day.
Shervin Pishevar, a venture capitalist and close friend of Kalanick, explained Ubers mandate: "Uber is
building a digital mesh a grid that goes over the cities. Once you have that grid running in everyone's
pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building
phase.xxii
A convenient, seamless delivery system for goods and services would fit perfectly into Ubers new
slogan where lifestyle meets logistics. The recent $258 million capital infusion from Google Ventures
suggests that this could be a very real possibility. The relationship with Google also points to the future
potential for driverless cars.xxiii
Conclusion
Opportunities and challenges abound for Uber. The company must both settle its ongoing disputes and
continually innovate to stay ahead of its competitors. A clear tension between convenience and
affordability continues to persist. In addition, Kalanick refuses to acknowledge Lyft, Sidecar and other
ride-sharing apps as serious competition. Furthermore, its expansion into large metropolises with
smartphone users will continually force it to confront regulation from powerful, local authorities. What
should Uber do to understand and approach the local markets better than local players? Will the
growing number of Uber users help them bypass these challenges or will they be subject to a
devastating backlash?
Appendix B. Timeline:
April 2010: UberCab creates app that is compatible with IPhone and Android
June 2010: UberCab opens in San Francisco
October 15, 2010: UberCab secures funding from over a dozen angel investors, including Rob Hayes who
joins the Board of Directorsxxv
October 24, 2010: UberCab changes its name to Uber in response to a cease and desist letter from local
government agencies in San Francisco
July 2012: UberX is launched, allowing low cost hybrid cars to be accessible for users
January 31, 2013: CPUC suspends its earlier cease and desist letter and rescinds its original fines on
Uberxxvi
November 2013: Uber expands to Manila, Tokyo and several Indian and Chinese cities
January 2014: In response to complaints about surge pricing, UberX cuts fares by 15% in top U.S.
citiesxxvii
February 2014: Uber opens in 5 Latin American cities, including Santiago and Lima
ATLANTA
BALTIMORE
BOSTON
CHARLOTTE
CHICAGO
CINCINNATI
COLUMBUS
DALLAS
DENVER
DETROIT
FRESNO
HAMPTONS
HONOLULU
HOUSTON
INDIANAPOLIS
INLAND EMPIRE
JACKSONVILLE
LOS ANGELES
MADISON
MILWAUKEE
MINNEAPOLIS
MONTREAL
NASHVILLE
NEW JERSEY
NEW YORK CITY
OKLAHOMA CITY
ORANGE COUNTY
PALM SPRINGS
PHILADELPHIA
PHOENIX
PITTSBURGH
PROVIDENCE
SACRAMENTO
SAN ANTONIO
SAN DIEGO
SAN FRANCISCO
SANTA BARBARA
SEATTLE
TACOMA
TORONTO
TUCSON
TULSA
WASHINGTON D.C.
CENTRAL & SOUTH AMERICA
BOGOT
CALI
LIMA
MEXICO CITY
PANAMA CITY
SANTIAGO
EUROPE, MIDDLE EAST &
AFRICA
ABU DHABI
AMSTERDAM
BARCELONA
BERLIN
BRUSSELS
CAPE TOWN
DOHA
DUBAI
DUBLIN
DURBAN
JOHANNESBURG
LONDON
LYON
MANCHESTER
MILAN
MOSCOW
MUNICH
PARIS
RIYADH
ROME
ROTTERDAM
STOCKHOLM
VIENNA
ZURICH
ASIA PACIFIC
AUCKLAND
BANGALORE
BANGKOK
CHENNAI
GUANGZHOU
HONG KONG
HYDERABAD
KUALA LUMPUR
MANILA
MELBOURNE
MUMBAI
NEW DELHI
SEOUL
SHANGHAI
SHENZHEN
SINGAPORE
SYDNEY
TAIPEI
TOKYO
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Study Questions
1.
Will Uber be forced to adopt a model focused primarily on offering low prices for the masses or
will they focus on convenience and luxury? Or can they possibly balance the convenience of their
application and quick response times with prices competitive to cabs?
2.
If Uber follows Kalanicks current stated opinion, and prizes convenience over price, does it risk
alienating part of its user base? What are the regulatory implications for this decision?
3.
Is Ubers model for dealing with regulatory issues (move fast, figure out details later)
sustainable? How should Uber approach regulatory barriers in new markets?
4.
What should be next for Uber? Should they continue to expand internationally? How can the
company continue to innovate after such massive disruption to the taxi industry? Should Uber move in
to the logistics and experience space?
5.
Should Uber be concerned about its competitors, Lyft, Sidecar, and other ride-sharing apps?
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xxi Joshua Brustein, Ubers Workforce is Built to Do More Than Chauffeur, Bloomberg Business Week
Technology, December 11, 2013,
http://www.businessweek.com.ezproxy.library.tufts.edu/printer/articles/172174-ubers-workforce-isbuilt-to-do-more-than-chauffeur.
xxii Michael Pachter, PRISMProgress Report for Internet and Social Media, Wedbush Private
Company Research, November 13, 2013,
https://equities.wedbush.com/clientsite/Research/ActionAlertFilePreview.asp?UUID=023CB4B4-140748A0-8E08-46A9B5ABD258&ViewerID=F6E7691E-6722-41B4-9367-DAA43021B9B2.
xxiii Christine Lagorio-Chafkin, Resistance is Futile, Inc.,
http://www.inc.com/magazine/201307/christine-lagorio/uber-the-car-service-explosive-growth.html.
xxiv Uber website, https://partners.uber.com/signup/boston/.
xxv Michael Arrington, UberCab Closes Uber Angel Round, TechCrunch, October 15, 2010,
http://techcrunch.com/2010/10/15/ubercab-closes-uber-angel-round/.
xxvi Ryan Lawler, A Day After Cutting a Deal with Lyft, California Regulator Reaches an Agreement with
Uber as Well, Tech Crunch, January 31, 2013, http://techcrunch.com/2013/01/31/a-day-after-cutting-adeal-with-lyft-california-regulator-reaches-an-agreement-with-uber-as-well/.
xxvii Donna Tam, UberX cuts fares by more than 15 percent in top US cities, CNET, January 9, 2014,
http://www.cnet.com/news/uberx-cuts-fares-by-more-than-15-percent-in-top-us-cities/.
xxviii Uber Blog, http://blog.uber.com/2012/03/14/clear-and-straight-forward-surge-pricing/:.
xxix Uber website, https://www.uber.com/cities?gclid=CKi6vcuexb0CFcyhOgodXCoAxg.
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