Case Study

CASE STUDY - Uber: Rising Valuations Amidst Ethical Woes
SUBMITTED TO- Dr. Ambrish Gautam
SUBMTTED BY
NAME-Ansh Vats
COURSE-BBA SEMESTER- IV
SECTION-B
ENROLLMENT NO.- A36106419022
Course Code- MGMT304

INTRODUCTION
Uber Technologies, Inc., commonly known as Uber, is an American technology company.

Its services include ride-hailing, food delivery (Uber Eats), package delivery, couriers, freight
transportation, and, through a partnership with Lime, electric bicycle and motorized
scooter rental. The company is based in San Francisco and has operations in over
900 metropolitan areas worldwide. It is one of the largest firms in the gig economy.
Uber, an app-based transportation network company, had disrupted the decades-old taxi and
limo industry. Its vision was to offer an alternative to people using their own car and it was
valued as one of the most as one of the most valuable privately owned start-ups in the world.
However, the company also received negative attention in the media on ethical, safety,
privacy, and dynamic pricing issues among others. The case study provides sufficient
material to understand and debate the various issues faced by Uber. It helps the learners to
understand how Uber emerged as a disruptor of the taxi industry. It also helps to debate on
the various alternatives available to Uber to overcome from the challenges it faced. The
reasons behind the audacious valuations of Uber can also be debated.
The case is structured to achieve the following teaching objectives :

 Understand and discuss the issues related to Uber
 Understand the business model of a transport networking company
 Debate whether the Uber business model would change the dynamics in the taxi
industry.
According to Aswath Damodaran (Damodaran), Professor of Finance at the Stern School of
Business of New York University, the market size of the global taxi and limo services was
around US$100 billion in 2014. According to Damodaran, Japan was the most lucrative cab
market in the world with estimated annual revenue of US$20-25 billion in 2014. The second
largest market was the UK with estimated annual revenue of US$14 billion, most of it
contributed by London, followed by the US market with estimated annual revenue of US$11
billion, the major portion coming from New York, which contributed about US$3 billion in
2014. These three markets were expected to grow at the rate of 2-3% till 2024.
However, the global taxi business would grow much faster than this rate as there were many
underserved cities mainly in Latin America and Asia. It was estimated that the overall market
would touch US$183 billion by 2024.
Uber was the first player in the mobile app-based transportation network. But, others were
quick to jump on to the bandwagon as the entry barriers were low. Some of the most notable
players were Curd , Didi Dache , Flywheel , GrabTaxi , Hailo , Haxi , Kuaidi Dache , LeCab ,
Lyft , Line Taxi , Olacabs , and Sidecar . These companies had a common model built around
mobile apps. However, Uber was the clear leader as it was the first mover and had deep
pockets thanks to its robust funding.
UBER’S BUSINESS MODEL
 Uber worked as a connector (middleman), connecting the person looking for a cab
with a cab driver looking for a rider. It offered various types of vehicles (cars) from
premium vehicles to low-cost daily purpose vehicles which cost less than taxis.
 Uber charged a 20% commission on every ride. This helped it cover its expenses
which included technology development, maintenance, marketing, customer
acquisition cost, and employee-related expenses.
 According to a Uber spokesperson, Uber provided insurance coverage to its driver-

partners. But the driver-partners needed to have their own insurance policy and to
make sure that their coverage applied when they used their personal car for
commercial purposes.
 In addition to insurance, an Uber driver-partner spent money on vehicle rental,

vehicle installment payment, toll , fuel, and vehicle maintenance. As the drivers were
not Uber employees, they had to take care of tax payment.
ISSUES FACED BY UBER
 ETHICAL ISSUES
Uber was accused of unscrupulous recruitment tactics. In August 2014, The Verge alleged
that Uber had recruited a team of independent contractors referred to as ‘brand ambassadors’.
These contractors used burner phones and credit cards to create accounts with Uber’s
competitors’ services, mainly those of its major competitor, Lyft, with the purpose of luring
their drivers. A contractor earned around US$750 as commission for successfully recruiting a
new driver-partner for Uber. Uber called this program ‘SLOG’ which meant ‘Supplying
Long-term Operations Growth.
 POOR BACKGROUND CHECKS
According to the Uber website, "All Uber ridesharing and livery partners must go through a
rigorous background check. The three-step screening we’ve developed across the United
States, which includes county, federal, and multi-state checks, has set a new standard. These
checks go back 7 years….Our process includes prospective and regular checks of drivers’
[driver-partners] motor vehicle records to ensure ongoing safe driving. Unlike the taxi
industry, our background checking process and standards are consistent across the United
States and often more rigorous than what is required to become a taxi driver [driver-partners].
 SAFETY AND PRIVACY ISSUES
There were incidents reported by Uber’s riders in which they alleged that the Uber driver-
partners had threatened them. In July 2014, Uber passenger in Philadelphia claimed that a
driver-partner of the company had punched her in the face and punctured her neck. Later, the
passenger went to court and filed a US$0.5 million lawsuit against the Uber driver-partner. In
addition to this, at least seven different incidents were reported of Uber passengers being
allegedly abused, raped, or sexually assaulted by Uber driver-partners. These incidents were
reported across U.S. cities.
 SURGE PRICING ISSUES
Economists across the political spectrum supported surge pricing. However, Uber riders in
various countries were against the concept and many demanded that their respective
governments impose price controls on Uber and similar companies. Roland Kibardin, a 19-
year-old Pace University student, said, “I’m sure yellow cabs are much more affordable in
that case. The city should step in … they should at least have some sort of cap.” However,
Uber justified surge pricing and said that it helped both its riders and its driver-partners.
Riders benefited as they got the vehicles without any delay, especially when weather
conditions were not good. Surge pricing also helped to get the vehicle when demand was very
high. Some Uber driver-partners mentioned that surge pricing encouraged them to come out
late in the night or after a storm.
 REGULATORY ISSUES
Uber also faced various regulatory issues in many countries . These countries saw Uber as a
taxi company and wanted it to adhere to taxi industry norms. Uber, however, saw itself as a
technology company.
 DRIVER-PARTNERS ISSUES
Uber was able to add many driver-partners to its network as it provided them with the
opportunity to become their own boss and earn more than taxi drivers. According to the U.S.
Bureau of Labor Statistics, the average annual salary of cab drivers in the country in 2012
was US$22,820 whereas Uber claimed in May 2014 that the median wage for a UberX driver
working at least 40 hours a week in New York City and in San Francisco was US$90,766 and
US$74,191 a year respectively. However, many drivers, labor leaders, and attorneys claimed
that this claim was just a marketing gimmick and they had not seen anyone who earned
US$90,000 a year. In January 2015, a study on the U.S. labor market for Uber’s driver-
partners stated that a typical Uber X and Uber Black driver made about US$19 an hour after
paying the 20% commission to Uber.
CONCLUSION
Despite these challenges, Uber continued to attract investors. In January 2015,

the company raised another US$1.6 billion as convertible debt from wealthy
clients of Goldman Sachs Group Inc. Uber’s revolutionary model, which aimed
at displacing the traditional taxi services and reducing the number of cars on the
road, was fast growing and adding more cities across the world. Increasingly,
governments around the world were also slowly starting to accept Uber’s
services and bringing in legislation to regulate such services. However, Uber
had to overcome the issues it was facing to ensure its success in the future.

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CASE STUDY - Uber: Rising Valuations Amidst Ethical Woes

SUBMITTED TO- Dr. Ambrish Gautam

ENROLLMENT NO.- A36106419022

Course Code- MGMT304

Uber Technologies, Inc., commonly known as Uber, is an American technology company.

The case is structured to achieve the following teaching objectives :

 According to a Uber spokesperson, Uber provided insurance coverage to its driver-

 In addition to insurance, an Uber driver-partner spent money on vehicle rental,

 POOR BACKGROUND CHECKS

 SAFETY AND PRIVACY ISSUES

Despite these challenges, Uber continued to attract investors. In January 2015,

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