Case Study: Uber Hits a Bump in the Road

2-1Introduction

Uber Technologies Inc. (Uber) is a tech startup that provides ride-sharing services by facilitating a connection between independent contractors (drivers) and riders with the use of an app. Uber has expanded its operations to 425 cities in 72 countries around the world and is valued at around $70 billion, making it the worlds most valuable startup. Approximately 30 million users use Ubers services monthly. Uber has become a key player in the sharing economy, a new economic model in which independent contractors rent out their underutilized resources such as vehicles or lodging to other consumers. The sharing economy is quickly becoming an alternative to owning resources outright. Because its services cost less than taking a traditional taxi, Uber and similar ride-sharing services have upended the taxi industry. The company has experienced resounding success and is looking toward expansion both internationally and within the United States.

However, Ubers rapid success is creating challenges in the form of legal and regulatory, social, and technical obstacles. The taxi industry, for instance, is arguing that Uber has an unfair advantage because it does not face the same licensing requirements as they do. Others accuse Uber of not vetting their drivers, creating potentially unsafe situations. Some major cities are banning ride-sharing services like Uber because of these various concerns. Additionally, Uber has faced various lawsuits, including a lawsuit filed by its independent contractors. Its presence in the market has influenced lawmakers to draft new regulations to govern this app-driven ride-sharing system. Legislation can often hinder a companys expansion opportunities because of the resources it must expend to comply with regulatory requirements.

Uber has been highly praised for giving independent contractors an opportunity to earn money as long as they have a car, while also offering convenient ways for consumers to get around at lower costs. Although its Surge Pricing technique has been criticized for charging higher fares during popular times, it is also becoming a model for other companies such as Zappos in how it compensates its call center employees. The biggest issues Uber faces include legal action because drivers are not licensed, rider and driver safety, protection and security of customer and driver information, and a lack of adequate insurance coverage. To be successful, Uber must address these issues in its marketing strategy so it can reduce resistance as it expands into other cities.

2-2 Background

In 2009 Travis Kalanick and Garrett Camp developed a smartphone application to connect drivers-for-hire with people needing rides to a destination in their city. Earlier in the year the founders had attended the inaugural address in Washington, D.C. and could not hail a taxi. They recognized the need for a convenient, low-cost transportation service. This innovative service was originally founded as UberCab Inc., a privately held company. It was renamed Uber Technologies, Inc. in 2010. Co-founders Kalanick and Camp designed the mobile app for iPhone and Android smartphones, enabling customers to get an estimated time of arrival from the driver on their smartphone with the use of an integrated GPS system.

Consumers liked the Uber app because of its convenience and ease-of-use. After the mobile app is downloaded to their smartphones, passengers can pay for the rides-for-hire service through a third party, known as a Transportation Network Company (TNC), using the UberX platform that scans or takes a picture of their credit card with the smartphones camera. Uber does not maintain automobile inventory for drivers, such as a fleet of taxicabs or limousines. Instead, each driver-for-hire supplies his or her own personal automobile, gas, insurance, and maintenance of his or her own car. Drivers can drive their own cars where they want when they want, providing them with freedom to run their own small businesses. A surge pricing model is used during times of peak demand. While Uber initially charged about a 20 percent commission, it later introduced a new tiered structure in some cities that charged different commission rates depending upon the number of hours worked.

Due to the increased demand in the rides-for-hire industry, Uber makes about $4 billion in revenue. The term uber has become so popular that people have started using it as a verb, much like google. Founder and former CEO Travis Kalanick sees Ubers services as a type of disruptive technology, believing that the types of ride-sharing services Uber offers will one day make it a viable alternative to owning a car. Younger generations appear more open to using services as needed rather than owning them outright. In emerging economies such as India, many people do not own cars, which gives Uber a major advantage. As ride sharing continues to increase, Uber could find itself competing against car ownership.

Uber maintains a presence in major U.S. cities including Los Angeles, San Francisco, New York City, Chicago, Washington D.C., and Boston. These cities have the most driverpartners, although many other cities also have driverpartners. Uber technology-based products are available under these various brands: Uber, UberX, UberXL, UberSelect, UberBlack, UberSUV, UberLUX, UberPool, and the logistics-request brand UberEats. Uber has also upgraded its current navigation service (Google and Apple) with deCarta Mapping Company. This new mapping system continues to improve Ubers navigation and location technologies.

2-3 Ubers Marketing Strategy

Like all companies, Uber must understand its target market and maintain a strong marketing mix to be successful. Due to its technology, Uber does not have as many constraints as taxi cabs, although it has encountered regulatory obstacles and some public resistance. The Uber business model takes advantage of the smartphone technology of consumers and links them with independent drivers as their cabs. This provides a more potentially efficient and less-expensive way to purchase transportation.

2-3a Products

Ubers products are all digital. Consumers download Ubers app onto their smartphones. When they want to request a ride, they can use the app to contact a driver in the near vicinity. The Uber app allows consumers to track the location of the car and alerts them to when the car arrives.

Uber offers a few different services to customers based upon their preferences. Its most used service is UberX, the low-budget option. Drivers use their own vehicles to transport passengers. UberSelect is a more luxurious option than UberX but with lower prices than the premium options. UberBlack is for consumers who desire to have their own private driver in a high-end sedan. UberSUV connects users with SUVs, while UberLux is the most expensive service with luxury vehicles. UberXL is similar to UberSUV but costs 50 percent less. Another low-cost option includes UberPool, which allows passengers to share rides and split the costs.

Uber is also attempting to expand into other services. Its UberEats is a meal delivery app that partners with local restaurants to offer meals to consumers within 10 minutes. Uber is also looking to break into the emerging self-driving car industry (known as autonomous cars), competing against the likes of Google and Tesla. Uber partnered with Carnegie Mellon University to begin testing autonomous cars in Pittsburgh, Pennsylvania.Since it is still in the testing stage, autonomous cars have two Uber employees in the front seat ready to take the wheel if needed. The company hopes to take what it learns to improve how autonomous cars run in different terrains. These new services are allowing Uber to branch out and expand into different businesses.

2-3b Distribution

Uber operates in more than 425 cities in 72 countries. One major reason Uber is so popular is because its app allows users to contact any drivers in the near vicinity. Drivers use the Uber app to provide them with directions. Los Angeles, San Francisco, New York, Chicago, Washington D.C., and Boston have the most drivers in the United States. Most Uber drivers offer their ride-sharing services on a part-time basis.

To be successful, Uber engages in strategic partnerships with other companies. In the United States it partnered with American Express. Card members enrolled in American Expresss Membership Rewards program can earn points with Uber for rides. Strategic partnerships with local firms are especially important as Uber expands internationally because it allows the company to utilize the resources and knowledge of domestic firms familiar with the countrys culture. Uber has partnered with Times Internet in India, Baidu in China, and AmericaMovil in Latin America.

2-6 Conclusion

The emergence of Uber has influenced many services to follow the Uber business model. There are similar firms that offer ride-sharing services, and there are firms that want to be an Uber-type business in the way they deliver goods and services. For example, Cargomatic has developed an app to help fill space on trucks. Cargomatic, which now operates in California and New York, has been called the Uber for truckers because it connects shippers with drivers who are looking for extra shipments to haul. This is signaling a shift in the industry, in which people are the infrastructure rather than buildings or fleets of vehicles.

Uber faces a number of ethical challenges, including regulatory and legal issues both inside and outside of the United States. Laws that protect consumers specifically target taxi services, whereas Uber defines its services as ride sharing and Uber as an agent of their individual contractors. However, many courts do not view its services in the same way and are forcing Uber to comply with licensing laws or stop business in certain areas. Additionally, snafus by Travis Kalanick and Ubers aggressive corporate culture has led to Kalanicks resignation as CEO.

Despite Ubers challenges, the company has become widely popular among consumers and independent contractors. Supporters claim that Uber is revolutionizing the transportation service industry. Investors clearly believe Uber is going to be strong in the market in the long run.

Uber has a bright future and expansion opportunities are great. It is therefore important for Uber to ensure the safety of its riders and the drivers. It should also adopt controls to ensure that independent contractors using its app obey relevant country laws. Uber has to address these issues to uphold the trust of its customers and achieve long-term market success.

100 word for each question

2-7a Questions for Discussion 1. What are the ethical challenges that Uber faces in using app-based peer-to-peer sharing technology? 2. Since Uber is using a disruptive business model and marketing strategy, what are the risks that the company will have to overcome to be successful? 3. Because Uber is so popular and the business model is being expanded to other industries, should there be regulation to develop compliance with standards to protect competitors and consumers