Read content below and then answer questions

Case 22 Uber

Its rare. But every now and then a company comes along that completely disrupts the traditional ways of distributing a product or service. Amazon.com radically transformed online selling, and Apples iTunes and iPod turned music distribution on its ear. Now comes Uber, the app-based ride service that is revolutionizing urban transportation. Uber is giving conventional taxicab and car services a real ride for their money. In just seven short years, Uber has revved up operations in over 700 cities in more than 60 countries, already booking more than $10 billion in rides annually through its massive network of more than four million drivers.

A Disruptive Product

Why are so many customers around the world bypassing good old taxicabs in favor of newcomer Uber? Its all about convenience and peace of mind. No more stepping out into busy city streets to wave down a passing cab. Instead, Ubers smartphone app lets passengers hail the nearest cab or limo from any location, then track the vehicle on a map as it approaches. The Uber app gives riders an accurate estimate in advance of the fare to their destinations (usually less than that charged by a regular cab) eliminating guesswork and uncertainty. After the ride, passengers simply exit and walk away. Uber automatically pays the driver (including tip) from the passengers prepaid Uber account, eliminating the often-inconvenient and awkward moment of payment. And its the same process anywhere in the world, from San Francisco, London, Paris, or Abu Dhabi to Ashville, North Carolina, or Athens, Georgia. Compare the Uber experience to the uncertain and often-unsettling experience of using a standard taxicab.

One business reporter describes waiting in line at a taxi stand while a driver tried to convince another would-be passengera total strangerto share the cab, thereby increasing his fare. The cab itself was ancient and filthy, with ripped and worn seats. During the entire ride, the cabbie carried on a phone conversation in a foreign language via his headset, causing safety concerns while distractedly navigating busy city streets. The reporters conclusion: I stepped out of the taxi in front of my house and realized I just dont have to put up with this garbage anymore. Uber has changed my life, and as God is my witness, [wherever Uber is available] I will never take a taxi again.

Uber drivers range from professional drivers whove switched over from conventional cab and transportation companies to regular people looking for a little adventure and some extra income in their spare time. All Uber drivers go through an orientation that requires proficiency in a market areas dominant language, ensuring that they can communicate effectively with customers. Although it may vary by location, in general Uber vehicles can be no more than ten years old. A two-way rating systemby which riders rate drivers and drivers rate riders in returnhelps keep both sides on their best behavior. Poorly rated drivers risk being rejected by future passengers; poorly rated passengers risk rejection by drivers, who can choose which fares they accept.

Ubers disruptive innovation has brought a breath of fresh air to an industry begging for change. Urban transportation channels have long been characterized by cartel-like relationships between cab companies and local governments, high fixed fares, poor service, and little accountability. As one economics professor points out, the taxicab industry was ripe for entry [by start-ups] because everybody hates it.

Uber has also been criticized for its surge pricing practicesa dynamic pricing mechanism that kicks in to raise prices when demand exceeds supply, sometimes resulting in shockingly high fares and accusations of price gouging. Uber justifies surge pricing by pointing that it provides an incentive for more drivers to be available during periods when passengers need them most. According to Uber, if a passenger faces a higher-than-normal fare because of surge pricing, the alternative without Uber would more than likely be no taxi at all. Moreover, Uber informs passengers in advance what the fares will be. If they dont like the fare, they can find another cab, take public transportation, or walk.

Competitors and Startup Costs

Ubers huge success has attracted a garage full of competitors, such as Lyft, Gett, Carma, and Zimride. Uber has a huge first-to-market advantage. Its bookings are 10 times those of nearest competitor Lyft, and Uber is adding new customers at a faster rate. Moreover, even as competition stiffens, Uber has little to fear from like-minded competitors. In fact, the more competitors adopt the new model, the more the revolutionary channel will grow and thrive versus traditional channels, creating opportunities for all new car-hailing entrants. Instead, the new distribution model poses the biggest threat to traditional taxicab and car-for-hire companies, which are now losing both customers and drivers to Uber and its competitors. Despite its explosive growth, Uberlike every other ride-hailing companyhas yet to turn a profit. Like Facebook, Amazon, and so many other revolutionary companies in todays internet-driven economy, Ubers start-up model is to build a big user base first, then worry about making money later. Uber keeps 20 to 30 percent of each farethe rest goes to the driver. But Uber plows back most of its take into expansion and promotional expenses. Investors seem confident. Uber has raised more than $10 billion in venture capital. It went public in 2019 with a valuation of $82.4 billion. Your Lyft did an initial public offering (IPO) earlier in the same year that placed its valuation at $24.3 billion.

Challenges

Like any innovator, upstart Uber faces some significant challenges. For example, Uber has been criticized for exercising too little control over driver quality and security. So far, the company has ridden beneath the radar of industry regulators by not directly employing drivers (all Uber drivers are independent contractors) and not owning any vehicles (all vehicles are driver-owned). There have been charges of sexual harassment within the company and by drivers for Uber. Waymo a subsidiary of Alphabet, the parent company of Google, filed a lawsuit against Uber. Uber had acquired Otto, a self-driving company. The suit alleged an employee of Waymo downloaded confidential files of Waymo before leaving to start Otto. These incidents helped lead to the Uber replacing its founding CEO with Dara Khosrowshahi, the former CEO of Expedia.

Defining Its Business Beyond Ride Sharing

Under the new CEO Ubers mission became We ignite opportunity by setting the world in motion, replacing, Make transportation as reliable as running water, everywhere, for everyone. This expanded Ubers mission beyond just delivering people to their destinations. Uber is now looking at expanding into healthcare, package delivery, and other areas. As the population ages, many older people need rides to and from medical treatments. Uber Eats, a restaurant delivery service, has been very successful. Once youre delivering cars in five minutes, there are a lot of other things you can deliver in five minutes.

Questions:

1. You are thinking about using Uber Eats as a delivery service for your restaurant. Currently you do not have a delivery service, and customers have to receive the ordered food from the restaurant only. The manager has asked you to do a research project to see if it would be feasible to use Uber Eats. What information would you gather as data to present to the manager?

2. Compare the distribution systems with taxicabs with that of Uber. That is how the customers gain access to a taxicab, compared with gaining access to an Uber ride.

3. What advantages did Uber create in their creation of a distribution system for people who needed transportation compared with taxicab companies?

4. Explain how Uber could enhance opportunities for tourists.

5. As a destination manager would you embrace Uber? If so, how would you communicate your position with taxi drivers who have served your community for many years?