UBER Case Study Discussion for ATTENDANCE All Sections 33 unread replies.33 replies. Uber is perhaps the most well-known, as well as the most controversial, company that uses the on-demand service model. Uber offers a variety of different services. Its Uber Rides segment offers consumers a way to get from Point A to Point B, ranging from UberX, which uses compact sedans and is the least expensive, to Uber Black, which provides higher-priced town car service. Its Uber Eats segment focuses on food delivery services. Its Uber Freight segment offers long-haul trucking services. Uber, headquartered in San Francisco, was founded in 2009 by Travis Kalanick and Garrett Camp, and has grown explosively since then to over 900 major cities and thousands of smaller ones in 69 countries. In 2019, Uber had 3.9 million drivers worldwide and over 110 million monthly active riders who made 6.9 billion trips during the year. In 2019, those riders spent $65 billion on the Uber platform, generating $14.1 billion in revenue for Uber, but it still lost a whopping $8.5 billion (although $4.6 billion of that loss was due to stock-based compensation expense). Ubers strategy in the past has been to expand as fast as possible while foregoing short-term profits in the hope of long-term returns. Despite the fact that, as of yet, it has not been able to operate at a profit, Uber offers a compelling value proposition for both customers and drivers. Customers can sign up for free, request a pickup using his or her smartphone, and nearly instantly (under the best of circumstances) Uber finds a provider and notifies the customer of the estimated time of arrival and price. Riders can accept the price or find an alternative. No need to stand on a street corner frantically waving, competing with others, or waiting endlessly for an available cab to drive by, without knowing when that might happen. Ubers value proposition for drivers is that it allows them to set their own hours, work when they like, and put their own cars to use generating revenue. Uber is a poster child for digital disruption. It is easy to see why Uber has ignited a firestorm of opposition from existing taxi services around the world. If youve paid $1 million for a license to drive a taxi in New York City, what is it worth now that Uber has arrived? Answer: less than $200,000. Even governments find Uber to be a disruptive threat. Governments do not want to give up regulatory control over passenger safety, driver training, nor the healthy revenue stream generated by charging taxi firms for a taxi license and sales taxes. Ubers business model differs from traditional retail e-commerce. Uber doesnt sell goods. Instead it has created a smartphone-based platform that enables people who want a servicelike a taxito find a provider with the resources, such as a personal automobile and a driver with available time, to fill the demand. Its important to understand that although Uber and similar firms are often called sharing economy companies, this is a misnomer. Uber drivers are selling their services as drivers and the temporary use of their car. Uber itself is not in the sharing business either: it charges a 25% commission on every transaction on its platform. Uber is not an example of true peer-to-peer e-commerce because Uber transactions involve an online intermediary: a third party that provides a platform for, and takes a cut of, all transactions. Uber has disrupted the traditional taxi business model because it offers a superior, fast, convenient taxi-hailing service when compared to traditional taxi companies. With a traditional taxi service, there is no guarantee you will find a cab. Uber significantly reduces that uncertainty. Ubers business model is also much more efficient than a traditional taxi firm. Uber does not own taxis and has no maintenance and financing costs. Uber calls its drivers independent contractors, not employees. Doing so enables Uber to avoid costs for workers compensation, minimum wage requirements, driver training, health insurance, and commercial licensing. Quality control would seem to be a nightmare with almost 4 million contract drivers. But Uber relies on user reviews to identify problematic drivers and driver reviews to identify problematic passengers. Drivers are evaluated by riders on a 5-point scale. Drivers that fall below 4.5 are warned and may be dropped if they dont improve. Customers are also rated with a 5-point system. Drivers can refuse to pick up troublesome customers, and the Uber server can delay service to potential customers with low ratings or ban them entirely. Uber does not publicly report how many poorly rated drivers or passengers there are in its system. Academic articles have found that in similar on-demand companies, such as Airbnb, there is a built-in bias for both sellers and buyers to give good reviews regardless of the actual experience. If you routinely give low reviews to sellers (drivers), they will think you are too demanding and not service you in the future. If a driver gives low reviews to passengers, they might not rate you highly in return. Rather than having a dispatcher in every city, Uber has an Internet-based app service running on cloud servers located throughout the world. It does not provide radios to its drivers, who instead must use their own smartphones and cell service, which the drivers pay for. It does not provide insurance or maintenance for its drivers cars. Uber has shifted the costs of running a taxi service entirely to the drivers. Uber charges prices that vary dynamically with demand: the higher the demand, the greater the price of a ride. Therefore, it is impossible using public information to know if Ubers prices are lower than traditional taxis. Clearly, in high-demand situations they are higher, sometimes 10 times higher, than a regulated taxi. There is no regulatory taxi commission setting uniform per-mile fares. Consumers do face some traditional uncertainties regarding availability: during a rainstorm, a convention, or a sports event, when demand peaks, not enough drivers may be available at any price. If Uber is the poster child for the on-demand service economy, its also an iconic example of the social costs and conflicts associated with this kind of e-commerce. Uber has been charged in many countries with misclassifying its drivers as contractors as opposed to employees, thereby denying the drivers the benefits of employee status, such as minimum wages, social security, workers compensation, and health insurance. In California, the California State Assembly Bill 5 (AB5), which provides a mechanism for determining whether workers are employees or independent contractors, went into effect in January 2020 and is expected to fuel an increased number of claims that Uber is misclassifying its drivers as independent contractors. Uber has also been the target of numerous lawsuits filed on behalf of its drivers, accusing the company of mistreatment, lack of due process, underpayment, and violation of state employment laws. Uber has been accused of violating public transportation laws and regulations throughout the world; abusing the personal information it has collected on users of the service; seeking to use personal information to intimidate journalists; failing to protect public safety by refusing to do adequate criminal, medical, and financial background checks on its drivers; taking clandestine actions against its chief U.S.-based competitor Lyft in order to disrupt its business; and being tone-deaf to the complaints of its own drivers against the firms efforts to reduce driver fees. Uber has been banned in several European cities. For instance, in London, Transport for London, the regulatory body that governs taxi services in London, refused in 2017 to renew Ubers license, based, it said, on concerns about user safety. Uber was allowed to continue operating while it appealed the ruling, and in June 2018 was granted a 15-month probationary license. Uber then sought a five-year renewal upon expiration of the probationary license in September 2019 but was once again unsuccessful, with Transport for London denying it a license to operate. As in 2017, Uber is appealing the ruling and continues to operate in the interim. More significantly, in 2017, the Court of Justice of the European Union (EU), the European Unions most powerful court, ruled that Uber should be treated as a transportation service, subject to all of the existing laws and regulations of the EU member countries in which it operates that apply to such services, rather than as a digital platform not subject to such laws and regulations, as Uber had been attempting to assert. Uber claims that the ruling will not have much impact on it, however, as it claims that it now operates in accordance with transportation laws and regulations of most European counties in which it does business. Critics also fear the long-term impact of on-demand service firms, because of their potential for creating a society of part-time, low-paid, temp work, displacing traditionally full-time, secure jobsthe so-called uberization of work. As one critic put it, Uber is not the Uber for rides so much as it is the Uber for low-paid jobs. A study by the MIT Center for Energy and Environmental Policy Research found that after taking into account costs such as fuel, insurance, maintenance, and repairs, Uber drivers median profit was only $3.37 per hour. Uber responds to this fear by claiming that it is lowering the cost of transportation, making better use of spare human and financial resources, expanding the demand for ride services, and expanding opportunities for car drivers, whose pay it claims is about the same as other taxi drivers. Over the last several years, Uber has been hit by a series of continuing controversies and scandals, creating a public relations nightmare for the company, and culminating in the resignation of a number of board members, senior executives, and finally its co-founder and CEO, Travis Kalanick. It was charged with corporate mismanagement and misconduct (including using a secret program known as Greyball to track and evade regulators and other law enforcement officials), workplace discrimination and sexual harassment, and violation of the privacy of its customers by using its mobile app to track the location of those customers at all times, even when the app was not in use. In 2019, a Washington Post report raised serious questions about how Uber handles passenger safety. But despite the controversy surrounding it, Uber continues to attract drivers, customers, and additional investors. In May 2019, Uber went public, raising over $8 billion at a valuation of about $82 billion, which although a staggering amount, was well below the $120 billion value initially floated by its investment bankers. During 2019, Uber's stock price declined significantly, losing almost half its value since the IPO. Then came the Covid-19 pandemic. In May 2020, Uber cut almost a quarter of its workforce, announced sweeping cost cutting measures, and braced for a very different future than it had anticipated. One bright spot was its Uber Eats division, which experienced a 50% increase in gross bookings in the first quarter. Seeking to expand on that opportunity, in July 2020, Uber entered into an agreement to purchase on-demand food delivery service Postmates for $2.65 billion, after its previous efforts to purchase GrubHub did not come to fruition. It also said it remains committed to growing its Uber Freight business, which despite losses, had been in expansion mode prior to the pandemic, following a similar playbook to that which Uber had successfully used to grow its core Uber Rides segment. Although the pandemic has interrupted Ubers previously announced goal to reach profitability by the end of 2020, chief executive office Dhara Khosrowshahi remains hopeful that that goal can still be achieved in 2021. QUESTIONS TO DISCUSS: Have you used Uber or any other on-demand service companies? What did you think of the on-demand service and why did you use it? Are there any negative consequences to the use of on-demand services like Uber and Airbnb? How has COVID-19 Pandemic impacted Uber and other on-demand services