Uberisation: For better or for worse?

"Uber app" by freestocks.org is marked with CC0 1.0

Uber is a ride-sharing service that has significantly changed the way we use transportation and our private cars. The company has managed to re-intermediate the taxi sector by utilising data and technology to offer better prices and better service. This essay follows Uber’s development, its place in the sharing economy, the manner in which its innovative business model has disrupted the transportation sector and the taxi industry globally, and how it has changed the way we use our privately owned goods- cars.

 

The Sharing Economy and Uber’s place in it

As John (2016) writes, our conception of the sharing economy is usually closely linked with technology. Technology is often seen as a tool that enables sharing practices inspired by either environmental or financial concerns or as an enabler of forms of sharing which as John (2016) states are ‘profoundly human’  in nature.

This form of sharing enabled by technology has altered our conception of possession. To understand Uber, a leader in the ride-sharing service sector, writes that we must understand the way the sharing economy has changed our usage or non-usage of goods we consider ours. The sharing economy has transformed the way we use goods such as our house or our car; now, they can be used for a ‘common purpose: collective or societal services’.

Uber is a multinational company and a leader in the alternative taxi services. It was launched in 2009 in San Francisco as a logistic and transportation network services company (Anwar, 2018). Its fast-paced growth and global expansion meant a significant disruption of the taxi service sector. Travis Kalanick and Garrett Camp, the founders of Uber, introduced the companies ambition in its slogan ‘Where lifestyle meets logistics’. The new application, the appeal of the pricing structure as well as consumer convenience, quickly resulted in fast-paced growth for Uber and global market domination in the ride-sharing sector (Anwar, 2018).

Following Nina’s (2018) arguments, one of the main reasons for Uber’s success and the decimation of the taxi industry is that Uber’s position in the sharing economy. Uber’s main interest is to generate profit; however, within the culture of the sharing economy, Uber has positioned itself as a provider of ‘a new common good’ (Nina, 2018, p. 111).  As Nina (2018) argues Uber’s success lies in the promotion of a sense and practice of corporate social responsibility, by way of sharing private property as part of an already constructed social good (Nina, 2018).

Timeline of significant events in Uber’s history 

 

In order to understand Uber’s significance in the global market, it is essential to consider and examine the short history of its growth. 

  •  2009

Travis Kalanick and Garrett Camp found Uber, then known as UberCab. Initially, UberCab is a luxury service that costs 1.5 times more than a regular cab. (Anwar, 2018) (Hartmans & Leskin, 2019). The image below shows the interface design of the initial UberCab app. 

The interface of the first UberCab App

“UberCab is insane amounts of cool” by standardpixel is licensed under CC BY-NC-SA 2.0

  •  2011

Uber initially secures funding of $1 million and then second funding of $37 million to aid international expansion starting with Paris (Anwar, 2018) (Hartmans & Leskin, 2019).

  • 2012

UberX is launched in London, with a focus on hybrid cars to help with environmental concerns (Anwar, 2018).

Competitor company Lyft is founded in San Francisco (Anwar, 2018) (Hartmans & Leskin, 2019).

  • 2013

Uber continues to expand internationally starting operations in India and Africa, manages to secure funding of $258 million to meet the need for expansion (Anwar, 2018) (Hartmans & Leskin, 2019).

  •  2014

Uber’s market value is $18 billion and Uber starts operations in Beijing (Anwar, 2018).

Uber launches UberPool, a carpooling service offering a customer to split the ride fare with another person traveling a similar route (Anwar, 2018)  (Etherington, 2018).

  •  2015

Uber makes its first acquisition deCarta to try and decrease its reliance on Google Maps (Hartmans & Leskin, 2019).

The California Labour Commission challenges Uber’s business model by ruling that Uber drivers are not contractors but employees (Hartmans & Leskin, 2019).

Chinese investors fund Uber – $1 billion while its competitor in the Chinese market Didi raises $3 billion as a response(Hartmans & Leskin, 2019).

UberBLACK is introduced in South Korea (Hartmans & Leskin, 2019).

French taxi drivers and unions protest Uber in France which leads to legal problems for Uber. This sparks up other regulatory issues for Uber internationally, which leads to significant losses for the company. Regulations in Hungary force Uber to exit the market. (Hartmans & Leskin, 2019). The video below shows’ taxi drivers protesting against Uber, claiming unfair competition. 

Video ‘Uber: day two of protests by French taxis.’ by Euro News, posted on Jan 28, 2016.

 

Didi finally merges with Uber in a $35 billion deal (Anwar, 2018).

  • 2017

Susan Fowler publishes an article claiming that the company’s culture is toxic and sexist (Fowler, 2017).

New York Times follows with a similar article detailing problems with Uber’s workplace culture (Isaac, 2017).

 A new CEO steps in for Uber – Dara Khosrowshahi (Anwar, 2018)

 

  • 2018

Uber pays out a settlement worth $148 million because of a data breach which occurred in 2016 (Hartmans & Leskin, 2019).

  •  2019

Uber goes public on the New York stock exchange. IPO price at $45 per share (Hawkins, 2019). The tweet below details Uber’s statistics at the time.

 

 

Uber introduces Public Transportation info in the Uber app in Australia (Stannett, 2019). 

Uber incorporates Public Transport information and price for a trip to Sydney CBD.

Screenshot of Uber app showing public transport options. Screenshot by Ana Avramovska 20/11/20

 

Uber is valued at 120 billion (Team, 2018).

  • 2020

Uber suffers significant losses due to the COVID-19 pandemic (Katta, 2020).

 

Uber’s Business Model

Uber’s Business model is perhaps one of its crucial innovations, one that completely changed the way we use transportation and decimated the taxi industry globally. To understand its place in its industry or its social ecology, it is crucial to look at Uber’s business model. As Schneider (2017) argues, to understand Uber’s business model, is to understand Uber. In his book ‘Creative Destruction and the Sharing Economy’, Schneider (2017) describes Uber’s business model as one that re-intermediates the taxi company utilising innovative technology while offering cost-effective prices. The video below details Uber’s economics. However, for the purpose of this essay, I will look at Uber’s business model along with two main elements: intermediation, and pricing

The video below details Uber’s economics.

Video by PolyMatter, published on Jul 14, 2018

Intermediation – Two-Sided Marketplace

The business model of the traditional taxi industry has not changed in decades. Uber’s innovation stems from the understanding that technology can revolutionalise a tech-stagnant sector (Schneider, 2017). Uber’s primary business model is set up to create networks through technology. Uber’s role as an intermediary succeeds, on the one hand, because of the appeal of the opportunity to utilise the idle capacity of the personal car and the driver’s time, all conveniently organised and set up through the Uber app. On the other hand, Uber motivates its customers by offering price security and the convenience of using their application. The two-sided rating system also increases the service quality without Uber having to invest additional funds into car maintenance, customer service training etc.

An example of Uber’s rating system

 

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Screenshot by Ana Avramovska
Example of Uber’s rating system. Screenshot by Ana Avramovska 20/11/20

The key innovation is not only that, as Schneider (2017) puts it, ‘Uber is an intermediary of idle capacity’ (p. 60),  but that it re-intermediates the taxi industry while offering a cost-effective service. Traditionally, intermediaries add to the price of a product or a service. However, in Uber’s case, the customer can get the same taxi service, at a lower cost.

 

Pricing

Madhavan and Tacke (2016) claim that the disruption of the taxi industry and other transportation industries by Uber was possible because of their dynamic pricing model. Uber utilises the ever-increasing availability of data and complex algorithms to create a dynamic pricing model that changes the price of its service based on real-time supply and demand of vehicles (Madhavan & Tacke, 2016). As Pepić (2018) explains, increased demand on a rainy day means there would be a decrease in the supply of vehicles. Based on the number of people that ask for a ride or just open the app, Uber’s AI-powered algorithm calculates a new, higher price which balances the demand. However, according to Pepić ‘s (2018) research, even with price surges, Uber’s services are still likely to be cheaper than taxi services. Uber’s drivers usually keep 80% of the cost of the ride, while Uber charge’s 20% for the intermediation (Pepić, 2018).

To understand how Uber is able to keep the low prices, one needs to look at Uber as a tech company rather than a transportation company (Schneider, 2017). Uber does not shoulder the burden of owning warehouses, vehicles, or other transport-related inventory. This allows Uber to re-invest profits in research, development, and marketing (Schneider, 2017). Critics of this model claim that Uber, since it does not operate with a traditional taxi business model, is able to take advantage of legal loopholes and pay less tax than taxi companies (Pepić, 2018). This in turn allows it to operate at a low cost.

Further, Anwar (2018) argues that Uber’s low-cost model can only be ‘financeable if the scale it promises to customers and drivers is implemented’ (p. 60). This then explains Uber’s desire for market dominance and complete coverage of most of the world’s big cities (Schneider, 2018). Uber has already shifted the way we use transportation and our cars. However, its need to dominate the market completely, means that it will inevitably disrupt the way we use transport altogether.

 

Uber’s Internet Ecologies

Uber positions itself as the market leader in ride-sharing services. However, Uber offers more than ride-sharing, its services range from ride-sharing to food delivery (UberEats), electric bike rentals (through Lime), freight transportation, and couriers. In 2019, Uber introduced Public Transportations in the Uber app in Australia (Stannett, 2019), promising to further the change of how Australians use their private cars. Further, Uber relies on other intermediaries for its service, such as TomTom, Google maps, Internet and 4G/5G service providers and software providers.

Uber’s main competitors are other ride-sharing companies, which defer depending on the country in which Uber operates. Uber’s main competitors are Lyft in the United States, Didi and Ola in Australia and Asia (Masige,2020), Bolt in Europe and Grab in South-East Asia (Horan, 2019). While Uber claims it is not in competition with public transport, from the company’s IPO filing, it is evident that Uber sees public transportation as a direct competitor to its growth strategy.

Uber’s business model clearly outlines its suppliers and users. Uber does not own any vehicles, so its main supply depends on its drivers. In addition to its drivers, Uber relies on delivery personnel and restaurants for other services they offer, such as UberEats. Further, Uber’s users are commuters, people in need of taxi services and food delivery (Anwar, 2018).

Regulation is the main threat to Uber’s business model  (Sauviat, 2020). Uber’s attempts to present itself as a tech company rather than a transportation company have failed in most countries around the globe. This meant that Uber now has to adhere to regulations in place for the taxi sector and other transportation providers as well as labor regulations across the globe. (Sauviat, 2020).

Further, the battle, whether Uber drivers are employees or contractors, also threatens Uber’s business model, specifically their pricing methods (Sauviat, 2020).

Below is a map of Uber’s Internet Ecology

 

Uber’s Internet Ecology by Ana Avramovska 20/11/20

Uberisation: For better or for worse?

As we can see from Uber’s innovative business model, it is indisputable that Uber has changed the way we use transportation. The effects have been felt by taxi industries around the globe, whose outdated business model, high prices and bad customer service has resulted in their significant decline. The internet, large amounts of data and new AI powered alghoritms  have allowed for Uber to re-intermidiate the taxi sector  in a process Schneider (2017) in  ‘Uber, Innovation in society’  terms  creative destruction.

Further, Mudric (2020) looks at a study conducted  by the European Parliament (Azvedo and Maciejewski, 2015) for the negative effects of Uber. The study outlines a variety of instances where Uber has had a negative impact on societies in which it operates, such as: regulation violations, monopoly tendecies, usage of unsafe and uninsured motor vehicles, discrimination, data and privacy breaches, unfair competition, labour laws violations etc (Mudric,2020) (Berger et al. 2018).

Regulation is the only way forward for Uber, which means that Uber’s business model would have to change for Uber to continue operating. Uber has given its customers convinience and its drivers more earning potential. Whether its rapid expension has brough more benefits to communities is still debated. However, it is certain that Uber will continue to change the face of transportation services across the globe.

References:

Anwar, Syed Tariq. “Growing Global in the Sharing Economy: Lessons from Uber and Airbnb.” Global Business and Organizational Excellence 37.6 (2018): 59–68. Web.

Azevedo, F., & Maciejewski, M. (2015). Social, economic and legal consequences of Uber and similar transportation network companies (TNCs). report published by the European Parliament Think Tank, www. europarl. europa. eu/RegData/etudes/BRIE/2015/563398/IPOL_BRI, 282015.

Berger, T., Chen, C., & Frey, C. B. (2018). Drivers of disruption? Estimating the Uber effect. European Economic Review, 110, 197-210. (MASIGE, 2020) (Horan, 2019)

Daniel Nina. (2018). The sharing economy, Uber, and corporate social responsibilities. Forum Empresarial, 22(2), 109–116. https://doaj.org/article/8a8e8c7dd693484bb12200cc7ae5022b

Etherington, D. (2018, Feb 21). Uber officially launches Uber Express POOL, a new twist on shared rides. Tech Crunch.

Fowler, S. (2017, Feb 19). Reflecting On One Very, Very Strange Year At Uber. Susan Fowler.

Hartmans , A., & Leskin, P. (2019, May 19). The history of how Uber went from the most feared startup in the world to its massive IPO. Business Insider.

Hawkins, A. J. (2019, May 10). UBER GOES PUBLIC: EVERYTHING YOU NEED TO KNOW ABOUT THE BIGGEST TECH IPO IN YEARS. The Verge.

Henrique Schneider. (2017). Creative Destruction and the Sharing Economy: Uber as Disruptive Innovation (pp. 1–142). Edward Elgar Publishing. https://doi.org/10.4337/9781786433435

Horan, H. (2019). Uber’s Path of Destruction. American Affairs, III(2), 108-33.

Isaac, M. (2017, Feb 17). Inside Uber’s Aggressive, Unrestrained Workplace Culture. The New York Times.

John, N. A. (2016). The age of sharing. ProQuest Ebook Central https://ebookcentral-proquest-com.ezproxy1.library.usyd.edu.au

Katta, S. (2020). (Dis)embeddedness and (de)commodification: COVID-19, Uber, and the unravelling logics of the gig economy. Dialogues in Human Geography, 10(2), 203–207. https://doi.org/10.1177/2043820620934942

Marin, J., Petrović, S., Mudrić, M., & Lisičar, H. (2020). Uber—Brave New Service or Unfair Competition Legal Analysis of the Nature of Uber Services  (1st ed. 2020.). Springer International Publishing. https://doi.org/10.1007/978-3-030-31535-1

MASIGE, S. (2020, Feb 21). Uber may be dominating Australia’s rideshare market, but competitors DiDi and Ola are beginning to catch up. Business Insider.

Mudrić M. (2020) Introduction. In: Marin J., Petrović S., Mudrić M., Lisičar H. (eds) Uber—Brave New Service or Unfair Competition. Ius Gentium: Comparative Perspectives on Law and Justice, vol 76. Springer, Cham. https://doi-org.ezproxy1.library.usyd.edu.au/10.1007/978-3-030-31535-1_1

Pepić, L. (2018). The sharing economy: Uber and its eect on taxi companies. Acta Economica, 16(28), 123-136. https://doi.org/10.7251/ACE1828123P

Ramanujam, Madhavan, and Georg Tacke. Monetizing Innovation : How Smart Companies Design the Product Around the Price, John Wiley & Sons, Incorporated, 2016. ProQuest Ebook Central, https://ebookcentral-proquest-com.ezproxy1.library.usyd.edu.au/lib/usyd/detail.action?docID=4519006.

Sauviat, C. (2020). Uber’s business model: An uncertain future. Chronique Internationale de l’IRES, 168(4), 51–71. https://doi.org/10.3917/chii.168.0051

Stannett, K. (2019, July 28). Is it a bus, is it a train? Yes – it’s public transport in the Uber app. Uber Newsroom.

Team, T. (2018, Dec 03). How Uber Could Justify A $120 Billion Valuation. Forbes.

Vasebi, S. (2020). Investigating Taxi and Uber competition in New York City: Multi-agent modeling by reinforcement-learning. arXiv.org. http://search.proquest.com/docview/2438804280/

Ana Avramovksa
About Ana Avramovksa 2 Articles
Student at USYD | Studying Linguistics & English