The Collapse of Taxis and The Rise of Uber

How ‘Uberisation’ unfairly monopolised yet revolutionised the transportation industry

Robyn Beck/AFP Getty Images. All rights reserved

What is Uber?

Uber is a multinational ride-sharing platform which acts as a digital aggregator, connecting drivers with cars, to passengers who need a ride (Lahoti, 2019). Uber’s strong business model, partnered with its seamless digital app, high-quality social media marketing, and relentless driver recruitment, has enabled its great success within the market (Pullen, 2014). Uber’s app on Apple, Android and Windows utilises the smartphones’ GPS capabilities by sharing the location of the driver and passenger, making it a seamless meet-up, and allowing passengers to be picked up from wherever they are, on demand (Pullen, 2014). Unlike taxis, Uber’s service allows for its passengers to choose the type of car they want to ride. The most popular Uber car service is Uber X, which includes car models such as the Ford  Falcon, Toyota Camry, and Volkswagen Golf (Australian car model examples) (Ride Share AUNZ, 2019). If a rider would like a more luxurious ride, they can opt for the Uber Comfort, which provides the passenger with more comfortable, midsized cars, with top rated drivers (Uber, 2020).

Photo by Charles Deluvio on Unsplash

 

Historical overview of its development

The idea of Uber began in December 2008, on a cold Winter’s night in Paris. The founders, Travis Kalanick and Garrett Camp, were unable to catch a cab (Uber, 2020) and this prompted the idea of a digital platform which could hail a ride using only a smartphone. Then, Uber was born. The two entrepreneurs started developing a smartphone app which allowed people to catch a ride from the touch of a button (Uber, 2020). By December 2011, Uber had expanded and come full circle, with its launch internationally in Paris, the same city where the idea has been born three years prior (Uber, 2020).

 

The introduction of Uber challenged existing business models of transportation services, specifically taxis. When automobiles had first been introduced, many people were unable to afford their own, so this created a demand for taxis – a service which enabled people to get from A to B, without the heavy expenses of parking, storage and maintenance associated with cars (Marin, Petrović, Mudrić, & Lisičar, 2020, p. v). For a long time, taxis had monopolised the transportation industry (Marin, Petrović, Mudrić, & Lisičar, 2020, p. v), until more recently, when the idea of the “sharing economy” commenced, and Uber was released. Uber found a gap in the market, and with the rise of Web2.0 and the ‘app era’, Uber developed a digital platform which would allow consumers to more conveniently catch a ride. Instead of users having to call to order a taxi, which would require a specific address for accurate collection of the passenger, the Uber app utilises the GPS capabilities on the smartphone, allowing for a seamless and more convenience method of transportation. With rapid technological advancements in the digital age, the taxi industry was stagnant in its business model as it was its own monopoly, however Uber was quick to adapt and exposed the vulnerability of the traditional taxi business model by producing a business strategy which appealed to new and existing customers internationally (Schneider, 2017, p. 53).

 

 

Uber: The’ Sharing’ & ‘Gig’ Economies

Uber brought the sharing economy to the transportation industry, a term used to describe the “collaborative consumption made by the activities of sharing, exchanging, and rental of resources without owning the goods” (Lessig 2008, pp. 143 cited in (Puschmann & Alt, 2016, p. 95)). Its development allowed workers to sign up for the platform at the tap of a button (Wells, Attoh, & Cullen, 2020, p. 3). Some say that Uber can be considered a phenomenon of its own token in the sharing economy (Schneider, 2017, p. 10). Uber became highly successful and revolutionised the transportation industry, causing existing business models of taxis to enter into a fast-paced transformation (Marin, Petrović, Mudrić, & Lisičar, 2020, p. 3). Hence, the introduction of Uber disrupted the sole existence of the transportation industry (Marin, Petrović, Mudrić, & Lisičar, 2020, p. 6). Its introduction significantly challenged the business models of taxis, which has hardly changed since the 1940s (Schneider, 2017, p. 52).

Correspondingly, Uber’s on-demand business model also forms part of the gig-economy, as drivers are their own bosses and they are in charge of how many hours per week they work and how well the job is performed (Frost, 2017, p. 4). The gig economy and its association with digital technology challenges traditional business models within the transportation industry, as did the implementation of Uber challenge taxi services.

Photo by Mike Tsitas on Unsplash
Photo by Mike Tsitas on Unsplash

 

Uber vs. Taxi: The Business Models

Platform-based business models are a consequence of the digital ‘app’ era. As Shaughnessy (2016) acknowledges, platform-based business models, “seek to leverage the assets of third parties and in the process extend the value of economic activity to customers in ways that engage and benefit them” (Shaughnessy, 2016, p. 7). Uber’s main competitive advantage in comparison to taxis is that they utilise the assets of private car owners and allow them to drive for hire in their spare time, labelling its drivers as simply, ‘suppliers of unused capacity’ (Schneider, 2017, p. 53). This not only utilises advantages of car and time, but it also generates higher profitability for Uber as it is avoiding fees associated with owning an automobile (Shaughnessy, 2016). By shifting the hefty fares associated with car ownership onto its drivers, Uber leverages off this for its own commercial gain, however this leaves its drivers with lower wages (Shaughnessy, 2016). This can also be referred to as Uber’s, path to profitability, as significant costs such as driver earnings and vehicle costs decline for their business, finally enable them with a yearly profit margin (Marin, Petrović, Mudrić, & Lisičar, 2020, p. 4).

 

Uber’s transformative business model is a combination of the platform-based business model, partnered with the concept of the sharing economy (John, 2016), and manages to avoid the essential costs which traditional companies used to incur to its “independent contractors”, such as vehicle costs (ownership, maintenance, insurance) (Horan, 2019, p. 119).

Uber Ecosystem Map
Uber Ecosystem Map, By Emilie Sorensen, All Rights Reserved

 

Political and regulatory debates

Uber’s business model avoids the legalities in the system which requires taxi drivers to obtain a licence in order for them to transport people commercially (Davidov, 2017). But is this fair? And is it legal?

The ‘gig economy’ is a new term which has been associated with working ‘on-demand’ as a result of new technologies such as apps. Companies, along with Uber, who operate in the gig economy want to avoid the label, ‘employee’ for their workers as that would, “entail, among other things, potential overtime payments, union organization, payroll taxes, unemployment benefits, expense reimbursements, disability insurance, and Social Security” (Frost, 2017, p. 1).

By utilising the properties associated with the gig economy, Uber legally classifies its drivers as ‘independent contractors’, rather than ‘employees’ (Chau, 2019). This allows Uber to avoid employee benefits, such as sick leave, minimum wage and annual leave (Chau, 2019).

There are three characteristics which Uber claims differentiate its drivers from regular ‘employees’:

 

  1. Their freedom to choose how many hours they work and when they want to work
  2. The ownership of the car which they use to provide the transportation services
  3. The fact that many of their drivers work for a small number of hours per week

 (Davidov, 2017, p. 11)

This loophole to the system has sparked major controversy, as many people believe that simply because Uber is an online service rather than a phone service, that it should not be allowed exemption from the laws which taxicabs must abide (Davidov, 2017).

 

Uberification and its “Transportation Ecosystem”

Photo by Kai Pilger on Unsplash

As a result of the transformative effects which Uber has endured to the transportation industry, a verb has been generated and utilised in new digital media. Uberification, also frequently known as Uberisation, is a general colloquial term which Uber has generated for itself, means the “rise of mobile on-demand services” (Cheok, 2015). However, simply put, is a general term used to describe the act of turning traditional service models on their head (Jack, 2017), as did Uber to taxi services. Schneider (2017) says that, “the idea behind Uberization is providing on-demand services for as many needs and preferences as possible” (Schneider, 2017, p. 58). Uber’s digital platform has revolutionised the way people travel through the utilisation of smartphone capabilities, hence resulting in a much more convenient mode of transportation. Though the Uber app, Uber has developed its “transportation ecosystem” (Bane, 2019), and has expanded its services to Uber Eats; a food delivery service, Uber Freight; on-demand truck service matching shippers with carriers (Lahoti, 2019), and many more other transportation services. The Uber name has become so established through its innovation and success, and has become so popularised in society, that some people refer to Uber as similar to a social group or cult. Schneider (2017) says, “Uber seems to have not just customers but a ‘fellowship’: people identify important actions in their lives with the mobility provided by Uber.” (Schneider, 2017, p. 10)

 

Conclusion

Concepts adjoining the sharing economy, partnered with Uber’s seamless digital app has enabled Uber to revolutionise the transportation industry, hence becoming the front-runner in on-demand services and as a result, has become the role model for capitalising on convenience (Schneider, 2017). Uber’s digital app is the foundation for its success, and is the core to its transportation ecosystem, which has enabled Uber to expand to other services past ride-share, including Uber Eats, Uber Freight, along with many more. Uber revolutionised the transportation industry, taking over the traditional business models of taxis and giving their stagnant business model a wake-up call. This has led to the verb, Uberification, being produced in new digital media, a colloquial term which honours the success of Uber and its start-up in the rise in mobile on-demand services. There has been controversy in relation to the legalities of Uber’s business model, which has allowed Uber to avoid hefty costs associated with employee benefits. Many people believe this is unfair, however this profitability has enabled Uber to reach the success that it stands with today.

 

References

Chau, D. (2019, June 7). Uber drivers are not employees, Fair Work Ombudsman finds. Retrieved from ABC News: https://www.abc.net.au/news/2019-06-07/uber-fair-work-ombudsman-investigation-contractor-employee/11189828

Cheok, J. (2015, November 9). ‘Uberification’ and more in Chengdu’s bustling startup scene. The Business Times. Singapore.

Davidov, G. (2017). The Status of Uber Drivers: A Purposive Approach. Spanish Labour Law and Employment Relations Journal, 1-14.

Frost, J. (2017). UBER AND THE GIG ECONOMY: Can the Legal World Keep Up? 13(2), 4-7.

Horan, H. (2019). Uber’s Path of Destruction. American Affairs, 3(2), 108-133.

Jack, S. (2017, September 22). Now what next for Uberisation? Retrieved from BBC News: https://www.bbc.com/news/business-41359327

John, N. A. (2016). Sharing Economies. In N. A. John, The Age of Sharing (pp. 58-77). Polity Press.

Lahoti, N. (2019, January 2). Uber Business Model Explained: From Start to Finish. Retrieved from Mobisoft: https://mobisoftinfotech.com/resources/blog/uber-business-model-explained/

Marin, J., Petrović, S., Mudrić, M., & Lisičar, H. (2020). Uber—Brave New Service or Unfair Competition. Springer International Publishing.

Pullen, J. P. (2014, November 4). Everything You Need to Know About Uber. Retrieved from Time: https://time.com/3556741/uber/

Puschmann, T., & Alt, R. (2016). Sharing Economy. Bus Inf Syst Eng, 93-99.

Ride Share AUNZ. (2019, November 10). List of Eligible Car Models for Uber in Sydney. Retrieved from Ride Share AUNZ: https://www.rideshareaunz.com/list-of-eligible-car-models-for-uber-in-sydney/#:~:text=In%20Sydney%20you%20can%20choose,options%20in%20Uber%20Australia%20post.

Schneider, H. (2017). Creative destruction and the sharing economy Uber as disruptive innovation. Northampton, MA: Edward Elgar Publishing.

Shaughnessy, H. (2016). Harnessing platform-based business models to power disruptive innovation. Strategy & Leadership, 44(5), 6-14.

Uber. (2020). History of Uber. Retrieved from Uber Newsroom: https://www.uber.com/en-AU/newsroom/history/

Uber. (2020). Uber ride options. Retrieved from Uber: https://www.uber.com/au/en/ride/ride-options/

Wells, K. J., Attoh, K., & Cullen, D. (2020). “Just-in-Place” labor: Driver organizing in the Uber workplace. Economy and Space A, 1-17.

 

 

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About Emilie Sorensen 3 Articles
Student at The University of Sydney studying Media & Communications