Stop taking a taxi and go for an Uber

Image: John Colley, All rights reserved

Introduction

With the growing demand for sustainability, the sharing economy is seen as an essential element of innovation (Strømmen-Bakhtiar & Vinogradov, 2020). And Innovation comes from new technologies, new business models and new Internet Ecology. In this essay, I will take Uber, which is based on the sharing economy as an example, then analyse its transformative effect in the following three aspects: business model online, Uber’s economic and social/cultural aspect and political and regulatory change.

 

What is Uber?

Uber is an online transportation platform specializing in car sharing, which is similar to but seems better than the traditional taxi industry (Detsky, Garber, & Detsky, 2016). This company allows consumers to hail different kinds of cars such as UberX, Uber Pool and Uber Comfort with their smartphones (Uber, 2020), also enables individuals to become drivers by sharing their own car (Uber, 2020). According to John (2018), a company based on the sharing economy takes advantage of its platform to promote coordinated cooperation. This sounds efficient and reliable. In fact, Uber as part of sharing economy indeed brings benefits such as environmentally friendly and transparency of information (Tate, 2018). These benefits inevitably lead to high levels of user interest, as evidenced by the increasing frequency of searches for the term “sharing economy”.

 

This picture shows the frequency of searches for “sharing economy” from 2006 to 2015:

Image: Nicholas A. John, All rights reserved

 

A brief history of Uber

The idea for Uber was first pointed out by Travis Kalanick and Garrett Camp (Uber, 2020). At that time, it was difficult to get a cab on a snowy night, and they were no exception (Uber, 2020). Under such circumstance, as Avery Hartmans and Paige Leskin’s Business Insider article notes, they recognised the potential profitability of black car services, and then invited Oscar Salazar and Conrad Whelan, their graduate school friends to build an online black car service called Uber Cab originally. Then, this company was launched in June 2010 in San Francisco. Despite the high price at that time, the convenience of online ride-hailing made it popular, and soon it was favored by various investors and gained million dollars in funding. It took only a year for Uber to reach the international market, and it followed with services like UberX, Uber Pool, and Uber Eats.

 

Video shows the birth of Uber:

 

However, its dramatic rise was accompanied by criticism, including accusations of unfair competition with taxi companies (Detsky, Garber, & Detsky, 2016), and arbitrary pricing system (Donlan, 2015), as well as neglect of labour and safety issues. In order to solve these, the intervention of the government and the state is needed.

 

Behind Uber’s business model

John (2018) believes that technology is a catalyst for the sharing economy, and it also plays an indispensable role in companies based on the sharing economy. Compared to the traditional taxi industry, Uber’s business model is centred on the internet, which gives it a disruptive advantage. According to Nawaz et al (2019), Uber provides drivers and riders with a peer to peer interactive mechanism, and makes profits by meeting the needs of both parties. This strategy helps to eliminate information asymmetry. In fact, Uber has managed to connect passengers and drivers with matching conditions such as location and destination.

 

Moreover, part of Uber’s business model success stems from its dynamic pricing system and two-way rating system.

 

Uber’s dynamic pricing system

 

Uber uses big data to design a dynamic pricing system that is adjusted according to users’ demand (Pepić, 2018). In other words, prices rise as demand increases. With such a system, rush-hour traffic congestion seems to be alleviated and the platform makes greater profits. It is worth mentioning that, although prices rise with increasing demand, they are still cheaper than taking a taxi (Pepić, 2018).

 

Uber’s two-way rating system

 

In contrast to the randomness of traditional taxi drivers, Uber enables customers and drivers to rate each other at the end of the trip (Pepić, 2018). Such a scoring system helps establish trust and improves the reliability of services.

 

Picture shows the rating system of Uber:

Image: Jordan Detmers, All rights reserved

 

In addition to considering the application of technologies, Uber’s nature as an intermediacy is also its core advantage. The traditional taxi is managed and controlled by the taxi company (Detsky, Garber, & Detsky, 2016), which implies the non-ignorable fixed management cost. Differently, Uber is not a taxi company but an IT one (Nawaz et al, 2019). This suggests that Uber does not have to bear the financial burden of owning a car, garage or other transport-related inventory. When the transaction is completed, the company takes a 20 percent commission (Pepić, 2018). From these, it can be seen that the platform’s nature has greatly reduced Uber’s operating costs, which makes it cheaper than taxis.

 

Video shows a deeper understanding of Uber’s business model:

Uber’s internet ecology

  • Industry positioning

Uber sees itself as a leader and a key element in driving the development of the sharing economy, the services provided by Uber ranging from private cars to luxury cars, and car sharing.

 

The image of the two founders. Image: GovPilot , All rights reserved
  • Owners

As mentioned earlier, this company was founded by Travis Kalanick and Garrett Camp. But now, there are two leaders in this company, Dara Khosrowshahi (CEO), and Garrett Camp (founder) (Mascarenhas & Wilhelm, 2019).

 

  • Users

Schneider (2017) says Uber’s users exist at both ends of its business model, including consumers who need a ride and drivers who own their own cars and are willing to make extra profits by sharing private property.

 

  • Suppliers

The main suppliers of Uber are drivers, who would like to sell excess and idle capacity.

 

  • Partners

As Business Model Canvas Uber shows, Uber’s partners include drivers, restaurants and technology partners such as maps, GPS, payment.

 

  • Competitors

Uber’s competitors fall into two categories:

  1. Online rental services similar to its own, including Lyft, Didi, Ola and Grab (Masige,2020).
  2. The taxi industry that provides offline rental services

 

  • Regulators

It seems that regulators change from country to country. In Australia, Uber is regulated by State and Territory governments. (Department of Industry, Innovation and Science, 2018)

 

Uber Ecosystem

 

Uber – A transformative disruptive innovation hatched from the internet

I will analyse the changes brought by Uber from the following three aspects.

 

  • Uber -a new type of business model online

 One aspect of Uber’s revolutionary innovation comes from its new type of business model online, which is based on the Internet and technologies. As Schneider (2017) mentioned, Uber provides a digital market with a large number of potential users. But that’s not enough. It also uses sophisticated services to attract audiences and make money.

 

Consider the dynamic pricing system and two-way rating system mentioned above. Compared with the uncertainty and randomness of traditional car-renting companies, Uber provides its users with a predictable and reputation-based mechanism so as to achieve greater transparency. Moreover, its intermediary nature greatly reduces the cost of enterprises and encourages the realization of low-cost rides. Such business model ensures ride safety while also providing the perfect option for those with tight time management or low budgets.

 

But there are also concerns. As Tate (2018) says, drivers’ emphasis on ratings implies a potentially hypocritical friendliness, which bears some resemblance to John (2018)’s idea. John (2018) explores the meaning of “sharing” in the sharing economy and argues that true sharing should be unrelated to money. Once sharing behavior is associated with interests, evaluation and credibility may be biased.

 

  • Uber’s economic and social/cultural aspect

Laurell, Sandstrom and Laurell (2015) believe that the emergence of new technologies will inevitably involve changes in market supply and demand.

 

Uber has encouraged the emergence of new suppliers. As the sharing economy encourages individuals to sell their idle capacity (Nina, 2018), more private car owners tend to actively become suppliers. From another point of view, the sharing economy blurs the line between private and public. Workers will no longer be constrained by the fixed working pattern of traditional jobs since gig work has become a new option. As a result, individuals get more job opportunities. In fact, users do benefit from it. Stephany (2015) indicates that the sharing economy has helped individuals earn over $15 billion a year by sharing their personal assets. But it also means that massive participation leads to a surplus of unutilized resources.

 

In fact, excess supply has become a burden for traffic controls. Traditional taxi regulators limit the quantity of taxi supply by limiting the number of licenses. However, since Uber is mostly a private property and is not regulated by law (Donlan, 2015), it leads to the slow down of traffic. Although the dynamic pricing system is a relief, the excessive quantity still causes the pressure of traffic control.

 

Uber offers different services to its users including UberX,UberSUV,UberLUX,UberPool and UberXL (Schneider, 2017). The car’s price and size are both taken into account, catering to passengers with different budgets. But this does not suggest that all consumers’ needs can be met. In fact, the shift from offline to online has shrunk the number of consumers from almost everyone in the social environment to those with Internet facilities.

 

Unfortunately, digital divide created by socio-economic inequality prevents vulnerable social groups enjoying the benefits brought by the sharing economy. In reality, the micro-entrepreneur economy is being born as society transforms to high-tech capitalism (John, 2018). As a result, any internet user with a car can take advantage of it and make money. Yet it treats ruthlessly those who do not have the ability and opportunity to participate in the online community. This fact is reflected in the example of young South Africans. As Walter Matli’s article on The Conversation website shows, one gigabyte of mobile data costs $4.30 in South Africa, which is nearly ten times higher than that in China and 50 times higher than in India. Thus, as van Deursen (2014) pointed out, it was hard for those with lower socio-economic statuses to access internet resources since its costly and operational complexity.

 

  • Political and regulatory change

Uber has promoted the change of market interest pattern. It has transferred the interests from existing interest groups to Uber’s platform and consumers (Tzur, 2019). Under a system in which regulators profit from the sale of taxi licenses and make rules to protect taxi drivers from competition (Detsky, Garber, & Detsky, 2016), the biggest beneficiaries are the regulators, while consumers are exploited and forced to bear the high cost of rides. Uber has changed that by offering a lower price.

 

According to Laurell, Sandstrom and Laurell (2015), technological change tends to go through an unstable period, power struggle and interest conflict are the main behaviors in this time, and user preference is the focus of competition (Schneider, 2017). In fact, Uber’s existence has shaken the taxi industry’s government-protected monopoly status, because user preferences are clearly tilting toward Uber. As Laurell, Sandstrom and Laurell (2015, p11) says that “the traditional taxi industry has reached its performance limits”. The fact was further supported by Detsky, Garber and Detsky (2016), they pointed out that taxi prices are subject to operating costs. However, Uber’s freer regulation (Donlan, 2015) and lower prices than taxi operating costs seem to indicate a trend of large numbers of taxi users shifting to Uber. Uber’s success seems to give taxi companies a light so that future taxi companies may be moving in Uber’s direction.

 

Picture shows a comparison between Uber and taxi:

Image: Teece, D. J, All rights reserved

Conclusion

In general, Uber is an important form of Internet transformation, and the key to its success is its internet-based business model. The model introduces new technologies that connect passengers and drivers, enabling cheaper and more reliable rental services. In addition, Uber has changed the supply and demand of rental services. It not only provides new job opportunities for users, but also meets their various needs. Politically, Uber has shifted the interests of regulators to consumers and platforms and pointed the way for improvements and transformations in traditional taxi companies. Although Uber’s service is still flawed, it has to be admitted that the benefits of Uber far outweigh its disadvantages, and we believe that it will become better in the future.

 

(1969 words)

 

Reference list

Business Model Canvas Uber. (2020). Innovation Tactics. Retrieved from https://innovationtactics.com/

 

Department of Industry, Innovation and Science. (2018). Uber in Australia. Retrieved from https://www.industry.gov.au/data-and-publications/uber-in-australia

 

Detsky, A., Garber, A., & Detsky, A. (2016). Uber’s Message for Health Care. The New England Journal of Medicine, 374(9), 806–809. https://doi.org/10.1056/NEJMp1512206

 

Donlan, T. (2015). Uber First. Barron’s, 95(30), 39. http://search.proquest.com/docview/1699514266/

 

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. Retrieved from https://www.businessinsider.com/ubers-history

 

John, N. A. (2018). Sharing Economies. In The age of sharing (pp. 69–97). Polity.

 

Laurell, C., Sandstrom, C., & Laurell, C. (2015). Analysing Uber in Social Media – disruptive technology or institutional disruption? ISPIM Innovation Symposium, 1–1. http://search.proquest.com/docview/1825470021/

 

Mascarenhas, N., & Wilhelm, A. (2019, April 11). Inside The Uber S-1: Who Owns What. CrunchBase News. Retrieved from https://news.crunchbase.com/

 

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. Retrieved from: https://www.businessinsider.com.au/uber-ola-didi-competition-2020-2

 

Matli, W. (2020, August 13). Young South Africans are shut out from work: they need a chance to get digital skills. The Conversation. Retrieved from https://theconversation.com/young-south-africans-are-shut-out-from-work-they-need-a-chance-to-get-digital-skills-142756

 

Nawaz, Z., Shafique, M., Tao, M., & Yuqiao, G. (2019). A comparative analysis of the business models of Uber and Didi under sharing economy background. Sarhad Journal of Management Sciences, 5(1), 27-46. Doi: 10.31529/sjms.2018.5.1.3

 

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

 

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

 

Schneider, H. (2017). Uber Innovation in Society. Springer International Publishing.

 

Stephany, A. (2015). The business of sharing; making it in the new sharing economy. Palgrave Macmillan.

 

Strømmen-Bakhtiar, A., & Vinogradov, E. (2020). The Impact of the Sharing Economy on Business and Society Digital Transformation and the Rise of Platform Businesses. ROUTLEDGE.

 

Tate, M. (2018, August 28). The same but different: what passengers like about Uber. The Conversation. Retrieved from https://theconversation.com/the-same-but-different-what-passengers-like-about-uber-101676

 

Tzur, A. (2019). Uber Über regulation? Regulatory change following the emergence of new technologies in the taxi market. Regulation & Governance, 13(3), 340–361. https://doi.org/10.1111/rego.12170

 

Uber Newsroom. (2019). The history of Uber. Retrieved from https://www.uber.com/newsroom/history/

  

Uber Offerings. (n.d.). Retrieved from https://www.uber.com/au/en/about/uber-offerings/

 

van Deursen, A. (2014). The digital divide shifts to differences in usage. New Media & Society, 16(3), 507–526. https://doi.org/10.1177/1461444813487959

 

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About Yuki Shen 2 Articles
USYD, digital cultures student