By Zhengyang Dong
Uber has overturned the traditional operation mode of the transportation industry through online platforms and has become an extremely fast-growing global passenger transport service platform (Vlačič & Štromajer, 2020). This essay will critically demonstrate Uber’s transformative influence on the traditional transportation industry and political world through analyzing its business model and technology application.
Firstly, this article summarizes the basic information of the Uber company and then discusses the historical development of the company. Secondly, Uber’s business model and Internet ecology will also be examined. Finally, a critical analysis of the revolutionary nature of Uber will be conducted.
What is Uber?
Uber is one of the most profitable ride-sharing companies in the past few years (Posen, 2015). It uses a mobile application which has developed for use on smartphones to connect independent drivers and passengers, creating an online platform for people to share rides (Hall, Kendrick, & Nosko, 2015). Due to its innovation in the field of transportation operations, Uber poses a great challenge to existing taxi services and regulatory agencies. As Dudley (2018) notes, the word “Uberization” has become a shorthand for a series of innovations including Uber’s operational elements. In short, Uber’s expanding global influence keeps people closer to their cities.
The history of Uber’s development
According to Uber (2020), in 2008, Travis Kalanick and Garrett Camp had the concept for Uber on a winter night in Paris when they were not able to get a ride. As Blystone (2019) notes, In 2009, Kemp started working on a prototype for Ubercab as a side project. Kemp then recruited Kalanick to join UberCab as a chief incubator. In May 2010, the service was tested on three vehicles in San Francisco. The simplicity and ease of use of the app is becoming more and more popular. Therefore, the company successfully obtained the first round of financing in the same year.
It is worth noting that a few months later, the founders removed the “cab” from the company’s name, which also meant Uber completely distinguished itself from the traditional taxi company. Subsequently, Uber succeeded in raising money around the world all over the world. However, Uber has encountered strong resistance from the taxi industry and government regulators. One of the main reasons is that Uber’s entry leads to the decrease of the value of the traditional taxi license which endangers the income of taxi owners (Tham, 2016).
Video showing A brief introduction of Uber’s historical development
Uber’s unique business model
The reason why uber’s business model is unique is that it combines the sharing economy concept with innovative technology, thereby reducing costs and increasing service value. According to Lee et al., (2018), the essence of the sharing economy is to effectively allocate idle manpower and material resources to suppliers and consumers so that they can gather together. Here, Uber has no cars and does not employ drivers. Individuals who own a car can flexibly spend their time to provide pick-up service for customers (Dudley, Banister & Schwanen, 2017). Thus, it has taken the advantage of the sharing economy to make its business valuable.
Besides, Uber’s application program has become the core element of the uniqueness of its business model. It has significantly improved the on-demand availability of its business model (Smith, 2016). For example, Uber’s app uses GPS and algorithms to calculate the closest passenger and driver, thereby reducing passenger waiting time (Urbinati et al., 2018). Furthermore, Uber’s 5-star rating system can make passengers and drivers more responsible, and at the same time, it can be an incentive mechanism to encourage them to better enjoy the process of getting along (Haylen, 2015).
Uber’s internet ecology
From the data point of view, Uber is the world’s most valuable Internet technology company with a valuation of 70 billion US dollars (Dudley, Banister & Schwanen, 2017). However, Uber still has many powerful competitors in the ride-sharing industry. LYFT and Sidecar offer application-based services similar to Uber, making themselves major competitors for Uber in the United States. At the same time, Grab in Southeast Asia, Gett in Israel and Ola in India are all Uber’s competitors (Dudley, Banister & Schwanen, 2017).
It’s worth noting that the Uber driver is the service provider and partner at the same time, because Uber treats drivers as suppliers and signs a partnership agreement (Hall and Krueger, as cited in Vlačič & Štromajer, 2020). The users of Uber include drivers and individuals who need to get a ride. As Elliott (2016) notes, the governments of states and municipalities where Uber operates are trying to regulate Uber. Major partners of Uber include Virgin America, Trulia, and Spotify.
Below is a flowchart of Uber’s internet ecology:
Uber – A transformative disruptive innovation?
With the development of Internet technology, the sharing economy has shown an emerging trend. Companies adopting the sharing economy business model do not have any goods themselves, but rather create platforms to link providers and users (Lee et al., 2018). Uber is considered a marketplace and acts as a matchmaker rather than a cab or transportation company because it has no cabs and does not employ drivers (Urbinati et al, 2018). Thus, as Bishop (2019) notes, Uber is undoubtedly the main representative of the sharing economy, which facilitates peer-to-peer sharing or consumption through digital platforms.
In fact, Uber has become a successful disruptive innovation through establishing a revolutionary business model. Furthermore, the innovative technology and a subversive concept of sharing economy used by Uber have disrupted the traditional transportation industry.
- The concept of sharing economy in Uber’s business model is one of the factors that makes it a disruptive innovation. Uber takes advantage of the sharing economy concept by using the idle capacity to bring suppliers and consumers together, thereby increasing supply and demand. The concept of work here is to convert goods into services and to convert underutilized service assets into more valuable assets (Smith, 2016). For example, It uses the principle of “sharing economy” to reduce competitors’ ability of charging fares, that is, drivers provide their own vehicles and have flexibility in terms of working hours (Dudley, Banister & Schwanen, 2017). Thus, those who own a car but lack a fixed income can flexibly arrange their time and increase their income by becoming Uber drivers. This can also be supported by Valente et al. (2019), she found unemployed car owners are in great need of immediate income opportunities, which provides Uber with a large number of service providers, which also helps reduce the implementation period of the fare policy. As a result, Uber takes advantage of the concept of sharing economy to provide a large number of car owners with the opportunity to join its digital platform. Besides, Uber has successfully reduced the cost, increased the customer value, and rebuilt the market boundary of the mature taxi and luxury car industry (Hales & Mclarney, 2017). Most importantly, although Uber has reduced costs, it has not reduced the quality of service. On the contrary, uber provides high-quality service, such as offering different classes of vehicles, reducing the uncertainty of waiting times, etc (Urbinati et al., 2018).
Video explaining Uber’s Business Model Innovation
- According to Urbinati et al. (2018), Uber is considered an excellent example of a disruptive innovation, based on a number of new features such as a double-rating system, electronic payments, or the use of GPS-based fare meters. Indeed, one of the main reasons why Uber is considered as a disruptive innovation is that digital technology has brought passengers to an unprecedented experience and brought the driver and passenger closer together. Firstly, the services offered by uber are easy to use around the world. Unlike a dedicated taxi phone line for each city or country, Uber offers a single application in most of the major cities or countries in the world (Urbinati et al., 2018). Secondly, Using Uber’s service is more efficient than traditional cab service. It is found that Uber provides more mobility in fewer vehicles and miles than traditional taxis, and the waiting time of users is shorter (Elliott, 2016). What is more, the GPS function in Uber mobile applications can make drivers and consumers receive location information in real-time, so as to enhance customers’ perception of service (Min et al., 2019). Also, the app automatically assigns customer pick-up requests to the nearest driver and provides customers with information on estimated pick-up time (Urbinati et al., 2018). However, cabs often rely on two-way radio dispatch systems developed in the 1940s or sight-based street hailing (Cramer & Krueger, 2016). In this case, people increasingly prefer to call an Uber instead of a cab because Uber is more convenient, faster, and gives them a better experience. Thirdly, Uber’s Five-Star Rating System and Its surveillance functions can supervise passengers and drivers, thereby improving the service experience of both sides. The community guidelines describe ratings as a “two-way system”, which can make everyone accountable for their actions (Uber, 2020). According to Chan (2019), Uber’s two-way system brings great harmony between drivers and passengers, because ratings can make both parties accountable, thereby alleviating potential bias. Overall, Uber’s innovative technology in its business model allows it to obtain outstanding advantages over traditional industries, such as ease of use and high efficiency, which greatly subverts the traditional transportation industry.
The successful operation of uber has always been a controversial topic in the regulatory field. The government and regulatory agencies are facing troubling political problems. That is, Uber has threatened the status and existence of existing transportation operators, and made it difficult for the regulatory system to impose on itself, even if it provides an efficient and relatively cheap service (Dudley, Banister & Schwanen, 2017). Cramer and Krueger (2016) have argued that the success of disruptive innovation has led to political and legal supervision issues, and Uber is allowed to continue to be unchecked.
However, Uber’s political transformation is reflected in the fact that Uber uses its innovative technology and sharing economy model to enable the government to make transformative changes and responses in the political and legal aspects of transportation operations to a certain degree.
- Uber’s disruptive sharing economy business model has made the government introduce a new version of laws and regulations. Uber calls itself a technology platform, not a taxi company. Instead of hiring drivers, they classify them as registered partners (Dudley, Banister & Schwanen, 2017). According to the terms of the Passenger Transport Act 1990, New South Wales requires taxis and hire car service to be operated by licensed operators (Haylen, 2015). Thus, the operation of uber is not permitted in NSW under the terms of the Passenger Transport Act 1990. However, Parliament abolished and replaced this law because of the emergence of Uber (Haylen,2015). Thus, Uber’s revolutionary economic model led to the collapse of the original regulatory policy. Besides, some people who support Uber should not be regulated and claim that when using Uber, the passenger and the driver can be treated as friends, so there are no service providers (Haylen, 2015). At the same time, Uber uses disruptive and innovative technology to make the taxi regulatory system obsolete and unable to cope with the application of modern technology. For example, black taxi drivers in London believe that the application used by uber drivers is equivalent to a taximeter, and therefore violates section eleven of the 1998 Private Hire Vehicles (London) Act, that is, any private driver shall not be equipped with a meter. However, the High Court finally ruled that Uber’s application was legal and not a meter (Dudley, Banister & Schwanen, 2017). Overall, Uber’s innovative technology and sharing economy’s business model have caused a certain degree of political subversion, and the government has made transformative changes and responses.
In general, Uber combines the advantages of simple and easy-to-use Internet technology with the business model of the sharing economy to subvert the traditional transportation industry. At the same time, as a disruptive innovation, it has brought a transformative impact on politics at the regulatory level.
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Elliott, R. E. (2016). Sharing app or regulation hack(ney)?: Defining uber technologies, inc. Journal of Corporation Law, 41(3), 727-753. Retrieved from http://ezproxy.library.usyd.edu.au/login?url=https://www-proquest-com.ezproxy2.library.usyd.edu.au/docview/1799379015?accountid=14757
Hall, J., Kendrick, C., & Nosko, C. (2015). The effects of Uber’s surge pricing: A case study. The University of Chicago Booth School of Business. Retrieved From http://scholar.google.com.hk/scholar_url?url=http://1g1uem2nc4jy1gzhn943ro0gz50.wpengine.netdna-cdn.com/wp-content/uploads/2016/01/effects_of_ubers_surge_pricing.pdf&hl=en&sa=X&ei=UIi7X8vdIc6KygTc1qrYBw&scisig=AAGBfm0mVrwz6EEDlg-4qNiKRKlhh8soWw&nossl=1&oi=scholarr
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Haylen, A. (2015). Uber and Airbnb: the legal and policy debate in NSW. Retrieved from: https://www.parliament.nsw.gov.au/researchpapers/Documents/uber-and-airbnb-the-legal-and-policy-debate-in-n/Regulation%20of%20airbnb%20and%20uber%20in%20NSW.pdf
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Smith, J. W. (2016). The uber-all economy of the future. The Independent Review, 20(3), 383-390. Retrieved from http://ezproxy.library.usyd.edu.au/login?url=https://www-proquest-com.ezproxy2.library.usyd.edu.au/docview/1757073280?accountid=14757
Tham, A. (2016). When Harry met Sally: different approaches towards Uber and AirBnB—an Australian and Singapore perspective. Inf Technol Tourism 16, 393–412. Retrieved form: https://doi-org.ezproxy2.library.usyd.edu.au/10.1007/s40558-016-0070-3
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