Executive Summary
Uber was founded in 2009 by Garrett Camp and Travis Kalanick in San Francisco. Both were tech veterans who invented Uber to be a competitor of the traditional taxi services. It first started as a private luxury car service that was used by top executives. Whenever one of these executives needed a ride, they would email Kalanick for a code that allowed them access to the smartphone app. This app connected passengers with drivers. Uber works the same way that Expedia connects passengers to airlines. By March 2014, Uber was operating in 85 cities and 33 countries. The company had more than 400 drivers throughout countries such as Abu Dhabi, Amsterdam, New York, Rome and Zurich (Farris, Yemen, Weiler and Ailawadi 3).
Uber works through a smartphone app. The fares are fluctuated and the company employs no drivers itself. The app simply matches willing drivers with needy consumers. When a passenger needs a ride, they send a request through the app. The request is then sent to the nearest driver. Both the passenger and the driver receive access to the others name and rating. This allows both individuals a better idea of whom they will be spending time with. The fares are calculated according to an algorithm that is calculated by supply with demand. Therefore, prices for rides are higher during peak times (holidays, incline weather, etc.). The customer has a credit card on their account which Uber charges after the trip is completed. The passenger is emailed the receipt after payment is received. Uber keeps 20 percent of the fare and pays the drive the other 80 percent with direct deposit. Overall, Uber gets approximately one million ride requests per week and is able to fulfill around 80 percent of those requests. As of December 2013, Uber’s annual revenue was approximately one billion dollars. It is estimated that Uber’s share of the revenue equals $213 million. Therefore, drivers have revenue the other 787 million from the company (Farris, Yemen, Weiler and Ailawadi 4-5). By the end of 2015, Uber expects to make $10 billion in revenue (Liss 17).
How Uber Achieved its Present Position
Social Media
Uber has achieved its current position in the industry in several ways. The first is their use of social media. Uber relies on social media for much of their promotional activity. They have used Twitter, Facebook, YouTube and their personal website to large campaigns in order to connect with customers and promote their brand. Uber offers several promotions through their social media pages. For example, on Valentine’s Day in 2013, Uber created a service where customers could order flowers with their app. They also had a Christmas-tree delivery service which they promoted through their social media pages in December 2014. Uber offered Christmas tree delivery services in ten cities. Christmas trees were ordered through the app and delivered through Uber. The fee for the Christmas tree worked similar to fares for Uber rides. An individual purchased the Christmas tree through the app and the charged was placed on the customer’s credit card they have on file through the app. Therefore, there was no need for the customer to need cash in order to receive their tree. All of this helped them build their position in the industry (Farris, Yemen, Weiler and Ailawadi 12).
Washington D.C.
Another way they gained their position is the industry is by appealing to certain location. For example, Washington D.C. taxi service is different from the cab services in New York City. D.C.’s cabs do not accept credit cards and people today do not tend to carry around cash. Also, taxis refuse to take customers to certain parts of the city. Another aspect of the cab services in D.C. is that they force passengers to share cabs with other passengers they did not know. Not only were these customers place in an uncomfortable situations but they also had to pay the full fare. They did not split the fare with the other party. Both parties paid just like they were traveling by themselves. This made Washington D.C. very attractive to Uber. After reaching out to users on Twitter, Facebook and YouTube, supporter in the city sent personal emails and tweets to the City Council members and Uber was officially welcome into the city. Their use of social media resulted in over 50,000 personal emails and 37,000 tweets that were sent. Uber was welcome into the city and utilized by several individuals (Farris, Yemen, Weiler and Ailawadi 9).
More Drivers
Lastly, Uber gained its position by its offering more drivers, less wait time, and less fare than traditional taxis. Since Uber does not employee their own drivers, they are able to have an endless number of drivers. This means more availability in more locations for the passengers. This decrease wait time for the passengers. Also, because Uber does not pay their drivers, they are able to offer lower fares. Also, drivers are attracted to Uber because they are able to set their own schedules and drive whenever is convenient for them. They are also able to choose who they pick up and are able to see the customers rank before picking them up. All of these aspects make Uber look more desirable than traditional taxi services. Especially since taxis are not always available and they don’t always take a passenger to their desired location (Farris, Yemen, Weiler and Ailawadi 6).
Positive Feedback Loops
Positive feedback is present in Uber’s business plan. Positive feedback is presented when one aspect of a business plan leads to more of another aspect of a business plan. This continues to circulate and as a result, a company will start getting better and better. Uber’s feedback loops starts with more drivers. The more drivers, the shorter pickup time for passengers. Having more drivers available means two things: 1) short pickup times and 2) wider area covered.
Both of these lead to more passengers being served and more money being made. As more money is being made, more drivers are more likely to sign up for Uber. Therefore, the positive feedback loop starts with the amount of drivers, which increases the locations covered. In return, more and more people will get quicker service with Uber than traditional taxi services. This makes Uber look more desirable and more people use this service rather than other modes of transportation. As a result, the revenue from Uber increases and more drivers join the Uber team. Which continues the positive feedback loop.
Should Uber continue or pivot?
Competitors
Uber should continue with their business plan. They do have some competitors, however, their competitors have downfalls. Companies such as Lyft have business plans that are very similar to Uber. They connect passengers and drivers via technology instead of a human dispatcher. Lyft is Uber’s largest competitor. However, Lyft does have some differences. For example, Lyft is not a black car service. Instead it offers a peer-to-peer ride service. Lyft does work a similar way as Uber though. They connect their drivers and passengers via their smartphone app. Lyft services are more laid back than Uber. They allow their passengers to sit in the front seat and their cars have a mustache on the front of the vehicle to identify them as part of the Lyft fleet. Furthermore, Lyft’s drivers do not hold livery or taxi licenses (Farris, Yemen, Weiler and Ailawadi 10). Lyft is a more relaxed, less professional version of Uber.
Excellent Recruiting
Also, Uber has been known for their successful recruiting away from their competitors. When Uber would enter a new city, they would recruit drivers from other companies. Approximately six weeks before Uber planned to enter the new city, they would send a team to the location to recruit already-licensed drivers. These individuals would pretend to be to be customers and then they would try to encourage the drivers to switch to Uber (Farris, Yemen, Weiler and Ailawadi 8). For example, one recruiter offered one driver “a $50 gas card for checking out Uber’s headquarters, a free lunch, and a $500 bonus for picking up 20 passengers and promised that, if he accepted, Uber would waive its commission for the remained of the year” (Farris, Yemen, Weiler and Ailawadi 8). This was an excellent recruitment tool. Not only was Uber recruiting individuals that were already licensed drivers, they were also recruiting individuals whom already had their own vehicles.
Limitations on Taxis
Taxi cabs are another reason why Uber should continue. Taxis are regulated and restricted throughout the country. In 2012, there were over 20,000 drivers throughout the country. These drivers earned on average $22,440 a year salary. The Bureau of Labor Statistics stated that between the years 2012 and 2022 there will be an estimated 20 percent increase in taxi drivers. However, the number of taxis on the road are limited in larger cities such as New York City and Chicago. The number of taxis are governed by the use of medallions. They are sold on the open market and go for anywhere around one million dollars. This regulates how many people can become drivers in these larger cities. Furthermore, privately owned cars are available everywhere. Rural towns and areas do not have taxi services. This is where Uber becomes important. Transportation is needed everywhere; even in rural areas. Uber makes it possible for these individuals to gain access to taxi-like services (Farris, Yemen, Weiler and Ailawadi 2).
Surge Pricing
Surge pricing is a core part of Ubers business model. Surge pricing was created in order to match supply with demand. The reasoning for this was to increase the willingness for drivers to drive passengers on holidays and in inclement weather. Without surge pricing, Uber had no way to insure they would have drivers on these busy days. By increasing prices, Uber was able to match drivers with the needs of the customers. Surge pricing motivates drivers to get out on special occasions or in bad weather to drive the customers to and from their destinations. This is extremely important especially since Uber does not employ their drivers (Farris, Yemen, Weiler and Ailawadi 13).
Kalanick believes that surge pricing is something that benefits both passengers and drivers. It gives drivers an incentive to drive the passengers on these given days. Kalanick gained this perspective by looking at the behavior of cab drivers on given days. Kalanick found that cab drivers were more likely to not finish their entire shift on holidays or days of inclement weather if they had hit their target income before their 12 hour shift was over. This is what has made Uber’s surge pricing policy successful (Farris, Yemen, Weiler and Ailawadi 13).
Downfalls
On the other hand, Uber’s surge pricing has had some downfalls. Dynamic pricing is needed in some industries. This means prices go up when the demand is high. For example, there was a severe snowstorm in New York City in December 2013. Some customers were experiencing extremely high bills. Other customers were being charged $23.25 per mile. Some of these customers were not very happy about their rather high rates and took their complaints to social media. One customer even placed a photo of his $415 Uber receipt on his Instagram. Kalanick was unapologetic towards these customers about the surge prices. He reacted to the negativity to the complaints and stated there would be no cars available if there were no surge prices. He also stated that surge prices decreases the passenger wait time. As a result, passengers spend more time in the comfort of their own homes instead of on a windy, cold street (Farris, Yemen, Weiler and Ailawadi 14).
Why did the use of social media fail Uber in Seattle?
Previous Success
In 2013, Uber used social media to help fight regulatory challenges in Dallas. Uber used its blog and asked for Dallas residents to sign a petition supporting Uber. They also asked supports to use their Twitter accounts to show support as well. Supports would get on their Twitter accounts and use the hashtag #DallasNeedsUber. This type of marketing did work in Dallas and Uber was able to enter the market (Farris, Yemen, Weiler and Ailawadi 10).
Seattle
Uber tried to use the same marketing in Seattle when they tried to restrict Uber from entering the market. In 2014, Seattle City Council tried to stop Uber from dominating the industry by putting a restriction on them. This bill allowed UberX to only run 150 cars on the road at one time. Uber used social media to try to stop this bill from being passed. They sent out Twitter and Facebook asking their supporters to help encourage the nonpassage of the legislation. However, the law was passed and Uber was restricted (Farris, Yemen, Weiler and Ailawadi 10).
Uber wasn’t the only share ride company that was limited in Seattle. Lyft and Sidecar, the other companies operating in that city at that time, were also restricted. Therefore, the three companies together were only allowed to operate 2,000 cars. Furthermore, taxi cab operations have increased in the city putting all of these companies at an increase disadvantage. Therefore, the reason why social media failed in Seattle was not due to the social media itself, it was due to the interest of the city’s interest in taxi monopolies over the interest of consumers (Wilson 2014).
Conclusion
Uber is a rapidly growing company who is only getting larger. Uber has grown from a private black car service to a service that is open to the general public. It has made commuting a lot less of a hassle for passengers. It has made its way into cities were taxis have less of a demand and in cities were taxis are at extreme high demand. However, there are down falls to Uber. Surge pricing is set based on supply and demand. Prices are dependent on the weather and holidays in order to make sure there are drivers who are willing to pick up these passengers. It is Uber’s way of making sure drivers are out their willing to work under certain circumstances. Therefore, passengers traveling on busy holidays or days of inclement weather may have to pay a larger bill than what it expected.
Uber has used the use of social media to gain advantage in the industry. Social media was how it made itself noticeable and gained entry into several markets. By using existing licensed drivers, Uber is able to serve more customers for less money. They were also able to serve customers faster and more efficiently than traditional taxi services. Uber should continue its business as it allows several to profit from it as well as help several people get to their designated destination in a timely manner.
Works Cited
Farris, Paul, Gerry Yemen, Virginia Weiler, and Kusum Ailawadi. "Uber Pricing Strategies and Marketing Communications." Daren School of Business (2014): 1-15. Print.
Liss, Jon. "Uber the Job Destroyer." Nation 16 Feb. 2015: 16-22. Print.
Wilson, Reid. "Seattle Becomes First City to Cap Uber, Lyft Vehicles." The Washington Post 18 Mar. 2014. Web. 24 July 2015.
