This document is for general informational purposes only. It does not store any personal data. In fact, Uber followed a market entry pattern that has proven successful for business entities in the past – Myspace preceded Facebook, Yahoo preceded Google, and Blackberry preceded Apple’s iPhone. From a consumer standpoint, I hope Uber is able to resolve all these ambiguities and continue to disrupt the market and provide such a great value proposition for passengers and drivers. Michael Porter’s Five Forces are the most important strategy tool when it comes to understanding a company within its industry setting. Bernhardt, A., 2016. We use a plugin to store your consent or dissent to the use of cookies. We use Google Analytics to track the website’s performance. Generic Strategies used by Uber: The generic strategy used by Uber is a mix of cost leadership and technology based differentiation. The Surge Pricing algorithm is a cornerstone of Uber’s business model that has provided the company with an information edge in capitalizing on the dynamic relationship between supply and demand and willingness to pay. By submitting your email, you agree that you have read, understood and agree to be bound by our. For these reasons I feel that Uber is a necessary evil and very strategic in its innovation. For example, in France, Uber gained back the right to operate, on the ground that a specific labor regime “micro entrepreneurship” allows individuals to launch their own independent activity on a craftsmanship-like status. From talking with Uber drivers during my rides, I definitely agree with your point of Uber’s dual business model of delivering value for both passengers and drivers. By John Dudovskiy. ; Drivers– With drivers or often known as their partners, they are segmented by their locations, get to use their own cars and can either be full time or part time depending on their preferences. Connecting drivers with passengers via their smartphones eliminates the need for Uber to establish a brick and mortar presence in each new city to which they expand operations, making this a highly scalable strategy with limited barriers to future growth. “Driving Jobs Vs. Driving with Uber”. Retrieved 7 December 2015. People love to use their smartphones; in fact, their daily lives involve heavy usage of smartphones, with key transactions conducted over the mobile device. With that said, I do have concerns on how Uber could sustain its competitive edge and continuously outperform its competitors. Last summer, Uber signed a $300 million deal with Volvo, which provides the company’s current fleet of human-assisted self-driving cars. This scalability also unlocks the potential for Uber to expand into contiguous service segments such as food delivery without material changes to the company’s operating model. BCG Matrix in the Marketing strategy of Uber – . With over 15 million trips completed every day and more than 10 billion trips completed since its inception in March 2009,1 Uber has established itself as a dominant player in the transportation realm. For Startups, entrepreneurs, intrapreneurs and other talented people Lifetime […] The term “disruptive innovation’’ was first framed by professor Clay Christensen from Harvard Business School. With that said, I do have concerns on how Uber could sustain its competitive edge and continuously outperform its competitors. Nice touch on the key features of Uber’s operating strategy which has closely tied with its business strategies. Uber came in with a successful disruptor strategy that completely rattled the taxi market. The COVID-19 pandemic upended that business strategy, prompting Uber to offload its shared micromobility unit Jump, double down on delivery […] Uber … Consumers who utilized both Uber and Uber Eats booked an average of 11.5 trips per month, versus only 4.9 trips for those using only a single Uber service.14 Consumers benefited from an additional convenient service, and drivers gained a new source of trips which generated a more steady stream of bookings throughout the day, which in turn increased the overall supply of drivers.15 With drivers now busier and making more consistent income, they have less reason to dual-app (i.e. I wonder how much the operating model is impacted by the “City Manager” approach, whereby young, enterprising leaders are hired to effectively manage an entire City on behalf of Uber (across service lines, including, UberEats, UberEvents and Uber For Business). Uber Business Strategy: User Convenience through Technological Innovation. Its Uber Pool and Uber GO services are categorized as stars in the BCG matrix because they have a high market share but at the same time, there is a high growth rate and high competition.. These operational decisions are directly in line with Uber’s business model aimed at converting driver satisfaction to customer satisfaction through industry-competitive employee incentives and innovative business practices. Has Uber engaged in any innovative regulatory negotiation that might be useful to other future marketplace disruptors? Uber business strategy involves increasing service range to cater for the needs of great amount of customers and focusing on high levels of user convenience. Hence it would take extra effort from Uber to remain competitive on pricing but in the mean time seek alternative monetisation ways of the huge traffic it has gained. Want to learn more about digital transformation? Uber was the first to initiate UberPool and ExpressPool, a carpool approach to travel, that Uber touts can be paid for with commuter benefits. Some think that in today’s fast-paced times strategy is irrlevant. Uber has scaled impressively, and now operates in over 700 cities throughout 63 countries across the world.5 Uber’s ability to scale rapidly is driven by its methodical, franchise-like approach to expansion, in the form of a repeatable “playbook.” This playbook focuses on growth, strong operations, and managerial autonomy. Uber business strategy consists of the following 3 pillars: 1. It operates in 4 segments Uber pool, Uber GO, Uber X, and Uber XL. The ride-hailing giant had a … What can marketplace founders and investors learn from Uber’s path to IPO? Uber is a personal transportation network that connects available drivers with passengers in need of a ride through a lightweight user-friendly smartphone app. By aligning the team around the goal of making “transportation as reliable as running water”6 and building dashboards to make large amounts of data accessible to all, Uber empowers all of its employees to effectively make data-informed decisions. Enter your email address to download the latest from Goodwater. “First Round Uber”. When there are more passengers than available drivers in a given area, the algorithm increases rates in order to equilibrate this discrepancy. In fact, a few recent rulings have ruled that drivers are employees, and therefore have rights to unemployment benefits, health insurance and other employee benefits. While Goodwater’s consumer survey indicates that Uber Eats is growing more slowly in the US than competing food delivery services, its significantly higher customer retention rate is a strong early indicator of the benefits of adding incremental services to the Uber platform. Given how price sensitive and promotion-focused consumers are, many of such transportation apps are simply burning investors’ money to complete on low price and large promotions (first 5 rides for free for Lyft etc). Uber’s marketing strategy has always been innovative and closely related to pop culture, which help attract its target customers effectively. March 5, 2018. Uber has rapidly transformed mobility across the globe through operational excellence, product innovation, and strategic investment in competitors. The same alternatives occurred in most of the very protective Western Europe, while Uber keeps expanding worldwide. Source: http://www.forbes.com/sites/ellenhuet/2014/09/22/uber-now-taking-its-biggest-uberx-commission-ever-25-percent/. Will this drive down the benefits of Uber and return many to the more traditional industry model? On the business model side, it’s interesting to imagine how UberEats, UberEvents and Uber For Business will impact the opportunity set moving forward. You don’t have to be first, but definitely need to be fast. Digital, technology and disruption are frequently used buzzwords when telling the Uber story. 1.What Is Uber’s Value Innovation? Despite being unprofitable, the company has fundamentally favorable unit economics: our analysis estimates that the potential rider payback period is only 4 months.2 This assessment is primarily based on US ridership retention; if Uber can continue to replicate its laudable domestic retention numbers internationally, there will be more opportunity to create long term value. The key concern is around legal ambiguities such as whether its drivers are independent contractors or employees. In order to compete they have been scaling up the earnings drivers must pay to Uber, in some instances going from 5% to 25% per ride (San Francisco). Its adherence to a network orchestrator model—as opposed to the more capital-intensive service provider framework to which traditional transportation companies subscribe—has provided Uber with higher profit margins, continued growth opportunities, and the agility to respond more quickly and effectively to market changes relative to its competitors. As Uber continues to expand, the company is leveraging its technology and data platform to transform other businesses that rely on transportation such as meal delivery and freight. I have a few concerns regarding the longer-term sustainability of the business model, because as you point out, human capital is such a critical component of its success. As of 2020, there are several marketing strategies like product/service innovation, marketing investment, … I’d even go a bit further and describe Uber as a “logistics platform”. Thinking of drivers as the “other customer” and not merely a resource deployed in providing a service to the end user has enabled Uber to cultivate a higher-quality workforce, resulting in both lower employee churn and increased customer satisfaction. By tapping … My guess is Uber may have to adapt its model, but I don’t think it will have to drastically change it. Another strategy both Lyft and Uber incorporated to expand market share is the tiered approach to riding. It’s Not All About Uber. The companycreates a blue ocean strategy … Uber was founded in 2009 and is currently present in 60 countries and more than 300 cities. The team’s mandate is to supercharge automation and build rock-solid foundations for technology and innovation. Furthermore, having drivers use their own cars allows Uber to boost bottom line profits by saving both the capital expenditure required to invest in a fleet of company-owned vehicles as well as the operating expenses associated with insurance and repair costs. Uber Technologies Inc, the world’s largest provider of personal transport has surely made it into the top 10 of water-cooler conversations. We hope to share tools and research that empower all entrepreneurs to You must be logged in to post a comment. The following day, Lyft launched Lyft Line to accommodate the same types of riders. Uber’s Strengths. Our app connects drivers with riders in ways that were simply impossible six or seven years ago. Uber.com. 1. Uber has encountered similar issues in Nevada, San Franciso, and even more broadly worldwide. Competitor Lyft and former competitor Sidecar (which shuttered back in 2015) actually pioneered ridesharing as it is known today, which entails using non-professional, non-commercially insured vehicles and drivers. Massively scale the creation of marketplaces through repeatable playbooks and data democratization. Innovation: The Case of Uber Proceedings of 140th thThe IRES International Conference, Bali, Indonesia, 13th-14 September, 2018 20 into leveraging existing business model by using R&D resource - their VRIN (Table 1). In addition to a playbook, democratized data-driven decision making is central to Uber’s operations. Uber’s marketing strategy has always been innovative and closely related to pop culture, which help attract its target customers effectively. The term turned out to be a compelling way to think about innovation … High-value, real-world MBA-level innovation resources. As of May 2015, the Uber app and ride sharing service was operational in 58 countries and 300 cities worldwide. The theory explains the phenomenon by which an innovation … It went from issuing whole smartphones dedicated to the Uber app, to now running the driver-side uber app on a smartphone fielded by the driver himself, which lowered the barriers to entry for new drivers, reduced the capital expenditures borne by Uber and creates for even more lightweight, high-touch interaction with the driver fleet. And we’re using the Hire with Google plugin to power our careers page. Uber uses an automated algorithm to increase prices to "surge" price levels, responding rapidly to changes of supply and demand in the market, and to attract more drivers during times of increased rider demand, but also to reduce demand. Uber is so successful today because of the Business Model Innovation. Rusli, Evelyn (June 6, 2014). Drive share of wallet (for riders) and share of income (for drivers) through incremental services. For example, the company has expanded its mobility services to include New Mobility (scooters and bikes), public transit,12 freight, and even has aerial transport aspirations in the form of “Uber Elevate.”13 By introducing new products that add incremental value for users, Uber creates opportunities to capture a larger share of the consumer wallet, while also retaining and generating additional income for drivers as well. To achieve exponential growth and create value, Uber recognized early that international expansion should be a priority and made Paris its 3rd launch city.7 By leveraging its playbook and aggressively deploying capital, which was facilitated by massive fundraising rounds, Uber expanded quickly across the world. James Bacon (3 February 2012). According to the report, “Uber accomplishes 40 million rides per month, and it has over 77% of the US ride-hailing market”. However, I disagree that Uber drivers are as better off as advertised. As Uber continues to expand, the company is leveraging its technology and data platform to transform other businesses that rely on transportation such as meal delivery and freight. The most notable example of this strategy is Uber Eats. The development of a mobile app is quite possibly the best strategy that Uber used. Uber is also a disruptive innovation in the sense that it is opening up new markets with its various forays. Applying this tool in-depth on Uber I am showing that is has not lost any of its fascination or relevance. Uber has an opportunity to own an easier consumer experience that allows consumers to feel in control of their urban travel. The transportation company had more than 40 million active monthly users in more than 760 cities internationally in the year 2016. Uber effectively aligns its business model with innovative operating practices to maximize profits and optimize the experience of both the driver and the passenger. As a regular customer of Uber, I agree that Uber has effectively capitalized on service gap that affected a large number of people. Similar to how an enterprise software suite adds features to entice customers to stay within the ecosystem, Uber has embarked upon a similar strategy with transportation use cases. What does it take to convince a marketplace (and its regulatory mechanisms) that the old way of doing business is outdated? For example, during a snow storm a couple of years ago in NYC, the surge was more than 10x. How they gained funding, launched and scaled an inherently illegal business model across the world is quite incredible. This document does not constitute investment advice or any offer to provide investment advisory or investment management services. Uber business model is designed as a smartphone app, which is very convenient and loved by all the people. The Digital Strategy & Innovation team is a central function within US&C CommOps. The information in this document should not be construed as any current or past endorsement, recommendation or sponsorship of any company or security by Goodwater Capital. When you need a ride, just pull out your smartphone and tap a button to order a car. To build on your point on Tech focus, I believe Uber is a clear winner in technology innovation that distinguish them from other followers – it has a more sophisticated algorithm that provides better driver/customer matching system and mileage/fare calculation that yields consistently positive user experiences. From a fiduciary standpoint, paying drivers an 80% commission on their fares as opposed to an hourly wage more accurately ties revenues to local market share and unlocks increased analytical capability. This is an old story, but worth underlining: competition spurs innovation which results in better, faster and cheaper services. Innovation is in our DNA at Uber; we thrive on finding ways to constantly improve and refine our technology to provide safe, reliable rides. Well-funded local challengers soon replicated and improved upon Uber’s model and quickly pushed the ride-sharing giant out of several large markets such as China and Southeast Asia.9, While some may see retreat as a failure, Uber’s early and aggressively sought international position actually provided an opportunity. Wall Street Journal. Insightful…one question I have: how do the major industry disruptors of the world such as Uber lead the way with regulatory changes? Uber’s heavy investment in the development and iteration of its mobile app reflects an underlying commitment to continued growth and competitive performance. The company utilized its playbooks and data-driven decisions to drive operational excellence, leading to market dominance in many regions. Awesome read. Once it ceases to do this, and reaches the cap on how much of drivers earning it can yield it will need to raise prices. To sum up, it is clear that UBER has adapted a long-term strategy and avoid harsh competition for short-term profit. This is a concern for two main reasons: 1) In many cities Uber is already using its mass of VC funding to subsidise rides to build user-ship and therefore penetration. The proposed Six-Stage Process of Disruptive Innovation places Uber at a consideration at the stage ‘disruption succeeds’, but since the micro-environmental forces indicate strong competition, the company still struggle to fend off new competitors with strong financial support and existing incumbents with lengthy legal lobbying to earn profits and to gain monopoly in the global ride-sharing industry. Second, it narrows the initial pool of potential passengers based on how much they value a ride, allowing Uber to more accurately segment their customer base and satisfy those users who need their service the most. The opposite is true! Increased service range to cater for the needs of great amount of customers. Talking about the Uber growth strategy, Uber service is available more than 83 countries and 760 cities across the world, according to the latest report of Uber. I’ve read a lot of back and forth issues Uber has faced in places like Paris. I’d also venture to argue that Uber’s focus on iterating around its interaction with drivers is another important part of its operating model. A material reduction in compensation for driving with Uber, in addition to the current insurance and legal issues facing Uber and its drivers, has the potential to drive down driver numbers, a big issue for a business built on strong geographical penetration. First Round Capital. The way the company initially fostered it was by seeking out Silicon Valley movers and shakers and getting them to advocate for the brand. Must-know knowledge before you create an App or build a pitch deck! Historical patterns of transformation suggest that being first does have its advantages, but entering the market early and iterating quickly is even more vital when it comes to dominating a market. Building on Amy’s comment around human capital I too have some concerns around how sustainable the current price cutting strategy is. It does not hire full time riders or rides but uses the networking effect to grow its number of drivers. Retrieved 6 December 2015. We are creating products that will help all founders better understand the process of building a Unlike purely digital businesses, having a physical presence in a new market is critical for Uber. LERA For Libraries, 20(1-2). The Washington Times. The surge is a good way to optimize supply and demand but at what point doest it become excessive? Here are five drivers that were instrumental to Uber’s success: While unprofitable now, Uber’s upfront investment paired with effective execution can fuel future growth and long-term potential for value-creation. This document does not constitute a solicitation, offer, opinion, or recommendation by Goodwater to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or other investment. These dashboards allow general managers to derive insights that facilitate troubleshooting and adaptation as issues arise in local markets. Cannon, S. and Summers, L.H., 2014. However, they never have transitioned into a power player position, where they can leverage that power with various stakeholders. Instead of completely giving up on markets, Uber used its leverage as an established player to acquire stakes in local competitors. It’s hard to believe Uber’s only been around for a few years – I feel like I can’t live without it now. In 2015, Uber launched a partnership with Starwood Hotels & Resorts that allows Starwood Preferred Guest members to get points whenever they take an Uber. Having a new CEO and new management team members will offer Uber the opportunity to re-valuate many fundamentals of its strategy and begin to build Uber 2.0. Ruby – thanks for this post. Thank you for your post. Unlike other traditional taxi services, Uber takes a very small cut ranging usually between 5 to 20%. The general managers are given autonomy to shape the playbook to fit the local market’s needs, enabling Uber to rapidly tap supply-rich markets and scale the business. 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