Are you analyzing Uber’s business strategy? It is a great topic for a business essay! Read our article to learn more about Uber’s business-level strategy and the international business model that led to the company’s success.
Uber Background
Travis Kalanick and his friend, Garrett Camp, founded Uber as a mobile app-based company that allows users to request for a taxi within minutes (Hill, Jones & Schilling 2016). They did so from an idea they developed at an annual tech conference called Le Web (Blystone 2016). The initial thought for the inception of Uber was the introduction of a timeshare limousine company that would allow customers to get fast and efficient transport services, to and from hotels. Although both men contributed to the inception of the idea, Camp was more obsessed with it and even bought the domain name UberCab (Blystone 2016). Although he had another job, he made Uber his “side business” by building a prototype that would link taxi operators and their customers on one seamless platform. In August 2010, he persuaded his friend, Travis Kalanick, to join the company as a Chief Incubator. They did a test run in 2010, in New York, where they tested the business model with three cars. The official launch happened in May 2010, in San Francisco (Hill, Jones & Schilling 2016).
The ease and simplicity of transportation that the company introduced to the San Francisco area created a buzz around the taxi service and led to its popularity in the city. Indeed, with the touch of a button, somebody could get a taxi, get chauffeured to their preferred location, pay less than the average taxi would cost, and use a cashless method to complete the transaction (Hill, Jones & Schilling 2016). These features of the Uber business are mirrored in its mission statement, which states, “make transportation as reliable as running water, everywhere, for everyone” (Hill, Jones & Schilling 2016, p. 2). The company’s core values of vision, quality obsession, and innovation have attracted investors to the company. The first serious capital injection the company received was in 2010, through a $1.25 million financial inflow from First Round Capital (Hill, Jones & Schilling 2016).
After a successful stint in San Francisco, the company expanded its services to several major cities in America, including Boston, Chicago, New York, Seattle and Washington, D.C. Since the company demonstrated that its business model could be replicated in other markets as well, the company expanded into several countries around the world, including, France, India, Kenya, Australia, Canada and the likes (Hill, Jones & Schilling 2016). Today, the company has more than 3,000 employees and operates in more than 60 countries, spread across developed and developing markets (Cesar 2016). With a market capitalization value of more than $62 billion, which exceeds that of General Motors, Ford Company, and even the entire value of the US taxi business (Cesar 2016), it is difficult to imagine a world where Uber does not exist.
Uber Strategy Analysis
Uber’s Business Strategy Strengths
Convenience: Unlike other taxi services that take a long time to reach their customers, Uber offers a more convenient way of transporting customers around cities. Indeed, before the company started business, people had to hail cabs by chance. Alternatively, they had to book a taxi in advance so that it would show up at a preferred location and at a specified time. Uber eliminated these challenges and created convenience for most customers. Concisely, the ubiquity of the GPS system and the rapid adoption of smart-phones in many parts of the world have made it a force to reckon with because it is able to link service providers and clients at a moment’s notice (Hill, Jones & Schilling 2016).
Loved by Customers: Uber has created a strong customer loyalty in the few years it has been in business. It has managed to do so through a customer-centric approach hinged on direct client-to-driver interaction (Blystone 2016). The strong customer loyalty enjoyed by the company partly comes from its ability to revolutionize the transportation industry and create a seamless platform where power is given to customers, as opposed to taxi operators (Rasheed 2012). For example, through the driver rating system, customers have the option to choose the taxi drivers they want, based on their record of accomplishment. Such features give customers more power to choose the type of service they expect, thereby increasing their liking for the company.
Lower Prices Compared to other Taxi Operators: Through its ability to eliminate inefficiencies in the taxi operations industry, Uber has been able to offer its customers lower prices, relative to other taxi operators (Rasheed 2012). Its traditional rivals cannot compete at the same level as the company does, or offer similar prices unless they jump onto the same platform as Uber is because conventional taxi services are often marred by long waiting times and high prices (Grant 2016). Interestingly, those that have tried to compete with Uber on an equal platform still do not match the same level of success because they do not command the same market share and customer loyalty as it does (Grant 2016).
Uber’s Business Strategy Weaknesses
User Privacy: Concerns about user privacy pose a problem for Uber because the company has been accused of paying a low attention to the privacy of its users (Hill, Jones & Schilling 2016). Such concerns arise from the fact that cab drivers could gain access to the private information of their users (like their personal phone numbers and locations). Senator Al Franken raised this concern in a recent senate sitting, by saying that, evidence exists of customer information being used for purposes other than what it is intended for (Rasheed 2012). Concerns have also been raised about the internal misuse of company data. More importantly, the ability to track the movements of a customer has worried lawmakers and some users alike (Hill, Jones & Schilling 2016). These concerns were heightened in a recent incident where the company suffered a serious data breach where the information of more than 50,000 Uber drivers and their license plate numbers were released to the public (Rasheed 2012).
Safety Concerns: Safety concerns also emerge as some of Uber’s inherent weaknesses, based on the company’s business model, which we will explore in later sections of this paper. Poor driver background checks have been cited as the biggest safety concern for the company because some drivers have been accused of atrocious acts, such as rape and robbery. For example, in January 2015, a 25-year-old client in New Delhi claimed that her Uber driver raped her (Sheriff 2016). The perpetrator of the 2016 Kalamazoo shootings was also an Uber driver with a questionable background. Authorities estimated that at the time of committing the crime, he was driving an Uber taxi and collecting fares, with the knowledge of the company. Such incidents bring to our attention the impact of poor background checks on the drivers, which has dented the company’s reputation as a reliable taxi service.
Uber Differentiation Strategy – a Business-Level Strategy
A pioneer of the sharing economy, Uber’s business strategy is both a cost-leadership and differentiation strategy. The cost leadership advantage comes from the fact that it offers customers a lower price than traditional cab services do. Its differentiation strategy stems from its ability to overhaul how people think of the transportation business (Rasheed 2012). In other words, its business differs, fundamentally from conventional taxi operators. For example, part of Uber’s success story has hinged on its ability to provide customers with clean and stylish cars, at any moment, and at all locations that it operates. Traditional cab services cannot offer such sureties. This differentiation strategy is mainly supported by an innovations strategy. According to Rasheed (2012), an innovative business strategy is one that strives to enhance a company’s success through product and service innovation. At the core of such a strategy is the ability to show clients that the traditional way of doing business could be improved. Typically, companies that adopt an innovative business strategy demonstrate that their service could be adopted through a disruptive technology, or through a product improvement strategy (Rasheed 2012).
Uber demonstrated that its differentiation strategy is disruptive, as opposed to product enhancing. In other words, it fundamentally changed how people use taxi services. Indeed, the company has used innovation to disrupt the traditional models of taxi business by introducing flexibility to the business model and reducing operational inefficiencies associated with linking drivers and customers. Through innovation, the company has provided a more reliable and efficient flow of information between customers and taxi operators by taking advantage of GPS mapping, which could pinpoint where a customer is and where he wants to go to. The same differentiation business model has created more trust between customers and taxi operators because clients could easily determine their fares before they order a ride. This way, there is minimal probability that the client could be overcharged. Innovation has made all this happen. Tamberino (2016) supports this strategy by saying its focus on creating a virtual–based company, as opposed to the capital-intensive model of taxi business has increased the company’s profitability and made it capable of adjusting to different market dynamics as well as respond quickly to market challenges.
At the core of Uber’s differentiation strategy has been an unwavering focus on technology. The company has invested a lot of money in developing and iterating its mobile app to make it seamless and responsive to market needs and demands. This approach affirms its steady steadfast commitment to make its operations user-friendly and adaptive to different market dynamics. Its tech focus has allowed the company to seamlessly connect customers with taxi operators without necessarily having to set up a brick-and-mortar business, as traditional business models would demand. This advantage has partly spurred its cost leadership advantages. It has also provided it with scalability advantages and eliminated barriers to growth. Optimization for ease of use has also helped the company to venture into new businesses, such as delivery services, without necessarily having to tweak its business model. The combination of cost leadership advantages and product differentiation benefits are at the core of Uber’s business model and are responsible for most of its current success.
Reference List
Blystone, D. 2016. The story of Uber. Web.
Cesar, M. 2016. Uber is higher valued than GM, Ford and most of the S&P 500. Web.
Grant, R. 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons, London.
Hill, C, Jones, L &Schilling, M. 2016. Strategic management: Theory & cases: An integrated approach. Cengage Learning, London.
Rasheed, H. 2012. Innovation strategy: Seven keys to creative leadership and a sustainable business model. iUniverse, New York.
Sheriff, K. 2016. Uber rape case: Cab driver Shiv Kumar Yadav found guilty, faces life imprisonment. Web.
Tamberino, R. 2016. Uber: A winning strategy. Web.