The given assessment will primarily focus on the analysis of Uber’s business-level strategies, corporate-level strategies, competitive environment, and market cycles. Uber is a technology company, which operates in transportation marker by providing a platform to connect users and customers. The corporate level strategy of Uber is related to linked diversification, and the business level strategy is differentiation. The market is fast cycle one, and Lyft is the main competitor.
It is important to note that Uber’s business-level strategy is differentiation since the company was launched with a novel premise of combining technology and convenience in order to create a unique customer experience. The strategic framework of differentiation is substantiated by the fact that the given strategy offers a unique alternative to traditional means of transportation, which are public transportation, regular taxis, and less practical cycling and walking. In other words, Uber was successful at the launch of the company and is still successful today due to the company being able to provide customers with a transportation service, which is distinct, different, unique, and convenient compared to other alternatives (Hitt et al. 122). Therefore, the business-level strategy of Uber is a differentiation-based strategic approach.
In addition, the company operates in the transportation industry, but Uber does not own any form of a vehicle since it is also a technology company, which provides its platforms in order to connect customers with individuals and businesses in order to promote sharing economy. Prior to Uber, a person, who wanted to relocate from point A to point B, could only order or catch a taxi or use a bus or metro. However, Uber provided a different alternative, which was more convenient and unique, where a person with a car can share his or her ride with another person in need of such services. Similar principles and concepts were applied to other transportation services with a great deal of success, such as package delivery, freight, couriers, and food all around the globe (Uber Technologies, Inc. 4).
In other words, one of the main business level strategies of Uber is international strategy, where the key competence of operational excellence and superb technological integration enabled a worldwide transportation market presence, and nowadays, the company operates in 71 different countries (Uber Technologies, Inc. 4). In accordance with key determinants of national advantage, there are formal, informal, and political institutions (Hitt et al. 244).
Despite major pushback from both formal and informal institutions, such as culture and regulatory rivalry from local services, Uber is still successful due to its unique services, which satisfy the needs of customers. Therefore, Uber’s differentiation business-level strategy alongside its international strategies was highly successful at making the company what it is today, but with a rise of similar service providers, the company needs to improve continuously in order to retain dominance in the market. The company can be evaluated as a business, which had a strong differentiation strategy from the start, but the adoption of similar approaches by rivals prevents Uber from continuous growth. In addition, the business model is a target of strong criticism since drivers are not employees but rather independent contractors.
It should be noted that Uber’s corporate-level strategies are centered around product and service diversification. A corporate-level strategy can be defined as “actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets” (Hitt et al. 174). Initially, the company started out as a car sharing service provider in a mobility segment, where independent drivers and customers could use Uber’s platform to find each other. However, since then, Uber has diversified into different markets within the transportation industry.
According to Uber, it diversified into three other segments, which include advanced technologies programs or ATG, freight, and delivery (Uber Technologies, Inc. 4). The company states that substantially all of its revenue comes from drivers and merchants (Uber Technologies, Inc. 57). In other words, Uber’s level of diversification is moderate due to the majority of earnings coming from the car sharing and delivery segments.
Despite major diversification efforts, Uber utilizes a related linked diversification strategy since it is heavily reliant on its car sharing and delivery segments. The main reason is rooted in the unprofitability of other segments compared to these two since ATG was established to invest heavily in research and development, whereas the freight segment is a challenging market to enter due to the high cost of transportation units (Uber Technologies, Inc. 57).
It can be stated that the company’s corporate-level strategy is appropriate and effective because Uber acquired five large businesses in 2020 alone and cooperates with its international rivals, where these acquisitions are funded by the profits gained from the delivery and car sharing segments (Uber Technologies, Inc. 55). In other words, the company is exhibiting a strong proactive effort to diversify its market presence by acquiring prospective businesses and buying potential competition.
The current strategic framework is logical since the current revenue generator, which is car sharing, is under heavy political, social, and regulatory pressure due to safety concerns for passengers as well as ethical concerns for independent contractors. In other words, there is a wide range of challenges and difficulties in regards to the main source of revenue, which means that the segment is unreliable and possibly unsustainable, and thus, Uber’s decision to gradually transition to other business ventures, both small and large, is substantiated. By aggressively relocating profits from car sharing and delivery to ATG and freight, Uber will be able to secure an entry to a hard-to-enter market of shipping, and the company will also be able to build a base of prospective businesses in many related markets, which lack the business model flaws of car sharing.
It is important to note that Uber competes in a number of markets and segments with a wide range of different competitors. The company states that it faces “significant competition in each of the mobility and delivery industries globally and in the logistics industry in the United States and Canada from existing, well-established, and low-cost alternatives, and in the future” Uber expects “to face competition from new market entrants given the low barriers to entry that characterize these industries” (Uber Technologies, Inc. 6).
In other words, it is difficult to pinpoint a single competitor given Uber’s highly diversified presence, but since it heavily relies on revenue streams from both car sharing and delivery segments, Lyft can be categorized as a major competitor because the company is involved in these two segments as well. Unlike Uber, Lyft specifically focuses on ridesharing, with delivery being a secondary part of the business (Lyft, Inc. 7).
At the corporate level, the company is highly reluctant to diversify as aggressively and eagerly as Uber, and thus, Lyft diversifies only by entering close markets of bicycles and mergers and acquisitions of similar companies and startups (Lyft, Inc. 12). At the business level, Lyft adheres to a cost leadership strategy since it strives to develop more efficient platforms and to offer better services at a lower cost for the consumers (Lyft, Inc. 13).
In other words, Uber leverages its first-mover advantages to enter new markets and advance its research and development in order to build a resilient and sustainable company. It is stated that “the benefits of being a successful first mover can be substantial.50 This is especially true in fast-cycle markets (discussed later in the chapter) where changes occur rapidly, and where it is virtually impossible to sustain a competitive advantage for any length of time” (Hitt et al. 153). However, Lyft primarily focuses on the car sharing market with a smaller interest in diversification, and thus, wants to gain competitive advantage through increased efficiency and quality of service.
Therefore, at both corporate and business level strategies, Uber and Lyft have inherent and explicit differences, which is partly due to one being the first-mover. Business diversification is not only prudence, allowing one to compensate for the failure of some units at the expense of others, more commercially successful. To a certain extent, this is an activity aimed at capturing new market segments, and with a reasonable approach, it is also a sure way to stay “afloat” and successfully resist the intensification of competition, as well as an additional source of profit. Successful diversification in the transport market should be carried out, taking into account the existing alignment of forces with the necessary financial capabilities, such as Uber, as well as a professional attitude to the market. By adhering to these conditions, the company will be much more likely to succeed in diversifying.
It should be noted that there are two categories of markets, such as slow-cycle and fast-cycle markets. On the one hand, it is stated that “slow-cycle markets are markets in which the firm’s competitive advantages are shielded from imitation, commonly for long periods of time, and where imitation is costly” (Hitt et al. 159). On the other hand, “fast-cycle markets are markets in which the firm’s capabilities that contribute to competitive advantages aren’t shielded from imitation and where imitation is often rapid and inexpensive” (Hitt et al. 161). Since Uber’s car sharing segment operates in a fast-cycle market, its first-mover advantages are unsustainable, which is evidenced by a quick emergence of a number of car sharing companies, which provide similar platforms, such as Lyft (Uber Technologies, Inc. 6).
If the market were a slow-cycle type, Uber would dominate the field with no major competition because it was a first-mover, and thus, it would benefit from its competitive advantages for longer. Therefore, diversification would not be a plausible strategy since there would not be major risks of new entrants, and profitability would be higher. In the case of business-level strategy, differentiation would be even more effective and sound because there would be fewer alternatives, which would put Uber in a unique position for the customers.
- Hitt, Ireland, & Hoskisson. 2020. Strategic management: Concepts and cases: Competitiveness and globalization (13th ed.). Mason, OH: South-Western Cengage Learning
- Uber Technologies, Inc. 2020. Form 10-K. p. 1-168. Web.
- Lyft, Inc. 2020. Form 10-K. p. 1-134. Web.