Understanding the urban uniqueness of Uber
Few have missed the buzz around Uber the last 2 years, both for the negatives and the positives. But the popularity of its services and its market valuation has soared beyond what anyone thought was possible. As an example of their urban uniqueness, let’s examine how Uber captured the market for transportation of millennials in Dallas.
The taxi heritage is part of the problem
The younger generation has been hesitant to adopt classic taxis to any large extent. They find the waiting time from order to service too long. They lack a suitable ordering interface that matches their almost always instant service needs. In addition to unpredictable timing, classic taxis lack transparency on who is driving and what car you will be transported in. For tourists the chance of being ripped off in taxis has been the law rather than the exemption. And last but not least, cash is not king in the cab any longer when it comes to user preferences for payments.
It is clear that this was an industry ready for a strong digital disruption – a disruption in how to serve fundamental user needs better than the incumbent alternative. And while the taxi industry might be further along its re-invention journey in some markets, which could mean they survive in some form, in many markets it might be too little too late
The customer experience and business model innovation
Uber clients order their service through an app that shows them information on the closest car. The buyer of the service gets an instant picture of where the closest driver is and of when they can expect the driver to arrive.
Beyond knowing where the driver is, you get the option to pick from five standard services: A shared ride, with up to four other people you don’t know. A low-cost option for four people. Six people served by a larger and more expensive car. A luxury sedan option for four people. And finally the executive option in black. This differentiation on car level goes against the norm in many countries, which streamline taxis around a single type of car.
And when the Uber ride is done, the payment method has taken the leap into the 21st century as well. Gone is the need for cash, with payment settled through the app.
Embraced quickly in Dallas
Uber launched their services in the Dallas Fort Worth Metroplex in September 2012. Three years after launch Uber has 60 percent of the business travel market in Dallas, with taxis serving 39 percent and other alternatives 1 percent. Uber has particularly become the go to alternative for the younger generation. This always on sharing digital generation has found ‘their” transport option, to the point that they give up on driving on party nights, leading to a reduction in deaths from drunk driving.
The latter points towards a phenomena which is not about a zero sum game. A lot of Uber’s expansion comes from market expansion. The budget tapped into is millennials' entertainment rather than transport budgets. In San Francisco the taxi market is worth $140M annually, where Uber rides generate $500M and grow by a factor 3X.
Complications of introducing large business model shifts
The Uber phenomenon comes with a range of complexities too. It has been debated if the driver is a contractor or an employee, and the state of California has ruled in favor of the latter. Uber drivers of large SUVs and limousines are protesting against having to drive for fares in the lower service categories. Drivers are offered sub-prime loans to buy a good car to meet service expectations at the cost of higher interest rates. And Uber’s reputation has been challenged when a driver was accused of sexual assault, a scenario that quickly could change customer preferences.
Future outlook for networked industry disruptions
The sharing economy is here to stay, and here are my predictions for the coming 2 years:
- The sharing economy depends on taking capital investments off the seller’s balance sheets, driving the need for business model innovations on both the customer and the employee/contractor side.
- A larger share of the new working generation will enter the labor markets as contractors and part time workers and consider themselves as entrepreneurs in one-person companies.
- The consumer industries with largest exposure to major networked/digital disruptions are the ones with a low level of innovation over the past 30 years and/or large gaps in buyer needs vs. seller offerings.
- The large innovators will run into minor and major obstacles along the road but the movement is too strong to be halted. The transformation might slow down but will always soon bounce back.