Uber’s Strategy- Sustainable or Tech bubble

Uber, one of the fastest growing transport service companies has been awing the world around with its aggressive growth strategies. For the uninitiated, the company provides an app powered on demand car service using Smartphone. The Company was founded in 2009 by Travis Kalanick and Garrett Camp and ran its first set of services in San Francisco. Since then the company has expanded to over 300 cities worldwide and is valued at 41 Billion USD as of December 2014.

Value Proposition

Its CEO, Travis Kalanick, stated that its value proposition lay in an ‘instant gratification’ service – giving people “what they need, when they need it, whether that’s a ride or some other delivery “.  Uber aims to bring a unique cab experience from mobile hailing, seamless payments, better cars, to no tips and driver ratings.

The key to its instant popularity lay in providing better experience in case of concentrated, temporary need of a cab service on events pertaining to  segments like restaurant and nightlife, holidays, weather and sports. The cities of launch were carefully chosen to gratify this need. The company has experimented with ideas like on demand Uber Ice cream, roses for Valentine’s Day, barbeque in Texas , UberCHOPPER helicopter rides to the Hamptons. Primarily these were used as marketing promotions but they also aimed to test the demand for such unique ideas , hinting potential direction for growth.

Differentiation

The company established its differentiation by being a technology company rather than just a car rental service. It acted as a connecting force between frustrated riders and underpaid cab drivers saving a whole lot of capital investment by not owning any of the cars and keeping drivers on contract by sharing 75 percent of the rent with them. Concepts like surge pricing and efficient user analytics along with an early mover advantage in a taxi industry which was undisturbed since 1940s gave it an ever increasing pool of satisfied customers who brought in a lot of word of mouth publicity.

More recently, competitors like Lyft, Sidecar have come up, giving it a head on competition. With everyone aiming to get biggest chunk of the pie, price wars have become common. While Uber wins in factors like company investments, popularity and professionalism, Lyft is able to maintain “prime time” or “surge pricing cost” and is said to provide a better customer experience. The differentiation of a great technology that Uber enjoyed in its initial days may diminish gradually. Efficient execution would be the key here making customer loyalty a function of consistent user experience.

Sustainability

Too big to ban

With not just success but survival on the line, Uber aims to become too big, fast enough. Becoming big enough would ensure that the political price for any elected official becomes too high to curb Uber. High powered lobbyists can be used to push back the rules and regulations which have been hurting it for long. If claims are to be believed, the company has been investing angel investors’ money to accommodate for predatory pricing. That’s the price many big technology startups have been paying to stay relevant in the market.

Troubles

Operational issues and safety violations incidents have popped up time and again. Advanced technology and stricter training requirements for its drivers can help resolve such concerns. But the stringent regional taxi and limousine laws and other regulatory issues are what the company will continue to face as it broadens its footprint worldwide.

Further, the debate over an employee based model rather than drivers on contract may lead to Uber paying for insurance and other benefits related expenses to its drivers. With the upside of it having better control of the workforce that is the only point of contact to the customers. This can be called a tradeoff in between increased expenditure and decreased control.

Conclusion

Amazon, one of the investor in the company has displayed a similar model of a real fast growing startup and has successfully been in operations for last 20 years. For the current stage of development, Uber’s approach seems to not have any downside. The rapid expansion can set a stage for it being hugely successful, global enterprise showcasing a wide range of new possibilities to the world.

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