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Uber And The Sharing Economy Global Market Expansion And Reception Case Solution
Resource base view theory can be applied to understand the effectiveness of Uber's competitive and growth strategies. According to the resource based view, firms can only sustain the competitive advantage when they have access to the valuable, rare and inimitable resources. In the case of Uber, although the company claims it has access to unique technological infrastructure, the innovation diffusion at a wider scale has allowed other companies as well to develop technological infrastructure.
Following questions are answered in this case study solution
Uber’s business model description
Theories to describe the Uber business model
Criticism on Uber business model
Relevant facts and statistics to describe the Uber business model
Uber business model evolution and basic strategy to stay strong
Major obstacles faced by Uber in a competitive industry
Uber’s business environment and growth strategies, its reaction to changes and downsides / advantages of the chosen approach
What Uber did differently from competitors?
What particular approaches have Uber used in expanding to different parts of the world?
What theory or theories can be used to discuss competitive/growth strategies?
Case Analysis for Uber And The Sharing Economy Global Market Expansion And Reception
1. Uber’s business model description
Uber's business model has fuelled the growth of the innovative on-demand economy and has given rise to the urbanization, where, companies are investing heavily in advanced technologies to get into the modern gig economy. The key partners included in the business model are- drivers, investors, supporters, and other partners mainly include specialized technology providers and insurance companies. The key activities involved in the business model are hiring and managing drivers, providing customer support, developing and managing new products, ensuring smooth transactions and managing marketing activities. The key resources required to manage these activities include skilled service staff, technological platform, data and analytics, brand image and venture capital. The value proposition offered by the business model to drivers includes- flexible working, autonomy, low idle time and generation of extra income. While, the value proposition for riders include convenience, speed, affordability and driver rating. The innovative business model has helped Uber to pursue its international growth objectives due to flexibility and easy access to the international labour market. The business model is globally scalable, and promotes international expansion, and has become a non-location bound, firm-specific advantage. It means that Uber can expand into international markets by incurring only marginal costs. The business model flexibility also encourages the adaptation in different consumer markets, which makes it possible for Uber to ensure local responsiveness.
2. Theories to describe the Uber business model
The innovation diffusion theory can be applied to describe the Uber business model. The business model design allows the Uber to promote innovative use of technology for ride-sharing purposes. The usage ease and convenience are marketed to make innovation diffusion among targeted customer segments successful. The stakeholder theory can also be applied to understand how Uber's business model creates value for all key stakeholders (mainly including drivers and riders) to ensure long-term success. The stakeholder theory guides the organizations to adopt the holistic view, and take care of the interests of all relevant stakeholders. It is reflected in the value offered by Uber’s business model to drivers, customers and other key stakeholders. The unit economy theory application helps us understand how Uber generates revenue from its business model. The unit economy theory emphasizes over considering the direct revenues and costs for business model derived on per unit basis. In the case of Uber, the company targets different market segments, which requires employing different unit economics. Currently, Uber serves two main needs- actual ride services and matchmaking. The Uber’s unique selling proposition lies in its ability to acquire the critical mass on an earlier basis.
3. Criticism on Uber business model
Despite gaining success at the international stage, the Uber business model has drawn some criticism. For instance, the Hillary Clinton criticized the modern gig economy based business models like Uber and Airbnb by commenting that although these business models have created exciting opportunities, they have also created uncertainties in the labour markets, and made the workplace unsafe in terms of job security. Uber is also criticized for stealing the Lyft’s technological innovation. Moreover, Uber drivers lack training and development, which is essential for providing high quality ride services. Uber's business model views them as independent contractors and hence takes no responsibility for meeting their training needs. The rising behavioural issues of Uber drivers indicate the loopholes in the driver background checks. The organization is currently dealing with the criticism from British drivers for not giving the benefits or rewarding overtime. The high churn rate and behavioural issues faced by Uber customers indicate the need for major changes in the business model. Overall, the current business model is hindering the company from pursuing its growth strategies at the national and international stage. The existing business model does not allow the company to fulfil its ethical responsibilities. Although the model proved to be successful at the initial stage, the current scenario indicates the need for serious changes.
4. Relevant facts and statistics to describe the Uber business model
Following facts and statistics reflect the Uber’s business scope and size. In 2017, the company claimed that it has around 40 million active users across the world, and it holds the 77 percent market share in the ride-hailing market. It is currently present in 78 countries and has more than 12,000 employees and more than 7 million across the world. By 2017, the company successfully completed 5 billion rides. According to 2016 statistics, 21 percent of the US android users have installed Uber in their smartphones. It services more than 633 cities and has more than $60 valuation. These statistics show the huge growth potential for the business; however, the revenue and profitability statistics show that despite the huge customer market, the company experienced $2.8 billion loss in 2016. In 2019, the users have grown from 40 million in 2016 to 91 million; still, the company has no hope for making profits without bringing necessary changes in its business model and current business strategies. The current situation (slow growth and consistent losses) has induced the Uber to file the IPO.
5. Uber business model evolution and basic strategy to stay strong
Uber started its business operations in May 2010 and officially launched its app in 2011. Earlier, the ride-hailing services were limited to the upper market as Uber allowed the users to book a black luxury car by charging 1.5 X price of a local taxi. Later in 2012, the company extended the business operations and allowed the drivers to use their own cars to ride-hailing services if they meet certain conditions. In 2014, the carpooling service with name Uber-Pool was started that allowed riders to match other riders travelling in the same direction and avail ride service at a discounted price. One major brand-building effort was rebranding itself from Uber Cab to Uber to avoid positioning itself as a traditional cab/taxi company. The product line extension and continuous innovation diffusion allowed the company to grow in size and target the ride needs of both- high and low-end markets. In order to stay competitive, the company aggressively pursued international expansion strategies by integrating flexibility into its business operations. The transaction convenience and ability to leverage the opportunities offered by mobile technologies played an important role in turning Uber from a local ride-hailing company to a global giant. However, the company also faced the intense pressure from other ride-hailing apps and particularly from the traditional taxi industry. The most important strategy adopted by Uber from start to present is focused on convenience and ease. It provides innovative solutions to the riders' problems, and does not hesitate in trying new ideas and introducing radical innovations into its business model to pursue growth objectives.
6. Major obstacles faced by Uber in a competitive industry
Currently, Uber is facing various obstacles that hinder its ability to pursue local and international growth objectives. The critics argue that although the company's business model has gained huge popularity, unlike Google, Amazon and Facebook, it has failed to create significant entry barriers. This failure has resulted in the introduction of many new entrants that have gained the lion’s share in different consumer markets. The company’s toxic culture is an internal factor causing hurdle due to mismatch with the company’s strategic priorities and objectives. Although the company believes that it has lowest cost/unit ride due to data science and latest technology, many other competitors (particularly the Lyft) have also successfully integrated the innovation to reduce their unit costs. The untrained staff causes various behavioural problems (like harassment and misconduct with customers), resulting in expensive and brand image damaging lawsuits. The reputation-damaging campaigns (like delete Uber) are further eroding the situation, making it difficult for Uber to give an effective response to the criticism. Overall, Uber is facing difficulties in dealing with competitive pressure. Its inability to address the internal and external obstacles can further slowdown the growth, and it will be harder for the company to sustain its position in a highly competitive global ride-hailing market.
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