Why UBER’s business model is not unique or disruptive
What is the essence of UBER’s success? Is UBER’s business model unique and how is it defined?
UBER’s prominent platform business has brought a massive shift in mindset to many industries by redefining transportation through the well-leveraged use of technology.
In an attempt to shed light on these questions the following short analysis will introduce the term Sharing Economy and depict the individual building blocks of UBER’s business model to explain its rise in the past decade.
How is the sharing economy characterised?
The term sharing economy derives from the idea of peer-to-peer based activities that enable a network of users to obtain, give and share access to their assets and services. In essence, a sharing economy resembles a hybrid market model that is defined by peer-to-peer exchange, commonly under facilitation of community-based online services.
Primary characteristics of sharing economies are:
- Mutualized access to products or services
- Decline in transaction costs
A sharing economy can be manifested in various implementations, generally by use of technology to optimize the access to excess capacities of goods and services.
The trend for sharing derives from an increasing consumer desire to be in control of its consumption and may found its origin in the aftermath of the 2008 financial crises which resulted in enforced networking and pooling of resources.
Business Model Canvas
Can sharing economies go global?
Various key challenges have become barriers for development and adoption of sharing services in certain nations and on a global scale.
The following aspects may underline where those challenges come from and how sharing service providers may respond.
First, the developing world is experiences increasing prosperity in addition to population growth while natural resources become scarcer and cause significant spikes in costs and market volatility.
Secondly, a strong pre-requisite for sharing services is the current trend for broad internet coverage and smartphone penetration, especially in emerging markets (Appendix II)
Thirdly, Transaction costs continue to decrease as even more friction is removed from sharing platforms. Local labor for instance may accelerate this trend by listing consumer logistics and leveraging their assets.
The following developments may drive the aforementioned arguments further and serve as enablers for globally operating sharing economies:
There are further factors such as aspects to Market, Population, Access and Business Environment that peer-to-peer services companies need to consider when expanding to international markets:
In conclusion it is certain that sharing economies are driven by events and factors that enable easier access into global markets. However, tailored and continuous adaptation and scaled growth only may ensure long-term success to avoid vulnerabilities.
Is Uber’s business vulnerable since it is easy for others such as Didi Kuaidi in China and Ola in India to imitate?
Globally operating providers of sharing services are facing not only challenges from an institutional perspective but also from existing competition that is already catering its value proposition to the local context. As for the Chinese situation, both Didi Chuxing and UBER made huge investments in recent years to attract more drivers to sign in through subsidies and attract more passengers through money incentivised deals in order to gain the lead.
Scalability — The primary differentiator to UBER is the aspect of scalability as Didi enabled its riders to be picked up by virtually every vehicle, such as taxi, private or shared car, shuttle van or bus.
Consumer behavior — Differing consumer perception in ownership from a Chinese perspective as most consumers find it cheaper to rely on ride-sharing than to own a vehicle as opposed to the US consumer preference.
Vulnerability — Uber admitted its Chinese defeat in mid-2016 before selling its operations to Didi after aggressive discounts from both sides and racked up huge losses.
Should Uber leave these markets and focus only on the US market?
From a global expansion point of view emerging markets are generally interesting because of widely unsaturated demand, younger populations with decades of potential ahead in terms of spending patterns and more growth potential as indicated by GDP rates and growing middle classes.
The mistakes UBER has tapped into recently are common pitfalls as how to not only US companies, but globally operating businesses need to navigate the nuances of ride-hailing in order to succeed in each and every market. Business models as the vehicles for successful market entries require adaptation and a sophisticated understanding of the local context at hand. Competition may make Ride-hailing a generally expensive business to be in, but instead competitive rivalry may turn into co-opetition or strategic partnership after reaching a pragmatic truce that allows both companies to profit from their combined success.
Due to turbulences in certain markets as discussed before UBER has currently reprioritized its current targets and retreated from Southeast Asia to focus more on its collaboration in India with Ola, the Middle East and Latin America as its next priorities.
UBER’s business model is certainly not unique as it triggered the rise of much competition worldwide. Furthermore, its business model is based on massive scale and heavily reliant on the platform with its various algorithms (e.g. surge pricing). However, the competitive advantage and positioning of UBER stems from the amount of data it collected over the past decade (“data is the new oil”) and more importantly the aspect of usability and brand perception it gained from positioning itself as a direct substitute to average cabs.
About: Alex Michael Pawlowski is a consultant, hybrid coach and author with regards to the design, execution and economics of startups.
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For more information please visit www.lxpawlowski.com.