Uber in Madrid…
Yesterday was an interesting day: a couple of months ago, I talked to some people at Uber Spain to invite them to one of my Innovation classes at IE Business School. I believe that it is very important for my students to study the most-up-to-date cases, and I also like to surprise them by bringing somebody in unannounced, so that the case study materializes before their eyes, and with all that means for the learning experience.
But there was another reason for keeping my guest’s identity secret this time: safety. Given the attitude of Barcelona’s taxi drivers at other events Uber’s team have attended, announcing that the country manager of Uber would be in the class seemed an unnecessary risk. What’s more, the company had decided to announce the launch of Uber Pop in Madrid at the same time, and the company asked me, along with TV and radio star Cristina Pedroche to be the service’s rider-zero, in other words, the first customers photographed for the launch. I was more than happy to oblige; after all, if companies are prepared to come along to my classes, the least I can do is lend a hand in return.
Needless to say, the lesson was a very interesting one: when I got to the classroom, some students had already seen the advertisement with me in it, which gave the session a sense of immediacy. After 10 minutes, during which we looked at the company in context, Carles Lloret, Uber’s country manager in Spain, put his head round the door, telling us he was “just passing” and thought he’d “pop in for a word.”
For my opening salvo I asked how many in the classroom had already used Uber: around 10 percent of students, and all of them extremely happy with the service. There was even a heavy user, with experience in up to 15 different cities around the world, and who had once had to make a complaint, and was even completely satisfied with the process and the outcome surrounding the complaint. Aware that the presence of Lloret was more than just a PR exercise (one of my conditions when I invite companies to my classes), my students soon began quizzing him closely on questions such as licenses, quality control, developments in other cities, etc,.
Lloret told us that Uber came about because technology made it possible to meet supply and demand efficiently, and that this was a sector that had been slowly strangling itself to death over the last two decades through overly complicated regulations and controls that made it impossible to acquire a license other than through the black market and at inflated prices; a situation that was bad for both drivers and customers. Owning a license in Chicago, a city with just 6,904 registered taxis, has proved to be one of the most profitable investments for many years, with returns way above the stock market’s or inflation.
So what happens in a market like this? On the one hand, license owners have no incentive to provide a decent service; while at the same time, the market is undersupplied. Until the arrival of apps such as MyTaxi, Cabify, or Hailo, customers had no real way of complaining if a driver took them the long way round, or if they and their vehicle were not clean and tidy. In theory, it is possible to complain, but normally takes so long and is so inefficient, that people only bother in the most outrageous cases. In the case of apps like Uber’s, the rating system means that any driver who doesn’t provide the right service is excluded from the system.
The classroom session — and let’s not forget that our context here is innovation — also gave us insight into just how Uber came about. Founder Travis Kalanick decided to set the company up after a nightmarish taxi experience in Paris under the snow, using the latest technology to streamline the whole process of ordering a taxi. His vision also took into account the development of efficient systems, the move toward an economy in which fewer people would own cars and simply use services like Uber to move around (Kyle Hill’s model is fascinating in this regard). The idea is appealing at the environmental level (although this angle requires further data), and without doubt is very ambitious, and that is behind the company’s incredible valuation (although there are critics, some of whom know what they’re talking about).
Another fascinating aspect of Uber is its use of social disobedience as way of justifying its push for changes to the law: if it is possible to improve service, and this is what people want (in Madrid, where the company doesn’t even operate, huge numbers of people are downloading the app), then the company has an obligation to enter the market. So far, efforts to ban Uber have proved futile: either issued by courts of first instance, or subject to appeal, as is happening in Brussels. In Germany, court rulings have been overturned on appeal.
In the case of Spain, so far nobody has been able to show that Uber is illegal, and the company has acted accordingly. Needless to say, it has some very vocal supporters. There is no doubt that this is a company that knows how to innovate in heavily regulated environments where the law seemingly leaves it no entry room, and shown that it is able to develop a meaningful value proposition.
Taxi drivers have complained that Uber isn’t playing by the rules: if no licenses are being issued, how can it enter the market legitimately; or that is part of the hidden economy (when in reality it is easier for conventional taxi drivers to hide part of their earnings, while the Uber app results in absolute transparency); or that it is somehow unsafe (although of course passengers are delighted with the service). But events are proving that resistance is futile. In San Francisco alone, where Uber and other apps such as Lyft have become hugely popular, the number of journeys in conventional taxis has fallen to a third of the number in March 2012, a figure that hides the fact that the market there has increased enormously (Uber’s revenues alone in San Francisco now are several times the size of the industry total in March 2012) and that City Hall there, foreseeing the disruption, simplified license application procedures to the point where just about anybody could get one quickly and easily.
In short, the facts speak for themselves: we are moving toward a future in which passenger transport will be liberalized, as well as part of a different model of town planning, based much more on sharing rather than owning. This will affect taxi drivers, car makers, and all of us. Uber is not your average cab company. Uber is a case of innovation in its purest state.
(En español, aquí)
