Uber, the app that leads the internet transformation

a deep look into Uber, its transformative effects and regulatory issues

New Uber Logo
New Uber Logo

Introduction

Uber is the leading company in the global ridesharing market. As part of the gig economy, it has significantly changed our lives in various aspects, posed some challenges, and has a huge impact on the traditional industry as well. Mostly, it is an innovative entity that has transformed our understanding and use of the internet.

This essay will provide critical analysis of Uber. The first part will include an introduction to the operations of Uber and its historical development. The second part will explore its business model and regulatory debates. The third part will explore its position and relationships in the internet ecosystem. Finally, the transformative effects of Uber will be explored from different angles.

 


Uber—The Ridesharing App

Uber is the car-sharing service started by Garrett Camp and Travis Kalanick in 2009. It was officially launched as a mobile app on iPhone and Android phones in the San Francisco area in 2010, originally named UberCab. Customers on the app can see the available cars in the selected area and can then request a ride to a chosen destination (Hanson, 2016a). People can also choose to drive with Uber when they meet the minimum requirements, upload required documents and go through background checks (Uber, 2019).

Uber is part of what is called the ‘Sharing Economy’, usually meaning the exchange of goods and services, information collaboration and social interactions online. According to Benkler (2004), sharing economy is to make a sustainable social practice practicable. It produced new economic models while challenging the traditional models as well, especially the ownership economy where people purchase goods and services for their own consumption (Hanson, 2016b).

 


The Historical Development of Uber

The idea of Uber was first introduced by Camp. On a New Year’s Eve, Camp and his friends spent $800 hiring a private driver. Although Camp had just made a fortune selling StumbleUpon, the nearly a grand price still made him feel uncomfortable. Camp had been trying to bring the price of car service down ever since. Then he realised several people sharing the bill would make the price affordable for everyone. Therefore, the first prototype of UberCab was built by Camp and two friends. Kalanick was included as the ‘mega advisor’ to the company and gave Camp the full credit for the idea of Uber.

However, it only provided black luxury car service initially, and the price was about 1.5 times that of a taxi in San Francisco (Shontell, 2014). In 2012, UberX was first introduced with the price similar to that of a taxi. Drivers were allowed to use their personal vehicles as part of UberX in 2013 which further dragged down costs. In 2014, UberPool launched in San Francisco and soon in other cities worldwide. It allows users to share the ride with others who are taking a similar route to further bring down the cost.

Currently, Uber is available in more than 700 cities. It attracted venture capital from a number of investors. Google invested $258 million in 2013 in Uber and valued the company at $3.5 billion. It even became the tech company of the year on USA Today. The company has been developing self-driving cars in recent years and more recently the flying taxi.

Uber's flying taxi in Melbourne for trial
Figure 1. Melbourne is one of the trial cities for Uber’s new flying taxi service (Martin, 2019)

Nevertheless, Uber has been unable to operate in some cities and locations around the globe because of the resistance and complaints of the local taxi and public transport spheres as well as the loss of revenue due to high taxes (Hanson, 2016a). But these are not all the issues Uber has been facing, this will be further analysed later.

 


The Business Model of Uber

According to Pels and Kidd (2015), the definition of business model generally refers to three main components, 1) firm-centric, 2) how firms do business, 3) to create and capture value. Behind the success of Uber, there is the innovative business model.

One element of Uber’s business model is asset sharing (Kavadias, Ladas & Loch, 2016). The driver-partners use their own cars to offer rides, thus converting goods into services (Smith, 2016). They are responsible for the costs like fuels and insurances, Uber does not own any cars or employ any drivers, thus outsourcing as many costs as possible for itself (Srnicek, 2017).

Another element is the collaborative ecosystem. The drivers assume the risks of getting rides, while platform allocates the risks more appropriately and reduces the costs of risks by using big data (Kavadias et al., 2016). After all, Uber is simply the platform that connects drivers and riders, and the data generated from those interactions is the central source of power that gives it anto advantage over other competitors (Srnicek, 2017). The platform will conduct a demand forecasting every 15 minutes using a series of models, algorithms and heat maps efficiently to reflect and to respond to market changes in real time, which increases the utilisation rate of cars dramatically (Bashir, Yousaf & Verma, 2016). This is why Uber doubles its size every six months.

Therefore, its focus is not expanding the existing markets, but entering new markets. Uber also has a rating system where customers can rate their drivers which promotes tidy cars and high-quality services (Kavadias et al., 2016).

Request a ride on Uber
Figure 2. Request a ride on Uber (Screenshot, my author)

Another important element is Uber’s pricing system. There are two elements. The first is the usage-based pricing, usually cheap and reasonable in most occasions (Smith, 2016). This is determined by several factors like the base rate, rates of time and distance, and the current demand in the area. No more flat rates on any occasion but better matching demand on specific occasions will shift the idea of ownership in customers’ mindset towards access and enhancing the idea of only paying for your slice, hence increasing their demand for Uber (Smith, 2016).

The second is the surge pricing. During special occasions like rush hours and special events, Uber will impose a surcharge which can be 8 times as high as its normal rate due to sudden high demand and lack of drivers. But customers can always choose to pay or to wait (Bashir et al., 2016). The payments are all made cashless and directly to the company. The revenue will then be split with the driver.

However, the key to Uber’s business model is the ‘Uber’ app. It’s the platform that connects drivers and riders, deals with numerous requests and activities, and provides GPS navigation which makes the trip more accurate and predictable. The use of the internet and technology is at the core of Uber’s business model (Teece, 2018).

Meanwhile, the new business model of Uber (or the sharing economy) also triggered regulatory debates. Whether people who drive with Uber should be classified as employees or independent contractors leads to the debate on whether they should enjoy certain rights and protection measures that are supposed to be provided by the company as the employer(Harris, 2017). Pressure and protest from the local taxi industry because of their affected business also concerned the government.

Other issues include safety issues such as sexual assault and injury, even death, caused by the distraction due to phone use as well as discrimination against the disabled (Hanson, 2016a). The debates are mainly around should Uber be regulated or not, and if yes, how?

 


The Internet Ecosystem of Uber

The internet ecosystem of Uber involves multiple players including users, service providers, clients, partners, competitors and regulators.

The major competitors or alternatives of Uber are Lyft (which offers similar services), Ola (which allows cash payment and provides hourly car rental as well) and DiDi (knows as ‘Uber of China’ but has entered Australia market in 2018), and Grab and Curb which are designed for the professional and local taxi industry and allow cash payments (Johnson, 2017; Masige, 2019).

The drivers are the service providers of Uber, the riders are the clients, while they both are the users of the platform. Uber has many partnerships, such as payment partnerships with PayPal and Google Pay (Uber, 2019c). The two leaders of Uber right now are the CEO, Dara Khosrowshahi, and the co-founder, Garrett Camp (Mascarenhas & Wilhelm, 2019).  The company is subject to the regulation of, especially in Australia, state and territory government, and most jurisdictions also have assistance packages (Department of Industry, Innovation and Science, 2018).

 


The Transformative Effects of Uber

Many have called the sharing economy firms like Uber ‘disruptive innovations.’ A disruptive innovation refers to a business whose business model is new and completely different from those of incumbents (Christensen, Raynor, & Mcdonald, 2017). It changed how business is done and the disruption is a process which will lead to a result which no one knows for sure. Uber is undoubtedly such an innovation.

It introduced a new business model which, at its core, is internet and technology-based.  It does not own any vehicle or hire any driver and leaves the costs to drivers alone. Meanwhile, with its total dependence on its app handling all the activities and interactions online, it reduces the costs of transactions, staff, assets, and regular maintenance compared with the traditional taxi industry. The rating system and the cashless payment together help Uber deliver more reliable and higher-standard services. And the usage-based pricing makes its price usually more competitive than taxi services (Christensen et al., 2017). The unique collaborative system driven by big data also enables more efficient and direct interactions between drivers and riders.

Hence, Uber has transformed how business is done in the taxi industry. It forced the traditional taxi industry to shift towards the internet and technology-based business model which provides more direct, efficient, reliable and high-standard services. Therefore, the platforms designed for local taxi drivers appeared such as Curb, Grab and 13cabs.

Uber vs Taxi
Figure 3. Uber vs Taxi (Koverage, 2015)

Uber is also socially and economically transformative. It allows individuals to turn their private cars into a professional source of income, and to turn private space into public space. Uber further uses the internet to blur the boundary between private and public space. The two-way rating system allows drivers and riders to rate each other when a trip ends which creates a sense of equality and accountability in the online community and promotes activities between users with good credibility.

Uber also creates many job opportunities with its low costs of entrance and high flexibility of working time. People have more freedom and control over their time. It can be used as a bridge to the right employment and as well as a source of extra income, though there are people who treat it as the main source of income (Meyer, 2016).

However, there are regulatory debates around Uber along with other sharing economy firms. The most critical issue is the classification of the workers. Companies insist that individuals who drive with Uber are independent contractors as they do not sign a contract, they choose when and where to work, and invest their own capital like car. By this, workers do not enjoy the employee entitlements that should be provided by the company such as the minimum wage and superannuation. Some argue that they should be classified as employees as their job resembles some elements of traditional employment such as set rates of pay.

Uber drivers accuse company of wage theft-The Sydney Morning Herald

Until now, rulings favouring both sides have both been made by authorities worldwide. How drivers should be treated and what rights and entitlements they should possess remain unclear (Healy, Nicholson & Pekarek, 2017).

Rate the driver on Uber when a trip ends
Figure 4. Rate the driver on Uber when a trip ends (Uber, 2019d)

 


In Conclusion

Uber has been an innovation that leads the internet transformation. It introduced a new business model that is internet and technology-based that better connects drivers and riders and provides better services which initially had a huge impact on the traditional taxi industry but later forced it to adopt this model as well.

Meanwhile, it also uses the internet and the two-way rating system to enable us to interact with better accountability and equality in a space where the boundary between private and public sphere is blurred.

Last but not least, even though it still has certain regulatory debates, particularly the classification of workers, there is no doubt it revolutionised the way of working and provided more job opportunities.

 


References

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About Stefan Zhao 4 Articles
Second-year international student from China. BA, major in Digital Cultures and minor in Asian Studies.

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