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Uberisation in the public transportation system

  -   16. March 2017
Source: Foundry/

As a pioneer in ridesharing, the online transportation network company Uber revolutionized our public transportation system like no other company. It exceeds its competitors in the publicly held transportation such as Delta Air lines, and with a company valuation of $68.5 billion is worth more than the combined value of the traditional car rental services Hertz and Avis. The business numbers speak for themselves: present in 528 cities in 60 countries, more than 8 million users worldwide and an average number of 1 million trips per day. But the question which remains is “Where does Uber’s enormous success come from?” To understand Uber’s business approach one must go back to the principle of sharing economy.

In general sharing economy is increasing in importance as it involves both entrepreneurial and environmental benefits, such as a decrease in carbon dioxide emission and additional opportunities for employment. Moreover, regarding the taxi industry Uber had the perfect market to enter. Due to close price controls and rising medallion prices taxi companies barely innovate. However, various issues like wait time, high rates and the trouble of using a taxi during peak time demonstrated the need for an innovative segment to meet customer’s needs.

Uber’s Business Model – A mix of technology and customers’ desire for convenience

Uber didn’t reinvent the wheel, instead, their innovation is based on the recombination of ideas that already existed. Cashless, convenient, consumer friendly – this could be the magic formula Uber made use of. The app lets people order a taxi within a few taps, payment method is integrated and the additional rating system takes care of quality assurance. An innovative feature definitely depicts the peer-to-peer pattern which replaces the middle man dispatch service traditional taxis are dependent of. Furthermore, the low cost value proposition and ridesharing features like Uberpool increase profitability. So far so good but what were the main drivers that facilitated this innovative concept?

Source: Pexels/

Source: Pexels/

One peculiarity is the hybrid nature of Uber’s innovative business model. The existing demand by traditional taxi service consumers is certainly one force explaining the success of Uber. Especially the increasing need for ridesharing was not exactly covered by the traditional taxi industry and there were no other providers offering a similar service. However, a pure demand pull still requires technological competences to implement it effectively. Therefore, technology must also be seen as one main driver, as the concept relies heavily on the convenience of the app. In order to match these two main components Uber had to convert the existing technology into a system, or in this case an app, which meets the requirements of the demand and convert it into a usable service. Science itself can provide the trajectory of an innovation, yet it requires the demand of your target group to ensure suitability. That is why both components are of mutual importance when understanding the source of Uber’s innovation.

Disruptive or simply sustaining?

Uber is often classified as a disruptive innovation because it revolutionized the traditional taxi industry and took over a great amount of their former customers. A typical disruptive process is characterized by small companies with fewer resources entering the market and challenging established incumbents successfully. This holds truth for Uber as the company neither owns any of the cars nor employs the drivers and yet managed to gain a high number of customers in a short period of time. However, Uber didn’t start their business being considered as inferior to traditional taxis which is typical for disruptive innovations. In fact the opposite could be observed; consumers favored Uber as it was more convenient, cheaper and qualitatively better. This relevant aspect is linked to the type of sustaining innovations. A typical feature is that existing products are improved enabling the company to sell more, which also makes it more appealing to customer segments that had been overlooked. This process is a crucial part of Uber’s business model and outlines how it was possible to gain market share in a main stream market which appeared to be saturated.

Uber’s next steps to conquer the market

Uber’s innovative business concept did not only break with the traditional taxi industry but also offered a new perspective of using sharing economy for more sustainable solutions. But Uber’s innovative pathway has not come to an end yet. After expanding with services especially tailored to children and senior citizen, Uber introduced UberEATS in 2014 as food delivery service. In the same year UberCHOPPER was launched, a helicopter service which can be rented for special events. It seems that Uber’s treasure chest of innovations still contains some surprises and we are eagerly awaiting their next idea.

Who wrote it?

Katharina Blanckart

Katharina Blanckart studies International Tourism Management at the European Management School in Mainz.


Silas Nikolaus
22-03-2017 21:46

In my opinion Uber is a great innovation and a good alternative to normal taxis. The first time I actually used it was during my semester abroad and had very positive experiences with Uber. It is very advantageous in environments that are not very familiar in particular. You can get picked up wherever you are, even when you got lost, you can keep track of the drivers and follow their route while driving. My me personally it only carries positive aspects, however, it is illegal in some countries due to the loss of competitiveness of regular taxi drivers and therefore it probably won't be implemented in Germany.

Sophia Pan
22-03-2017 20:33

Already for quite some years there is an almost similar concept in China called "Didi" or "di di da che". When I was living in Beijing I used it on a weekly basis and I was a total fan of it. What's interesting is that in China the normal taxis use didi to get customers! Almost every taxi has the app installed. The problem with that is that now it is almost impossible to get a taxi without having ordered it on Didi before. Personally I have not yet had any experiences with Uber but I guess it is quite similar to Didi. So if it is as convenient, cheap and practical as Didi I think it is a great innovation! However, I think it is important to critically analyze its effect on the local services and also on the old fashion taxi industry. For sure it has many advantages but I believe that there are some disadvantages that should not be ignored...

Julia Ursu
22-03-2017 15:59

I´m personally a big fan of of Uber. The idea is really good and the customers like it. I experienced Uber in Singapore and it was nice and super easy to handle. The idea is an amazing solution regarding big cities with overcrowded streets during rush hour. But Uber has already strong competitors that offer similar. Nevertheless I´m really sad that something like Uber would never work in Germany since the Taxi industry is so big and would do anything to be the one and only in this sector.

Sandra Bleher
22-03-2017 12:46

I first learned about Uber during my semester abroad in Chile. I have to admit that I was sceptical about this concept, but everyone seemed to use it, so I gave it a try. And I wasn't disappointed at all. There are many conveniences to it. It's a lot cheaper than regular taxis and you don't need cash, also the waiting times are really short and the route is tracked and especially at night this gives you a saver feeling. So to learn something more about this innovation was really interesting and I'm curious to see how Uber will grow over the next years. However I don't know if UberEats and UberChopper are enforceable concepts and if it wouldn't be a better idea to develop the main concept further and conquer even more countries.

Isabelle Hachenberg
21-03-2017 22:47

Like Theresa, I also experienced Uber for the first time during my semester abroad in Russia. I have to agree to her in all points! From the customer's view it is super fast, reliable, cheaper and much more convenient than normal taxis. Especially in Russian winter we were more than happy that the waiting time was not exceeding 5 minutes. Still Uber is not the only company on the market with this kind of business model. In Russia for example yandex, a russian-dutch company was dominating the market and was in strong competition with Uber. Same principle, same app, same experience. In order to lead the market and be people's first choice Uber has to be a step ahead of their competition. By doing so I read about an alliance with spotify, where the customer can connect with his spotify music account to the taxi car and listen to his own music. I guess this feature would make people more likely to use Uber. But how Uber can enter all markets worldwide, fitting laws and regulations?

Toni Dang
21-03-2017 15:54

Very interesting article I really enjoyed reading it. During my holiday trip to the East Asia Region 2 years ago the inhabitants told me to always use Uber because taxi drivers will try to scam foreigner. Uber have fixed and good prices thats why I think that the business model is very beneficial for the user but as many mentioned it is very difficult for taxi firms to stay competitive due this disruptive invention. Therefore, when i went to China last year and I realized that Uber wasn't as popular as in Thailand or Vietnam. It looks like Uber has to face some challenges to dominate countries like China.

Mia Zerwas
21-03-2017 12:51

Uber was created as an app that would revolutionize on-demand transportation by restructuring the way people interact with taxis. The idea was simple: getting a cab by tapping a single button. It gained popularity because of its ease of use. Steady increases in funding allowed Uber to expand both the geographic reach and the nature of its service. In my opinion traditional cabs are antiquated and not fitting for the customers anymore. Inappropriate prices frighten off. When having the opportunity consumers will switch to the cheap, quick and convenient way to get a ride with an easy usage of Uber's app. Major challenges for Uber has been regulation problems with several countries priviledging taxis or other types of services, safety issues (how to control untrained drivers) and expansion problems in emerging markets. In my opinion it is especially interesting how the threatened competitors of the sharing economy (comparison: Airbnb vs. hotel industry) defend themselves and what strategies are pursued to gain the critical mass for these new innovative business models. One expansion example of Uber is China: Uber’s founders recognized China as an emerging market and wanted to enter it. In China Uber was faced with some major challenges such as fierce competition by Didi and Kuaidi, two platforms for taxi services, which also were supported by the government. Uber pursued the strategy to build a brand and a critical mass of users in 2015, what included initially providing their service free of charge for travellers and subsidies for drivers. After that Uber pursued to expand in more than 100 new Chinese cities. Uber used different localization strategies such as the inclusion of the possibility of Alipay. Furthermore it entered into a strategic partnership with the mapping technology of domestic Baidu. Besides Uber relied on targeted marketing and independent foreign operations (for example built a operation centre in Wuhan). Even though Uber developed a localized strategy, Didi and Kuaidi put it under pressure. 2016 decided to trade its China operations for a 20% stake in local competitor Didi Chuxing Technology and concentrate on other big battles such as regulations in Europe and focus on other new products.

Patrick Hanke
20-03-2017 23:05

During my semester abroad in the U.K., there was a lot of controversy surrounding Uber and the treatment of its "employees". It was about sickness pay that Uber was not willing to pay for as, what Beate already indicated, the Uber drivers are freelancers and thus self-employed. The business model has for sure been very beneficial for the user, the passengers with an Uber fare being cheaper than a "normal" cab ride, making it very difficult for taxi firms to stay competitive. Therefore, I would say that this innovation is a rather disruptive one, giving the traditional taxi industry are hard time. The trend of sharing a cab or a hotel room/ flat (Airbnb) can thus be seen as a demand pull for this innovation. Lyft, also a start-up in the same industry, has recently become more and more popular too, though it is rather questionable whether it can outrank Uber at some Point. If Uber keeps developing and creating new incremental innovations such as the Uberchopper you mentioned, Uber may stay on top.

Theresa Möhn
20-03-2017 22:58

"Stay away from common taxis- if you want to be safe, use Uber only" I was told in the beginning of my semester abroad in Mexico. Apparently I was living under a rock before I left Germany because seriously I have never heard about the company before. Integrating Uber into my everyday life I started to appreciate the idea more and more. Especially in developing countries or in areas with security issues Uber seems to be THE solution by tracking the complete ride and making anonymous crime nearly impossible. Besides a safety guarantee I discovered way more advantages of the product: Short waiting periods, easy and safe payment opportunities for both parties, a very customer oriented journey and fair prices. Talking to a lot of Uber drivers in Mexico I didn't only have pleasant conversations but also found out that many Uber drivers are more than happy with their job as everybody gets the opportunity to offer a Uber service and to operate independently. Still critics are trying to damage the image of Uber saying the company invades privacy protection or destroys market competition. As I got to know Uber in Mexico, a country that is still facing security issues and lacking employee protection, I cannot relate to the headlines. Sometimes you have to chose between security and privacy. So if push comes to shove, what would you chose?

Marie Schubert
18-03-2017 23:41

Although it is somehow a disruptive innovation, I think, that the principle of sharing economy is going to be even more present in even more different industries. Nevertheless it limited the Taxi industry by not sticking to any regulations, which was also the reason for some countries to simply forbid the Uber service, like Germany. On the one hand I can understand that because it really started to destroy parts of a long lasting industry. On the other hand, as you said, Uber can also be seen as sustaining. It definitely improved an existing product which had to face criticism. Uber made it possible to decrease transaction costs, not only in terms of money also in terms of effort. The consumer convenience was extremely increased. However, Uber does also have to face other criticism not concerning disrupting the taxi industry. It is claimed that Uber hurts the customer´s privacy by tracking them. In addition there is a high tendency for Uber becoming a monopoly and also safety standards of Uber are criticised. In my opinion the service of Uber is polarizing and it is hard to objectively say if it is good or bad as it has it depends on the point of view and the importance people are putting to the different aspects.

Beate Gaitzsch
17-03-2017 15:55

I reallly like your report, as I am not yet familiar with Uber's concept. I mostly heard about its failure to enter the German market, which seems rather insignificant in light of the success it has in other countries. A problem I see, is that all the drivers are self-employed. This seems to be a business model which is getting used more and more recently, for example also from Ryanair. It might become a problem in some countries, such as Germany, as employment laws here are quite strict and social care is important. However, Uber is successful, which maybe highlights the importance of finding the right market to operate in. Lets see how Uber will deal with these problems.



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