How Do You Evaluate Uber´s Pricing Policy? What Are the Up- & Downsides of Their Pricing Policy?

...

Customers choose the kind of cabs that they want – Black, X etc.

Efficiency • Cost efficiency: Cheaper travel fares generally

• Significantly lower transaction costs: Auto-deduction of ride fares. No exchange of currency with drivers. No problem of change & tipping

• Improved Logistics: Uber App intelligence: Doesn’t let drivers see destination before booking; Customer-side: Remember most visited; calendar marking

Reliability • Boarding: Riders know the pick-up time and place precisely

• Navigation: The GPS navigated journey makes Uber a better proposition in terms of mental and financial bandwidth (no loss of time, money or attention!)

• Safety: Anonymity with drivers during the entire process (number cloaking)

• Transparency/ Empowered Riders: Ability to give driver reviews

Finally, since Uber is a platform offering, it is worthwhile to highlight the improvement in ‘Drivers’ experience as this is essential in re-inforcing the business model. When Uber started, it made it easier for drivers to serve riders – loans to own cars, iphones, easy onboarding, GPS navigation. Also, drivers have found it easier to locate customers (higher efficiency) and they have enjoyed higher flexibility and gross earnings (might not be applicable anymore).

4) How well does Uber treat its drivers and how does it impact their business? Evaluate short- and long-term business and performance consequences.

A bit more than cursory dive into Uber’s business model makes it clear that Uber’s interests and those of its partner-drivers are at odds on many levels. First, there is an inherent conflict in the revenue model – Uber takes a commission from the drivers (which it has revised upwards every January or so). Second, the more Uber succeeds, the less bargaining power the drivers have with regards to the commissions. Finally, the drivers prefer shortages in the ranks to push up earnings but Uber desperately wants to avoid driver shortages.

Initially, Uber did a great job of luring drivers using marketing, strength of its platform, & by emphasising flexibility & higher earnings. However, Uber has failed to invest enough in the driver experience in the last few years. As of now, Uber may not be a good partner for those looking to work full-time but a useful option for those who want to supplement incomes.

Uber drivers do not receive any benefits: health, retirement, disability, vacation leave etc. Uber has revised its commissions upwards every year and it would be would be difficult to find drivers who are earning a higher amount YoY (assuming a similar amount of time on road and base fare). Additionally, as has been speculated in media reports that after accounting for the cost of car ownership it is not unfathomable to suggest that some drivers make less than the minimum wage. Finally, Uber employs social & psychological tactics like income targeting, loss aversion to motivate and engage its fleet of independent drivers. Uber has thus been able to maintain an asset-light model, report higher margins and focus on technology (core activity).

However, Uber’s sub-optimal driver experience has potentially severe business and performance consequences. In the short-term, the fall in earnings is a key concern for drivers. This can reduce driver motivation and increase driver churn. In the extreme case drivers could potentially unionize against Uber. Additionally, the use of tactics to keep drivers on road for longer can be interpreted as breach of free will and it could potentially be unsafe (driver fatigue).

Longer term, Uber needs a strong and motivated fleet of drivers to serve its value proposition to riders (Cheap and Fast transportation). While drivers may have limited options to defect to right now but sustained driver abuse could lead to brand damage, legislation and suspension (as has been the case in London). Additionally, there is already work being done by government to understand wage level for Uber drivers and to find out mechanisms by which more benefits could be provided to gig-economy employees. However, if autonomous cars is the future then having an asset-light model is an advantage for Uber as it gives Uber the flexibility to pivot.

5) How robust is Uber´s operating model? Where are the weak links in its service model? Is Uber vulnerable? Give three concrete recommendations of how to mitigate the weak links.

While Uber’s operating model (a two-sided platform that connects drivers and riders) may look easily replicable at first glance but a deeper dive reveals the intricacies involved. Uber has invested significantly in driver and rider acquisition, building a robust app and employed an army of data and social scientists. That said, it is not unfathomable to expect Google or any other tech company (with vast resources) trying to replicate it but Uber still has a first mover’s advantage and a lot of data related resources.

Also, while Uber may be a tech company, its product doesn’t make sense without elements from the physical world. Thus Uber has to invest in the physical world of operations and stakeholder management (drivers, regulators etc.). Additionally, there are further weak links emanating from its relatively simple/ commoditized service offering and difficulty in capturing driver and customer loyalty. Thus Uber is vulnerable to new labour and legislative laws, competition from tech companies (or new entrants) and also a churn of drivers and riders.

Uber can mitigate these weak links by using a combination of diplomacy and innovation – solidify current model and look for newer models. Uber already has its sight set on the next disruptive force - autonomous vehicles/ transport. Being at the forefront of this technology will help Uber reduce its reliance on drivers and at the same time help Uber launch its foray in long-haul logistics business. Uber’s acquisition of Otto (self-driving kit for lorries) for $680 million in late 2016, is a firm case in point in this regard. Leadership in this domain will be a source of competitive advantage in future, but Uber still need to focus substantially in the present.

At present, Uber clearly needs to invest in stakeholder management. It has clearly under-invested in driver experience and in its relationships with regulators/ government. Regulators are already thinking about ways to provide more protection to new class of gig-economy workers and Uber hasn’t helped its cause by showing absolute disdain (historically) for regulatory concerns. Thus Uber needs to invest more in driver experience – better terms for drivers