Uber

...

According to a report, “Uber treats its drivers as Victorian-style “sweated labor”, with some taking home less than the minimum wage”. But Uber classify its drivers as self employed, which puts them outside the minimum wage law. And according to Uber’s reports, recent polling had shown that nine in its 10 drivers were satisfied with the money they made and were able to maintain steady work life balance. When a company calls its “employees” partners, it gives them a feeling of ownership and pride in them. Drivers get to choose their time and at the same time make great money with their cars.

Because of many low quality drivers, Uber’s name is getting hampered which in turn also affects the “good” drivers. And now there are too many drivers registered with Uber, so many drivers have started driving in odd hours to make money. As per my personal experience, the drivers are not properly trained. Same complaints can be made by the drivers themselves as in they don’t receive any formal training for being “drivers”. Some of the policies like refund of cancellation fees to the customer without consulting the drivers and penalty on missing a given number of trips actually bring morale and earnings of the drivers down.

The best thing about Uber driving would be you get to be your own boss (in a way). Uber gives its drivers an opportunity to earn a decent wage on their own. Drivers are flexible in choosing their working hours which also allows them to maintain a steady work life balance unlike other private taxi services. The ease of usage and convenience are also the main reasons to choose Uber. In a country like India where unemployability rate is too high, many people prefer doing a “job” which makes thousands of families happy.

In its relatively short life span, Uber has attracted a lot of media attention. Why is this? What is it about the Uber business model that is both compelling and polarizing? In addition, why has Uber managed to achieve such a high valuation? What are the pros and cons of a high valuation?

Uber gained unexpected popularity with their marketplace business model unlike others who are still facing many problems. First reason would be simply because Uber provides solution to such a problem which impacts millions of people all across the globe. Their model just brought a disruption in existing old school style taxi services. Thanks to the poor infrastructure and transport facilities in many cities, this easy to use cab service automatically attracted millions of people. Uber’s gorilla marketing tactics like sponsoring major events, free rides offers made Uber quite popular amongst social media audiences. The early adopters and the satisfied users took Uber to social media and blogs. Plus the first mover advantage really worked for Uber quite well. The “WOW” experience which they provided to their customers brought a wave of word of mouth and press.

Uber’s business model is simply based on Aggregation Theory. Aggregation theory is about how business works in zero distribution costs and zero transaction costs. Uber benefits from a simple yet a very advanced network effect that can help to achieve substantial growth. It is being incrementally benefitted as it can add significant value by simply owning the marketplace where the number of transactions completed is much higher than comparable marketplaces. It provides strong value proposition

Despite all the potential in its business model, Uber also faces negative downward spiral trajectory.

Uber had revenue of more than $400 million last year and has told its investors that it is expecting the revenue to grow by $2 billion the coming year. Uber’s faster climb to $50 billion reflects its aggressive global expansion into more than 300 cities and growing popularity ferrying millions of riders daily. Uber CEO Travis Kalanick is said to be a pro in fund raising and therefore has been able to successfully lure funding from large media conglomerates from all across the world especially where his company is trying to set its foot in. Currently Uber is valuated at around $68 billion topping the charts in the list of start-ups.

Startup valuation is like a future bowl for forward expectations of the venture by the founders and the investors. Startup investments are generally non linear. Very high valuations make more difficult for the company to exit. There are fewer buyers for a high valued company. It also leads to dilution of employee shares.

Uber has become enormously popular among consumers in a very short period of time. How has the company accomplished this?

Uber not only provides monetary benefits to the consumers, but they also provide unique experience for them. You do few clicks and the cab will be there in front of you in 5 minutes. Why would anyone not want such a hassle free service? Uber always thinks of the best and the most suitable services for their consumers. I feel what Uber has been able to do successfully in last 7-8 years is identifying the unfulfilled demands of the consumers from their point of view. According to a survey, consumers prefer Uber over other competitors for convenience and price, followed by hassle free payments and reliability. Uber has very positioned itself in providing technology to match supply and demand, driver network quality & density and optimized pricing which work for both drivers and passengers.

Giving high subsidy to it’s extremely price sensitive riders, Uber was very successful to get riders on board. In whichever city Uber went, it started as a new company. It always started with back cars driven by professional drivers. This way they ensured that the customers have a great experience and then they could count on customers to spread the news of that experience by word of mouth. Very intelligently then Uber chose to expand, picking the right cities at the right time to maximize their success. They generally used to launch in a high demand period and in the places where there is a discrepancy between supply and demand for taxis. They also targeted major events having huge gatherings, where big crowds of people all needed cabs at the same time, and an individual will probably be willing to try an unfamiliar name Uber. Uber made sure that the new bunch of customers have a great experience and thus followed by hefty word of mouth marketing.

...