Uber Strategy Paper

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Uber’s innovative business model has low fixed and operating costs. Unlike taxi services, Uber does not maintain a vehicle fleet and is not responsible for maintenance or licensing fees. A significant portion of their fixed costs consist of developing and maintaining their mobile app and infrastructure platform. Advances in technology have reduced the costs to aggregate and service ride requests (supply side). Operating costs are reduced as the suppliers are independent contractors and not employees, resulting in negligible costs for health care and other employee benefits. The use of social media has created network externalities that have reduced Uber’s marketing expenses. As a consequence, Uber is able to keep its cost per ride or unit cost down.

Uber has chosen a system of activities to implement its strategy of providing affordable, reliable and safe rides on demand. It has invested in technology and not in inventory, created a community of motivated drivers by maximizing their earning potential, securing low-cost car loans and providing flexible work hours, recognized drivers as contractors to simplify the business model, leveraged social media to minimize marketing expenses, built a loyal consumer base by providing a free, feature-rich, convenient mobile app, implemented a clear pricing structure and delivered a distinctive user experience. Uber’s gains a competitive advantage because this system of activities complement and reinforce one another.

A motivated community of drivers provides superior service, strengthens trust in the brand and maintains high ridership. High ridership encourages more drivers to join Uber, thereby increasing the density of drivers per square mile, reducing the wait time for consumers and this further increases ridership. Hence, building a community of drivers is complementary to providing a reliable service. Focusing on community-building activities increases the marginal benefit of service reliability, and investing in service reliability increases the marginal benefit of community building. In order to keep costs low, Uber has developed technology with unique features such as mapping software, cashless payments and in-app driver feedback and customer referral programs. These features reduce customer acquisition and retention costs, resulting in lower prices for consumers. As more riders use the service, Uber collects huge amounts of customer data that allow it to analyze patterns and trends and further improve the technology platform. Hence being a low-cost provider and leveraging technology are complementary activities.

In the last three years, Uber has established itself as the market leader in ridesourcing and has expanded operations to over fifty countries. The passenger transportation industry is very competitive, but Uber is well positioned to capitalize on its first mover advantage and further consolidate its position in the industry.

References:

1: California Public Utilities Commission (http://www.cpuc.ca.gov/PUC/Enforcement/TNC/)

2: http://www.forbes.com/sites/ellenhuet/2014/09/08/uber-lyft-cars-arrive-faster-than-taxis/

3: www.uber.com