Sunday, September 7, 2014

The Disruptive Force of Uber

  • As online transportation company Uber expands globallyconflicts with some regulatorscompetitorsunionized workers and drivers have increased.  Concerns include: 1) Uber is operating without the same licensing and insurance as traditional taxis services, 2) it is trying to lure drivers away from alternative services, such as Lyft, 3) it is changing the terms for drivers operating on its platform and 4) it is placing and then canceling pick-up requests with competitors to disrupt their service.  
  • In addition, last week, as the German government sought to limit Uber’s activities, Anja Floetenmeyer, a representative for Taxi Deutschland, said, “Uber has never observed German law. This is Wild West capitalism without consumer rights.”
  • Some background Uber started in San Francisco during 2009 to provide an alternative to the city’s mediocre taxi service.  Unlike many taxi services, Uber does not own any vehicles. Its platform includes a smartphone app to connect users with drivers, a navigation system and a fare collection and payment system.  Passengers payUber, and Uber pays its drivers about 80% of the fare (there is no requirement to tip the driver). Drivers must pass a background check, provide their own vehicle and comply with service commitment levels, such as the minimum hours per week that they will drive. Estimates vary about the firm’s net revenue (possibly greater than $1 billion), but CEO Travis Kalanick said revenue is doubling every 6 months.
  • Uber, and similar services, provide a refreshing alternative to many mainstream taxi offerings.
  • Its positive business momentum and investor support, has allowed the firm to broaden its services and establish partnerships with organizations such as OpenTableUnited AirlinesStarbucks,TripAdvisor, and Hyatt Hotels
  • With regulatory oversight increasing, compliance with new rules is becoming a business requirement. Also, the interaction with unions (in the U.S. the Teamsters and AFL-CIO are becoming more involved), will likely affect the cost structure of these services. 
  • While Uber's growth may slow and conflicts with drivers may increase, passengers will likely continue to benefit from this disruptive business model.  

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