Uber’s Use Of Data As A Competitive Advantage

Uber uses data to create unique value offerings.

Value Creation

Uber’s use of data allows it create unique offerings for both the driver and rider.

Rider: Uber’s immense collection of data allows it to introduce offerings such as UberPool. Several years ago, when Uber decided to pursue UberPool, they realized that UberPool’s profitability was important. The last thing Uber wanted to do was UberPool, only to remove it a couple years later due to lack of profit. Taking this into account, Uber determined which metrics needed to be met to make UberPool financially sustainable. These metrics included the “trip match %”, “trip count”, “# of trips heading in the same direction by time of day”, “various driver metrics”, etc…Fortunately, Uber’s data collection mechanism is standardized throughout the world, and updated in real time. Data scientists can quickly determine which cities in the world meet the criteria defined above. These cities are ranked in order of how successful they might be and passed along to the strategy team.

As new cities are introduced, the original metrics are updated, and Uber can go back to determining which cities meet the new metrics. Unlike other carpool offshoots, Uber knows upfront if their venture will be profitable, and is able to think long-term about rolling out the service.

Driver: Uber has been pursuing dynamic surge pricing for some time. The theory is that surge can be predicted on a block-by-block basis before it happens. This prediction is based on the number of people opening the Uber app at any point in time. The difficulty of dynamic pricing is that it requires an extensive amount of data collection and the creation of a very complicated algorithm that can predict the future. The algorithm needs to take into account ouside data such as weather conditions, recent news, local events, etc… Dynamic pricing is useful for drivers because it allows them to drive to areas before the surge. Currently, surge is updated on a 5-10 minute interval – so by the time a driver gets to a “surge” area, the surge could already be over. This data intensive system will allow them to get to the area and be guaranteed a higher fare.

 

Value Capture

On the rider side Uber captures value as we pay for our ride. On the driver side, Uber takes a % of commissions from the fare.

 

Operating Model

Uber’s processes emphasize the use of data to make important product and pricing decisions. For example, Uber occasionally has “guaranteed fares” for drivers. The time and place of the guaranteed fares are determined by the team’s data science expert. At headquarters, Uber has an entire cohort of statisticians to help city teams run statistically significant experiments. These experiments aim to determine the best ways to increase trips, motivate drivers to drive longer hours, etc…

None of this would be possible without the capability to accurately use statistics to improve business decisions. Uber has gained this capability by hiring a LOT of PHDs. In the tech community, Uber has become the place to go for math majors to “make a difference in the world.” I’m not completely sure how they pull it off, but Uber is amazing at attracting world-class coders and math talent.

The resources Uber exhausts to make data available is epic. The cost of maintaining the servers alone is staggering. Since Uber is growing so rapidly, they constantly need to update and improve their hardware and software, which costs an unimaginable amount of time, money, and stress. Uber’s high valuation allows for this – whereas a smaller company would likely be unable to compete.

 

How it got here

Culture. Uber’s founders placed a heavy emphasis on creating a culture that values uncovering truth through data. Its founders and all of the initial hires had backgrounds in mathematics and statistics. In addition to this emphasis on data, Uber was able to create a “greater mission” for its employees to follow – making the world a better place by giving people access to safe transportation around the world. As the company continued to grow, Uber implemented systems for hiring such as a mandatory analytical test, which ensured that new hires are mathematically focused.

The problem moving forward is Uber’s ability to continue attracting the best people. Uber will have 6000 employees by the end of the year. Most employees are between the ages of 25 and 35. People aren’t leaving the company, which means that there is little upward mobility. Either artificial layers of management need to be created (which goes against the “startup” mentality), or really talented hires need to come into the company at very low levels with no hope of promotion. Uber will need to figure this out if they want to maintain the best resource – its coders, data scientists, and statisticians.

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6 thoughts on “Uber’s Use Of Data As A Competitive Advantage

  1. I belive Uber won’t face a massive disadvantage when compared to other companies in terms of attracting and retaining talent: it is still a sexy name in the tech industry. More traditional companies are going to have a tougher time. Something you did not touch upon but I think will have an incredible value for Uber going forward is scaling the data it has been accumulating by people driving around to become, from a pure play transportation company, to a fully fledged logistics business. Uber would be able to scale its structure easily to start providing deliveries.. and then what next? taking over Amazon to become the most convenient retailer of all times??

    1. Thanks for the comment. While I agree that acting as a transportation company may be interesting to Uber, I disagree with your first point about attracting top talent. Having worked there, I see the conflict and inner strife that is caused by the inability to progress upwards. As soon as the outside world catches on to this, they will have a problem attracting talent. In the short term they’ll continue to attract top talent. In the medium term, they’ll see their current employees switching jobs once they’ve been working at the same position for 2 years without any room for growth.

  2. Great post. Regarding HelloSof’s comment above – I’m curious if we’ll see the Amazon’s of the world reacting to Uber’s growth and expanding business lines, and what impact this could have on their growth. If we’re assuming that Uber’s advantage lies within its data – there are other companies out there who collect better and more significant data. Could a Google Maps launch their own Uber?

    1. It’s a good question. However, the data that the other companies collect is not necessarily relevant to Uber’s role as a taxi business. Regarding your second point, Uber will shortly integrate their map application with WAZE, but I think it would be hard for a map program to compete with Uber. However, Google is competing with Uber for control of autonomous vehicles.

  3. Thanks for the post Jonathan. Although the data that Uber holds is important, I believe that it does not have significant competitive advantage when compared with Google Maps, which holds trip data of everyone, not only Uber riders. I am not sure what percentage of the population uses Uber, but even its current customers probably multi-home, indicating many gaps in its data. The information is still valuable in terms of increase in demand for cabs from one point to another by time, but that will remain only relevant for this specific service, and will not help the company compete in the logistics business, as that is a complete different business altogether and requires storing as well as having people move packages to customers in a timely manner as well as route optimization, which is beyond Uber’s current data sets and analytics capabilities.

  4. Great post! I agree that I don’t think Uber will necessarily have an issue attracting the best talent. I think the real question is whether the data-driven culture it has created is what is needed to take Uber to the next level of growth. And/or how can Uber potentially better monetize the data it’s collected or open-source the data to improve the transportation experience. I know that Google Ventures has invested in Uber. Along with Google’s focus on the self-driving car and investment in Uber, I bet in 10 years we’ll taking a self-driving Uber. Are we comfortable with this scenario?

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