Using a Customer Interface to Scale
Uber made the strategic decision to avoid purchasing its own fleet of vehicles and the “full stack” approach. Instead by focusing on developing a customer interface they exchanged some level of control for a better ability to scale. The customer interface allows them to access a huge supply of drivers and passengers.
Uber’s corporate structure also facilitates expansion and optimizes operations at the city level. While its main technology resources are centralized in San Francisco, each city is its own mini company. A general manager heads up operations and community departments which focus on the analytically-driven driver logistics and passenger relationships, respectively . This setup allows Uber to customize their product offerings in each city. For example, Uberpool was launched in Bangalore, India before it was in Uber’s backyard (Palo Alto), because the product works best in a high density area where the likelihood of commuters traveling in the same direction is greater . By having a customer interface that can be changed for each city, revenue can be maximized without sacrificing operational efficiency.
Using a Large Driver Network to Create Products
Uber was able to successfully disrupt the taxi industry because of its simple value proposition for both drivers and passengers. Most importantly, Uber has been able to build a large driver network because it offers a simple driver application process (versus contracting with a taxi company, applying for a taxi license, etc.) and in some cases offers up to 30% in commissions to drivers . The passenger is able to dictate the location of their pickup, realize cost savings on the ride, and also match their preferred riding experience with their willingness to pay via different Uber products.
Armed with a large driver network, the company can optimize processes and overtake companies in other business segments namely delivery services. Uberpool is an example where improved vehicle utilization can be achieved because of high volume and density of both drivers and passengers. Its lower cost for passengers also can have a compounding effect for the business by making owning a car can become less attractive yielding more frequent rides. Uber’s introduction of UberEats and UberRush are examples where its superior driver network allows it drive delivery costs down and potentially crowd out competitors like PostMates .
Data & Analytics: Surge Pricing, Mapping, and Urban Planning
Uber has applied for a patent on its surge pricing algorithm because of the role it plays in optimizing both its revenue and operating models. It allows the company to quickly match customer demand with supply at a revenue premium . The responsiveness of the pricing minimizes the possibility of a bullwhip effect. A study on Uber usage after an Ariana Grande concert at Madison Square Garden illustrates this phenomenon – the image shows the close mirroring of supply and demand .
The company has also invested in mapping technology and bought deCarta this past March. Superior mapping ensures travel times are reduced and passengers are provided with more accurate ETAs . The driver interface was also recently updated to provide drivers with more detailed breakdowns of where surge pricing is occurring so they can be more responsive to demand.
Finally, Uber has captured an enormous amount of data on passenger behavior. Cities like Boston are aware of this and looking at ways to use the data to improve road designs or plan new housing developments . This is just another example of Uber’s potential to impact how other organizations think about their own business and operating models moving forward.