1. Did you choose the company as an example of effectiveness or ineffectiveness? Why?
Uber is a clear example of effectiveness in delivering technological disruption to a global scale very rapidly. You cannot get to a valuation of $68B (surpassing Ford and GM) in 5 years without having a very well aligned business and operating model.
The hype around the movement is real with articles like: “The Uberpreneur: How An Uber Driver Makes $252,000 A Year” popping up all around. This particular one describes how Gavin Escolar uses his uber as a showroom for his jewelry business, but Escolar is far from the only person that managed to make a lot of money using Uber’s platform.
The world is not all sunshine and rainbows for the tech company though. They face stiffer and stiffer competition in the bigger international global markets (China and India particularly) from local players and are currently fighting lawsuits in almost all the cities they operate. But despite these complications, they’ve managed to create one of the most successful global growth story of the last decades.
2. Describe the company’s business and operating models. What is interesting about them?
Business model: Uber connects people who need a ride with people who are willing to give you a ride for a fee. It uses dynamic pricing to match supply (of drivers) with demand (of passengers).
- No waiting around or looking for a taxi
- No need to carry cash
- You can track and ETA your ride
- Cheaper than normal taxi
- Contact info of driver and travel history if you lost any item
- Flexible work schedule
- Additional source of revenue
- Easy payment system
- Higher fares in peak periods
They simply collect a fee (around 20%) for every ride completed using their app.
Operating Model: Uber has mainly two assets. One is their people and the other is their technological platform. They grow by bringing their service to a new geography, their first asset is responsible to initially create a driver base for the app while the second asset is easily transferable from one geography to the next.
The most interesting thing about Uber’s business and operating models for me is its simplicity. It completely disrupted a very old industry that hadn’t changed in decades. Nothing they did was revolutionary, they saw something that wasn’t working well and found a way to make everyone in the system better off.
3. Do the models align and support each other? How? What specific features of the operating model are designed to create and sustain competitive advantage? What features of the business model leverage unique capabilities of its operating model? What are the implications for performance?
One of the most successful thing Uber has done is grow globally at a blistering pace. The way they did this in their beginnings is to go around cities’ cab stand and talk to taxi drivers about all the incremental advantages that partnering up with Uber would bring to them. I was part of this effort in Montreal and was really surprised how easy it was to do this. Simply telling drivers that Uber would provide them with an iPhone so they could use the app was enough to get a significant percentage of them through the door.
Uber doesn’t need to do this anymore though, they have created a global brand that people recognize everywhere. They can therefore concentrate on marketing and advertising their entry into a new market, sit back, and wait for drivers to show up to their door steps. Which they do. In masses.
Because their only assets (tech platform and people) are very malleable, Uber is able to very rapidly adjust in order to grow as they have done from an early stage start-up to a globally recognized company.
As some of their markets are now becoming more mature, Uber is switching from a growth model to a more “sustain” approach. Here again, they can leverage their assets to quickly respond to market pressures. Surge pricing is a great example of such adaptation. Sure there was a lot of work in the background designing the algorithm to provide surge pricing, but to the end user, the transition was seamless. From one day to the next, the new operating model was pushed to their tens of million users.
This nibble model together with the largest user base of any comparable service makes Uber a giant that’s very hard to push around. Just look at Lyft that is offering anyone who can refer them a driver $1000. The fact that the competition is willing to go that far to acquire new drivers speaks to the importance of the user base in this market and how far ahead Uber already is.