UBER

Team Analogy
Marco Almondo - 1669233
Fule Jin - 1686195
Sonia Malacrino - 1644194
Matteo Rizzo - 3017228
Laura Tedeschi - 1682962
Elena Sofia Terzarede - 1649789
 Table of Contents

Introduction………………………………………………………………………………………….1

Chapter 1 - How it All Began……………………………………………………………………...2

1.1 Life before Uber……………………………………………………………………......2

1.2 Uber’s Fairytale …………………………………………………………………….....2

Chapter 2 - Uber’s adventure…………………………………………………………………..…5

2.1 Building the Platform…………………………………………………………………..5

2.2 Product Differentiation………………………………………………………………...7

2.3 Building its own Complements……………………………………………………….8

2.4 Building the Ecosystem……………………………………………………………….9

Chapter 3 – Uber’s vision: the Uber-All Economy…………………………………………….10

3.1 Evolving and inventing new platforms: Diversification……………………………10

Chapter 4 - Play the bulldog, not the puppy dog………………………………………………12

4.1 Uber’s expansion……………………………………………………………………..12

4.2 Sustainability of Uber’s strategy in the long term: “Too Big to Ban”.....……...…13

4.3 Competitive strategy: stabbing its competitors……………………………………14

Chapter 5 - What’s next?....................................................................................................16

5.1 A Silicon Valley Unicorn?...................................................................................17

5.2 Future challenges…………………………………………………………………….18

Conclusion…………………………………………………………………………………………19

References………………………………………………………………………………………...21
Introduction

How did a start up entering the stagnant market of private transportation became the
most valued private company in the world? With a current post money valuation of
$62.5 billion (Isaac & Picker, 2015) Uber, a mobile application that connects drivers
with people who need a ride, has in fact experienced a huge popularity among
investors. What is interesting is that this stellar valuation occurs at a time when the
company has never been profitable yet, and it is currently fighting numerous battles
on more than one front.

What can be said with certainty is that Uber has undertaken a series of interesting
managerial strategies. These strategies, whether sustainable or not has yet to be
discovered, have led the company to its incredible success. In fact, if Uber has on
the one hand boosted the growth of its platform by relying on third parties, on the
other hand it has decided to stand alone on the competition front, declaring war both
to the legislative entities defending the taxi lobby and to its competitors, that are now
joining forces to hinder its expansion.

So what is it about this company that makes it such an attractive option for investors?
Despite its numerous mistakes and not always fair behaviour, Uber has a spectacular
growth potential. In fact, if you think of Uber as a car company operating in a few
cities, it is not big; if you think of it as absorbing the taxi market, it gets larger; if you
think of Uber as delivering both people as well as things it gets even bigger. But when
you think of Uber as a giant orchestrating the delivery of millions of people and items
all over the world, you get an idea of what could be one of the largest companies in
the world (Wolfe, 2013). Notwithstanding its potentialities, Uber still has to overcome
many obstacles: those self-inflicted with its arrogant strategies, and those that arise
from the very essence of the market it is competing in. In order to better understand
the potential and the issues arising from Uber’s business model, it is worth to get
more into the details of its strategy.

“Uber is growing faster than eBay did … [it] is probably the fastest growing
company that we’ve ever had.” - Bill Gurley (Dillet, 2013)

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 Chapter 1 - How it all began

1.1 Life before Uber

It was a rainy night in San Francisco and Boris wanted to take a taxi to get to Tony’s Pizza.
He waited and waited under the rain until a taxi driver noticed him waving his hand. After he
managed to get the taxi, Boris finally sat in the back of the car, right on top of the wrapping
of a chocolate bar that a previous young passenger left there, spotting Boris’ brand new Etro
trousers. While travelling, Boris started making assumptions about the possible cost of the
ride in order to calculate more easily the tip for the driver: “If it’s 15 bucks, a 20% tip would
be calculated…. 5 times 2… No wait, 15 times 1.2.... Where is my phone… ”. Once arrived
at Tony’s, Boris got his wallet to pay the $17.5 ride with his credit card, but the credit card
machine was not present/magically stopped working. He just had a piece of $50 and the taxi
driver only $30 change... Extra tip for the chauffeur, what a coincidence!

Before Uber, taking a taxi was a ritual that customers were forced to undertake each day,
but that they did not enjoy and for which they had to spend a relatively high amount of money.
There was simply no alternative (Brown, n.d.).

1.2 Uber’s Fairytale

In December 2008, Garrett Camp and Travis Kalanick, two entrepreneurs and friends, were
in Paris to attend the annual tech conference LeWeb. That night, they had to go back to
their apartment, but they could not hail a taxi because of the snow (Blystone, 2015). When
they eventually managed to get back to their house, they started one of their usual “jamming
sessions”: they gathered with other entrepreneurs, looking for new business ideas until 5AM.
Among the many concepts that came out that night, there was also the one of a timeshare
limo service that could be ordered via a mobile application (Swisher, 2014).

It was a particular moment for both founders since the year before Kalanick had sold his
start-up Red Swoosh to Akamai Technologies for $19 million while Camp had sold his
StumbleUpon to eBay for $75 million. Camp was ready to move on to the next big thing, and
after going back to San Francisco he kept working on the idea and bought the domain name
UberCab.com. Kalanick instead was not interested in participating in the project since he
was still recovering from the fact that his first two start-ups had not achieved the results he
expected. Camp knew that developing Uber would have taken a lot of guts and was

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therefore determined to have Kalanick on board because of his “go for it” attitude. He
managed to convince him by the summer of 2009, and the following May Uber was launched
in San Francisco: anyone from that moment on would be able to “get a car with the press of
a button” (Swisher, 2014).

Kalanick and Camp, taking inspiration from their own daily life and the inefficiency of the taxi
service in the Bay area, revolutionized the whole customer experience of taking a cab and
managed to make private transportation a pleasant journey again. In fact, by pushing a
button on the Uber app, a car would come to pick the customer up thanks to the GPS location
of his mobile phone. The rider can have access to the name, picture and past feedbacks of
the driver that accepted his request, and if this information do not convince him, he has the
possibility to cancel the ride. Most importantly, at the end of the trip, he simply gets off the
car without needing to pay directly, since the cost of the ride has already been charged on
his credit card (Brown, n.d.).

Not only the riders will have advantages from using this app, but also the drivers benefit
from the platform. In fact, Uber drivers have more flexibility than normal taxi drivers: they
can turn the app on and off whenever they want, allowing them to decide their own work
schedule. Also, through “surge pricing”, the pricing method that varies according to real-time
conditions of supply and demand, they are able to earn more whenever there is higher
demand than offer, for example during the Super Bowl or on Christmas Day (Uber Driver
Pros & Cons, n.d.). Drivers’ down times waiting for passengers to request a ride are also
lower compared to taxis, making their hourly earnings higher despite the average lower price,
as shown in Table 1 and 2: the average earnings per hour for an Uber driver are $19.19,
while a taxi driver only makes around $12.90. 80% of what drivers earns through Uber stays
with them, while the company retains the remaining 20% (Sydney, 2015).

The value of the San Francisco-based company’s service was immediately perceived by the
market, resulting in a notable success. Six months after the launch of its mobile application,
Uber had already reached around 6,000 users, which drove between 10,000 and 20,000
rides (How did Benchmark Capital justify a $49M valuation for Uber?, 2012). Today, Uber is
available in 412 cities and 70 countries worldwide (Isaac & Picker, 2015).

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Table 1 - Uber vs. Taxi Pricing

Source: Silverstein, 2014

Table 2 - Uber drivers vs. Taxi drivers Hourly Wages

Source: Petropoulos, 2016

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 Chapter 2 - Uber’s adventure

2.1 Building the platform

Uber’s successful value proposition, that has been globally recognized, is entrenched into a
two-sided platform. Differently from many companies that have the need to build a platform
around their product in order to grant supremacy in their market, in Uber’s case the product
can be considered as the platform itself. Drawing from its definition, a platform is a business
model that creates value by facilitating exchanges between two or more interdependent
groups, leveraging at the same time the network effects created by its installed base of
customers. In particular, Uber is a two-sided platform that connects drivers and people that
need a ride, providing both of them with network externalities (Parker & Van Alstyne, 2013).
This platform is characterized by the presence of transfers between the parties, which
exchange information, money and the transportation itself, as we can see from Figure 1
(Choudary, 2015).

Figure 1 - Uber’s platform

Source: own adaptation from Choudary, 2015

The value of the platform is measured by its ability to connect the parties and to attract new
producers and the users/customers. This value depends on direct network effects: the utility
of platform users increases as the size of both sides increase. The priority for this type of
platforms is therefore to quickly build a large customer base in order to foster direct network
effects and gain a dominant position against new entrants (Choudary, 2015).

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As a two-sided platform, Uber has managed to grow its network by subsidizing the side of
the market that is more price sensitive (the drivers) and that can provide network growth to
the other side, the riders, which is charged full price instead (Rochet & Tirole, 2003). Drivers,
in fact, do not have to pay anything in order to use the app and they are rewarded through
surge pricing when there is a higher demand than supply (Uber as a Two-sided Market, n.d.).

In this way, Uber can manage to leverage direct network externalities proportionally at both
ends (Shane, 2014). In fact, as described in Figure 2, if on one hand the number of drivers
positively influences the ride availability and the variety of riding options, on the other hand
an excess in drivers’ availability may lead to an insufficient number of riders, which would
leave drivers unhappy. At the same time, as the number of riders influences the possibility
for drivers to earn money, too much growth on the buyer side could also lead to an
insufficient number of sellers, leaving buyers dissatisfied (Sullivan, 2015).

Figure 2 - Uber’s network externalities

Source: own elaboration

Uber has fostered network externalities since its launch in 2010, when it managed to create
local network effects through an intense market focus. Indeed, Uber targeted at first the
early adopters of the tech community of San Francisco. There are two main reasons behind
this strategy. First of all, San Francisco had a notoriously spotty cab service; secondly, tech
people are continually looking for new tools and services that can improve their quality of
life (Brown, n.d.)

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One of the peculiar characteristics of Uber is that the technology behind it is easily replicable,
while the whole network built around it is not. The company’s customer base has been built
through the continuous conquest of new areas. There are actually some factors that can
explain Uber’s successful expansion. First of all, Uber’s geographical expansion has always
been tailored according to a city-by-city strategy: Uber understood from the beginning that
each area has different actors with different characteristics. Secondly, the launch of the
service in a new city was also followed by the offering of free rides in order to lead new
potential customers to try the service. Once an appropriate customers base is created,
Uber’s discount and free rides decrease.

There are two other interconnected and important factors behind Uber’s growth: the quality
of the experience and the word of mouth. In fact, one of the main issues that Uber had to
face was the risk of negative network effects, which was resolved by ensuring a high safety
and quality of the ride through an ad hoc feedback system. Moreover, the early adopters
who tried Uber told their friends about it and also shared their experiences on blogs and
social media. Spreading awareness about the quality of the service was at least as important
as delivering it: this positive word of mouth eventually encouraged more and more people
to try Uber and led to an increase in customer base through positive network effects (Brown,
n.d.).

Thanks to the successful launching strategies and the incredible increase in the customer
base, Uber eventually became a social phenomenon, as shown by the fact the “Uber” is now
used as a verb (Moazed, 2016).

2.2 Product Differentiation

In order to establish and impose its dominance in the private transportation market, Uber
started its activity by pursuing the high segment of the market and then proceeded
differentiating its offer in order to appeal to other segments. Since day one the aim was clear:
reach as many people as possible.

Uber started at first by providing customers with sedans driven by professional drivers, a
service that was later renamed “UberBLACK”. Later on, other high end services were
introduced, such as UberSUV and UberLUX, the most expensive and luxury ones. Lastly,

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Uber introduced UberX and UberPOP, lower end services that provided everyday cars
driven by non-professional drivers. These services not only dramatically increased the
number of Uber’s riders since they were cheaper, but also its drivers, opening up the
platform to a new segment: the Part-Timers. In 2014, this segment already represented
more than 50% of Uber’s fleet, as shown in Figure 3. The success of UberPOP, the
European version of UberX, called particular attention on itself: Uber was accused of unfair
competition and the service was deemed to be illegal by a French court, eventually
suspending it in 2015 (Wikipedia, 2016).

Figure 3 - Uber’s drivers segments

Source: Benenson Strategy Group, 2014

2.3 Building its own Complements

Incentives are essential in order to overcome the classic “chicken and egg” problem (Yoffie
& Cusumano, 2015). Riders will not join the platform if pick-up time is not short enough, or
if the ride-request process through the app is not immediate. As the differentiation strategy
was mostly aimed at increasing the riders’ side of the platform, Uber also took an important
step to increase drivers’ motivation to join by trying to destroy the biggest entry barrier for
drivers: owning a car.

In order to do so, Uber launched in 2015 Xchange Leasing, a subsidiary company that gave
rivers the possibility to access a tailored and agile leasing for purchasing a new car. The
main peculiarity of the leasing service offered by Xchange is that, differently from other
alternatives, it includes unlimited mileage and the possibility to terminate the lease with just

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a two-weeks notice (Perea, 2015). With this conditions, Uber opens its doors to a whole new
group of drivers that may only be interested in joining Uber for a few months instead of
longer periods (Deamicis, 2015).

Andrew Chapin, the Head of Uber’s Vehicle Finance, said that when it comes to leasing,
profits are not Uber’s goal, but the objective is just to break even with costs and sales (Rao,
2015). In fact what the company really wants to reach with this service is to get the highest
number of drivers behind a steering wheel, nurturing and pushing its feedback loop-business,
as shown in Figure 4.

Figure 4 - Uber’s own complement

Source: own elaboration

2.4 Building the Ecosystem

In recent years Uber has been well-aware of the imperative of not only thinking platforms
but also ecosystems.

Indeed, Uber’s initial strategy was based on the exploitation of the first mover advantage
and it used all levers at its disposal in order to make its service viral. Once a stable two-
sided customer base and a strong brand image were created, Uber decided to undertake
an “open” strategy: the company is trying to explore new opportunities and potential markets
not directly related to its core business, through different partnerships. This has the aim to
reach more and more customers and create the best environment in which to operate.

The first step Uber took toward the expansion of its platform’s boundaries and the
construction of a larger ecosystem was to get closer to the tech giant Google and to integrate
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Uber in Google Maps, as one of the possible means of transportation suggested by the
service (Etherington, 2014). Moreover, in October 2014 Uber launched its Request
Application Programming Interface (API), which gave third parties the possibility to integrate
their application into Uber.

The release of Uber’s API happened in different ways according to the level of integration
between the Uber app and the third-party one. Developers can simply add a “Request a
Ride” widget to their applications, which then redirects users to the Uber app, or incorporate
the possibility of visualizing, booking and cancelling Uber rides without passing through
Uber’s app. As for the second option, in order to keep under control the overall quality of the
user experience, Uber decided to start from a selected set of partners and then to open up
gradually. Uber is also trying to incentivize developers to integrate Uber in their applications
by offering them rewards (e.g. $5 USD for every new user that tries the app) through the
Uber API Affiliate Program (Summers, 2015).

Through this strategy, Uber is proving to be open, but at the same time not completely open:
its core business is not put at risk but it is protected by the huge customer base and the
network effects that it has reached before the launch of its API. The API launch is a win-win
solution for all the parties involved: “The established players like Uber can grow their
revenue and reach since their features become embedded into third party applications, and
the smaller emerging apps benefit because they become part of a much larger ecosystem
with new customer opportunities.” (Kepes, 2015).

In the wake of this initiative, in August 2015 Uber has also announced the launch of the
“Uber Open Source Site” that features the best software solutions related to Uber coming
from GitHub.com, an open source software platform. (Wolski, 2015).

Chapter 3 - Uber’s Vision: The Uber-all economy

3.1 Evolving and inventing new platforms: Diversification

The extraordinary success of Uber’s value proposition allowed Kalanick to set ambitious
goals for his company: the plan is to make Uber rides cheaper than owning a vehicle and
taking public transportation. In occasion of the 5th anniversary from its launch, Kalanick said

10
that his long-term dream for the future is to achieve city traffic speeding along smoothly and
quietly, even at rush hour, and to convert all the space wasted on garage and lots in parks,
schools and housing (Kosoff, 2015).

“This is our ultimate vision of the future, smarter transportation with fewer cars and greater
access." – T. Kalanick

However, Uber’s vision does not stop at offering a superior taxi service: Kalanick sees in
Uber the potential for a smoothly functioning instant-gratification economy, powered by the
smartphone as the remote control for life. Uber in fact wants to play a dominant role in the
“everything economy” such as other bigger and well established companies (Google,
Amazon, eBay and Walmart). The economy is moving toward a state in which all consumer
goods will be available as a service and all consumer services will be available on demand.
This change entails a shift in consumers’ needs from ownership to access: with the Uber-
All on-demand business model, a brand sells no more than a consumer needs in that
moment (Walker Smith, 2016).

“If we can get you a car in five minutes, we can get you anything in five minutes”
- T. Kalanick (Swisher, 2014)

Uber started making steps toward this vision in 2014 as it realized that clients need every
sort of product delivered exactly where they are, at a low cost and in a short time (Walker
Smith, 2016). Usually, the launch of a new program happened by starting a small pilot
project in one location and testing the service in order to evaluate a possible expansion. For
example, Uber Essential used to deliver online households orders in Washington DC, but
was eventually shut down. Successful examples have been UberFRESH and UberEATS,
meal delivery apps that partnered with local restaurants to offer meals to consumers within
10 minutes (Etherington, 2014). UberRush instead is a bike delivery service in Manhattan
that was launched in April 2014. UberPool was introduced in August of the same year and
it consists in pooling in the same ride those customers that are starting a trip near each other
and going in the same direction. According to Kalanick, UberPool “has the potential to be as
affordable as taking a subway, or a bus, or other means of transportation.”

Once established, a successful platform provides the company with a strong and solid
positioning in the market that is hardly replicable. However, in order to renew their value
proposition and to stay ahead of competition, platforms must evolve over time. There is no
alternative to evolution and the pace of this change must be chosen wisely. If a platform
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evolves too fast it may destroy its established relationships with customers, while the risk of
a late move is to be overtaken by competitors (Yoffie & Cusumano, 2015). Camp and
Kalanick realized the disruptive potential of the rise of digital technologies and widespread
use of mobile apps, forecasting a shift in the dominant business model applicable to many
industries, not only the private transportation one.

Chapter 4 - Play the bulldog, not the puppy dog

While the long-term vision that Uber is aiming to achieve is now clear, what still remains to
be seen is the concrete strategy implemented by the company to sustain it. Since day one,
Uber has adopted an aggressive expansion strategy in the attempt of smashing the rent
seeking taxi lobby. Differently from what might be expected from a young venture, Uber did
not even try to stay under the radar of incumbents and potential competitors. It rather marked
its territory like an aggressive bulldog.

4.1 Uber’s expansion

After its official launch in 2010, Uber arrived in NY one year later with 100 drivers. Six months
later it expanded to Seattle, Boston, Chicago and Washington D.C. In December 2011, Uber
started its international expansion from the city of Paris, France, and in July 2012 it launched
in London, UK. From that moment, Uber started to look beyond western markets: in August
2013, Uber landed in Africa, first launching in Johannesburg, and few weeks later the
“bulldog” attacked India, launching in Bangalore. In less than a year it grew from 75 to 300
employees, conquering in the meantime 23 cities. In April 2014, Uber kicked off its
operations in Beijing and just twelve months later its service was available in 300 cities.
According to data gathered by Forbes, Uber’s growth rate in 2014 was of one city per day.
In fact, as Uber’s head of global expansion said: “If we’re not there now, we’ll be there in a
week.” (Huet, 2014).

Data support the claim that Uber is growing its customer base at the expense of the
traditional taxi industry. Only 13% of the growth in Uber rides has added to prior demand,
while the remaining 87% has replaced trips that would have otherwise gone to taxis. The
consequences of Uber’s advent can be clearly noticed in the decrease of the price of taxi
licenses in different locations. The average price of New York city’s medallions (licenses to
drive taxis) has fallen from an average of $1 million to $690,000, which represents an
12
aggregate loss of some $4 billion of value (Taxis v Uber: Substitutes or Complements?,
2015 ).

However, as citizens are those who benefit the most from the disruption of a cartel, shouldn’t
Uber’s entrance in the market be considered as a good thing? (Worstall, 2016). In fact,
through this aggressive strategy Uber is attempting to “democratize” a market where the
incumbents were artificially inflating the prices and did not pay so much attention to customer
experience.

4.2 Sustainability of Uber’s strategy in the long term: “Too Big to Ban”

Despite the aforementioned positive social impact that Uber’s advent could have, several
doubts have been raised with regard to the future of the company. Among the others, the
most worrisome one is related to its strategy: is Uber’s business model sustainable in the
long run?

Uber’s motto has always been “more rides in more places”. In order to do that, the company
is aiming at expanding as quickly as possible by undercutting the competition on price, even
if this means losing money in the process. In fact, Uber’s pricing strategy has been
increasingly aggressive. For example, a San Francisco ride that once costed $15 (and
yielded $12 to the driver) is now priced at $11.25 to the final customer. In order not to lower
its drivers’ income, Uber is covering the 75 cents difference. With this system, Uber is not
only renouncing to earn a commission, but is also willing to compete at loss.

This approach is actually not new in the tech start-up scenario, where popularity is often
more valuable than profitability itself, but whether this strategy will prove sustainable or not
in the case of Uber is still a debated question. In fact, in order to grow Uber needs more and
more drivers, but their recruitment might become difficult if prices (and hence drivers’ income)
keep lowering (Wohlsen, 2014). In addition, Uber’s drivers are not employees, but
independent contractors, and therefore they are not entitled to benefits such as minimum
wage, paid vacations or health insurance, leading to potentially dangerous contrasts among
the two parties (Petropoulos, 2016).

Uber’s decision to enlarge its customer base as quickly as possible giving up present profits
gains more significance if we consider another aspect. As prices fall, demand for Uber rides
increases and with it, the number of people that will complain if someone in power will try to

13
ban “their” Uber. The company's management is aware that if Uber succeeds in its
aggressive expansion, it will likely become so radicated into the citizens’ routine that elected
officials may face stronger resistance when trying to restrict one or more services of the
company (Wohlsen, 2014).

This concept comes to relevance when considering that Uber is constantly facing threats
from regulators and lawmakers, which are pushed by the taxi lobby to put the company to
the curb. However, Uber’s reaction strategy to this kind of issue is plain and simple: keeping
wheels on the road (Wohlsen, 2014). By keeping its business going despite the controversial
situation it is in, Uber has been able so far to win its battles in many different cities. As Arun
Sundarajan, professor at NYU’s Stern School of Business, explained: “The more they sort
of popularize themselves, the stronger their argument becomes”. Uber is in fact trying to
become “too big to ban” (Eidelson, 2014).

4.3 Competitive strategy: stabbing its competitors

We can find further evidence of Uber’s aggressive tactics when observing its approach
toward the other players of the industry. Given the regulatory issues that the sharing
economy brought along, we might have expected to observe at least some degree of
strategic cooperation between players sharing common interests on the same side of the
battlefield. As already discussed, ridesharing companies need in fact to confront powerful
established lobbies and they are having a tough time gaining formal approval of authorities.
However, there is no evidence of such a united front: the first mover advantage associated
with the industry is so strong that building an early customer base in the existing, unstable
market is more important than ensuring the stability and the growth of the market itself. Thus,
the fight for conquering new market presence is wild and ferocious and Uber’s relationships
with its competitors range from “just bad” to “terrible”.

The battle between Uber and Lyft, its biggest US rival, has become vicious. The two
companies are trying to steal drivers from each other, while they compete to become the
platform of reference. Uber’s aggressive behavior reflects the fact that ridesharing is mostly
a zero-sum game: a driver picking up an Uber customer can’t simultaneously pick up a Lyft
customer. Having more active drivers on the road creates a virtuous cycle that improves
geographical coverage, increases demand, and allows services to lower prices by taking a
smaller cut from a growing number of rides (Newton, 2014).

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However some contend that while intense competition may be justified, Uber’s driver-
recruitment tactics might have crossed the line of fairness and morality. Uber is employing
an army of contractors called “brand ambassadors”, equipped with prepaid phones and
credit cards provided by Uber itself. These “brand ambassadors” then create fake accounts,
which they use to request rides from Lyft and other competitors, pretending to be riders.
Once on board, they engage in conversations with the drivers, attempting to sign them up
before they arrive at their destination. In some cases, recruiters may travel with "driver kits"
that include iPhones and everything else a driver needs to get started on Uber.

At the time of Lyft’s arrival in New York, Uber actually launched a tailored conversion
campaign to react to the entrance of its competitor. The company sent an email to its army
of contractors describing in detail the process for recruiting Lyft drivers: the email
emphasized the importance of requesting rides from different physical locations (so as not
to arouse Lyft’s suspicions), suggested methods of recruiting, and outlined the process for
signing up drivers on Uber’s platform (Newton, 2014). This driver recruitment process is
called Operation Slog (Supplying Long-term Operations Growth) and is being implemented
nationwide, making it more difficult for Uber’s main rival to gain a foothold in new markets.

Moreover, in 2014, Lyft claimed that Uber workers called and then cancelled more than
5,000 rides on its service, costing its drivers time and money. Uber rejected this last
accusation, but did not deny the existence of a street team, stating that “We can’t
successfully recruit drivers without talking to them — and that means taking a ride.” (Shontell,
2014). Also GetTaxi, another competitor in the sector, claimed that nearly 200 rides were
hailed and then cancelled by Uber employees. After a ride had been confirmed, and the
Uber employee had access to the GetTaxi driver's information, Uber texted the driver
attempting to recruit him. The company doesn't deny that, but claims it paid all cancellation
charges. According to Uber, this behavior should be regarded just as an “aggressive sales
tactics” and therefore a part of the game (Lagorio-Chafkin, 2014).

Legal or not, this aggressive behaviour is surely not making Uber any friends, leaving the
California-based-company without many (if any) allies. This strategy may prove bloody in
the long term. In fact, in December 2015, some of Uber’s worldwide largest rivals, Ola, Didi
Kuaidi, Lyft and GrabTaxi, joined forces and announced a strategic partnership that will

15
cover nearly 50% of the world’s population. The new partnership will allow international
travellers to book rides from each other’s app, paying in their own country’s currency. Didi
Kuaidi, GrabTaxi, Lyft and Ola will be able to leverage on each other's technology, local
market knowledge and business resources in the attempt to steal customers away from
Uber. Each country’s app will be able to handle mapping, routing and payments through a
secure API (Rai, 2015). Ola and Didi Kuaidi are the main players in India and China, two
enormous and attractive markets. The implications of this alliance for Uber are severe, since
these two markets are strategically critical to sustain the company’s future growth. This
unexpected agreement puts Uber in a dangerous position: it is now left alone against four
cooperating powerful competitors. Sometimes, you just need a friend.

Chapter 5 - What’s next?

Uber is surely one of the most praised companies of our time. It is not just a taxi company,
it is a terrific platform, now widening its horizons beyond the market where it all began. From
the first glimpses of this visionary idea, Uber ferociously attacked the chicken-egg problem
and grew to become the most valuable venture backed company in the world. Travis
Kalanick was able to build an empire now valued at around $62.5 billion dollars, an amount
mostly based on Uber’s great potential and future growth. In only five years and a half, aswe
can see from Figure 5, Uber managed to surpass the valuation of 100-years-old companies
such as General Motors and Ford (Chen, 2015).

Figure 5 - Uber’s valuation

Source: Chen, 2015

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5.1 A Silicon Valley Unicorn?

Some might fear that Uber, as well as other Silicon Valley Unicorns, private companies with
valuations in excess of $1 billion, will eventually result in a bubble, as investors are rushing
to ascribe astronomical valuations to these companies’ potential with little concern for actual
profits. Most of these unicorns failed to meet expectations once they went public and true
price discovery was then allowed to begin. As we can see from Figure 6, the performance
of their stocks after the IPO has usually been poor (Facebook and Linkedin are among the
few exceptions). Even if early investors can still earn satisfying returns by accurately timing
their exits, it is likely that the health of the unicorn market will be influenced by what has
been happening to the return of post-IPO investors: over time, the lower share prices on the
public market are likely to negatively impact unicorn valuations and financial market access
(Durden, 2016).

Figure 6 - Silicon Valley’s Unicorn Bubble

Source: Durden, 2016

Moreover, especially for more mature start-up companies, as Unicorns are, liquidity for
owners of the company plummets when valuations stop growing. This means that the next
round of financing needs a higher valuation in order to appeal to current and potential new
investors (The New Startups of Silicon Valley, 2015). These valuations are derived from the
prospect of earnings, sales, or growth metrics. Thus, Uber faces incredible challenges as
keeping up with growth expectations will become increasingly harder.

17
5.2 Future challenges

A first major threat comes directly from competitors and the global partnership we discussed
before. In fact, conquering the Chinese market is a priority on Uber’s agenda and a pillar of
its expansion strategy. Didi Kuaidi was already a fierce rival, benefiting from a deeper
understanding and know-how of the local market. But now things have gotten worse for Uber:
the global partnership will enable Didi Kuaidi, Lyft, Ola and GrabTaxi to empower and
complement each other, also providing partners with easy access to foreign markets. As a
result, Uber will then face both increased competition in markets where it already operates
and stronger resistance in markets that it wants to enter.

Facing this hard situation, one concrete possibility for Uber is to leverage and keep investing
on its platform status, also beyond the “cab business”. As for the cases of Uber Eats and
Uber Rush, the aim of the company is to embrace the sharing economy more and more,
taking the whole industry to a new level of integration. The challenge that comes together
with this approach is to be able to create more and more valuable services without
compromising their overall quality. Uber needs to foster a win-win situation where the
extension of the platform user base will incentivize the suppliers of new services to join. This
should result in a positive loop that will add value to the whole system, attracting also more
complementors to the platform.

However, it should be considered that Uber Eats and Uber Rush face both the fierce
competition of traditional delivery services and the one of the new “on-demand economy”
companies such as Foodora and Deliveroo. Uber should then try to overcome this threat
avoiding the trap of dedicating too many resources to the effort. This intense competition
may in fact weary Uber in financial terms, draining resources from other business lines.

Moreover, Uber is investing heavily in order to expand internationally and overcome the
many competitive and legal barriers encountered in foreign countries. The company is in
fact experiencing mounting legal issues all over the world, resulting in trials, police raidings
and country level bans. If Uber has been winning in some cases, this was extremely costly
and the victories were mostly just incremental (Khosla, 2015). However, the legal system is
not only trying to slow Uber down, but it is also favouring local players, giving them a
remarkable competitive edge. The challenge for Uber here is to expand in foreign countries
fast enough to plant its roots in the territory and leave clone-companies out of the market.

18
Lastly, Uber is also investing in self-driving cars in collaboration with Carnegie Mellon
University, joining a race which already features renowned participants like Google, Tesla
and Ford. This investment is emblematic of the big bet the company is taking on the vision
that one day “car ownership will go away”. Uber’s CEO claims that “When there’s no other
dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a
vehicle” (Harris, 2015). As a matter of fact, the costs related to drivers’ fees are currently the
most cumbersome invoice cost faced by Uber. The challenge here is to develop and own
the next disruptive innovation. In order to do so, only one year after the beginning of the
aforementioned partnership with Carnegie Mellon, Uber decided to hire almost 40
researchers from the Carnegie research center, bringing them directly under Uber’s
umbrella (Ramsey & Macmillan, 2015). This move suggests quite clearly how much Uber is
betting on this technology as a strategic tool to shape its future.

Conclusion

This analysis of the burgeoning Uber phenomenon was undertaken with the objective of
gaining fruitful insights from a managerial perspective. Theories and frameworks are a useful
and valuable resource, but they need to be constantly tested and validated by the ultimate
judgment of the marketplace. So, while some principles might be broadly applicable to a
large number of scenarios, it is worthwhile to acknowledge that the capability of departing
from these guidelines may represent an invaluable resource. Good managers need to
understand what kind of strategies best suit the environment in which they operate, and
Uber is an excellent example.

As the academic competitive mindset would have suggested, Uber firstly set its priority on
the creation and the nurturing of its platform environment. Conscious that the real value of
its platform was not lying in the technology behind it (easily replicable for itself), but rather
on the extent of its active users, the company made a huge effort in order to create a wide
customer base and leverage the direct network effects generated. To achieve this result,
Uber not only operated “internally”, incentivizing both drivers and riders, but it also managed
to go beyond its borders and create one of its own complements through Xchange Leasing.
Consistently with what indicated in the strategy literature, Uber was aware that the best way
to succeed over time is to evolve from the status of platform to the one of ecosystem. The
San Francisco-based company actually did it with the launch of its own API, that permitted

19
Uber to integrate itself into third parties’ mobile applications. This turning point made it
possible for Uber to leverage their already existing customer base and creating valuable
relations with external partners. Still not satisfied with that, the company decided to go even
further, starting to invent new, diversified platforms such as Uber Eats and Uber Rush.

While Uber’s concept of platform evolution and ecosystem creation can be seen as
compliant to strategy theory, the expansion strategy adopted by the company can be
considered all but conventional. In fact, during its quick growth path, Uber never made any
effort to remain unnoticed by the other players of the industry, always preferring to play the
part of the “bulldog” and aggressively attack any new geographical area. At the same time,
the enemies of the company were never kept close. The urgency of its expansion prevented
Uber from signing any alliance with any competitor of the ride-sharing industry, leaving the
company to fight alone against powerful international coalitions and a possible common
enemy: legislation. The reasons for this peculiar behaviour were individuated into two main
factors. The first one is that Uber wanted to gain a significant first mover advantage over
competition, hence really hard to be overcome. The second factor is related to the hostile
attitude of public institution toward the ride-sharing company. The objective of Uber is in fact
to gain as fast as possible a critical customer base, thus becoming just “too big to ban”.

It should be mentioned that Uber’s aggressive tactics have paid off so far and it is unlikely
that analogous results would have been obtained with a softer, under-the-radar strategy.
However, this kind of approach has occasionally also generated counter-productive effects
and the chickens will possibly come home to roost. Aside from the increasing menace of
competitors, regulatory issues still represent the biggest concern for the company. In the
end, Uber will have to come to terms with it.

20
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