Case: Sustainable Business – Creating a circular and sharing economy using disruptive

innovation

Company: Uber Technology Inc.

Background

Linear Economy vs Circular Economy

A linear economy is an economy where we mine raw materials that we process into a product
that is thrown away after use. In a circular economy, we close the cycles of all these raw
materials. Closing these cycles requires much more than just recycling. It changes the way in
which value is created and preserved, how production is made more sustainable and which
business models are used.

A circular economy involves creating a closed-loop ecosystem for effective consumption and
utilization of resources. This implies reconfiguring the material flows from a linear approach
(resource-product-waste) toward a closed-loop approach (resource-product-waste-new resource).
The new reconfiguration model creates an ecosystem that is resilient and waste free owing to the
adoption of reduce, reuse, and recycle paradigms.
For the purpose of this case study, circular economy is defined as a closed-loop system
comprising three aspects:
• Reducing the consumption of non-renewable and toxic raw materials;
• Reusing the products and services by superior design of those offerings, processes, systems and
business models; and
• Recycling the waste products into new resources for further use and consumption.

The perspective on sustainability is different in a circular economy than in a linear economy.

When working on sustainability within a linear economy, the focus is on eco-efficiency.
Within a circular economy, sustainability is sought in increasing the eco-effectiveness of the
system. This means that not only the ecological impact is minimized, but that the ecological,
economic and social impact is even positive.

This difference can be illustrated with an example of the production of beef. Raising cows for
beef results in emissions of methane gas, a strong greenhouse gas. In a linear economy, the
production of beef is made more sustainable by changing the way cows are fed, so that they emit
less methane gas for the same amount of meat. This makes production more eco-efficient. In a
circular economy, production is made more sustainable by not making beef from cows, but by
imitating it as a meat substitute. For the beef substitute, plants are then grown that contribute to
biodiversity, employment and landscape management. In this way, the ecological, economic and
social impact of the same production of ‘beef’ is increased.

A circular economy development path in India could create annual value of ₹14 lakh crore (US$
218 billion) in 2030 and ₹40 lakh crore (US$ 624 billion) in 2050 compared with the current
development scenario (Exhibit 4). By adopting circular economy approaches, businesses could
achieve material cost savings and increase their profits.
Mobility and vehicle manufacturing: a convenient, multimodal transport system enabled
by digital technology, for resource-optimised and efficient mobility (Exhibit 5)
Demand for personal mobility in India is expected to double or even triple by 2030. Car sales are
booming, and the country is expected to become the third largest market in the world by 2030,
after China and the U.S. Circular economy principles can contribute to a mobility system that
would meet the growing needs of the Indian population, especially in cities, while limiting
negative externalities, such as GHG emissions, congestion, and pollution. A multimodal, door-
to-door, on-demand mobility system, embracing vehicle-sharing trends and leveraging digital
innovation, could provide efficient and effective transportation with high vehicle usage and
occupancy rates. Mass transit as the backbone combined with other forms of transport –
including vehicle as a service – for convenient last-mile connectivity can create convenient door-
to-door journeys. Technological innovation can help plan these journeys and make travelling
safer and faster. Taking reparability, remanufacturing, and recycling into account in vehicle
design and creating the appropriate reverse cycle infrastructure can reduce the need for virgin,
non-renewable resources and energy. Building vehicles that rely on zero-emission propulsion
technology could reduce negative externalities like GHG emissions, pollution, and dependence
on imported fossil fuels (Exhibit 6). As car ownership is currently low, adoption could be rapid
as ownership expands.

The current scenario would pursue development oriented around privately owned vehicles, while
the circular scenario would create a diverse and integrated mobility system to meet increasing
demand for mobility. The growth of the Indian economy would increase the per capita demand
for mobility 133%, by 2050, on the current development path. Demand would increase only
114% on the circular path, as urban planning and virtualisation of work would reduce
commuting. Development of infrastructure in the current scenario would prioritise use of private
vehicles, and these vehicles would account for 28% of annual passenger kilometres driven. The
circular scenario would diversify transportation modes and create a very effective integrated
mobility system, making the use of private vehicles almost irrelevant. Cars would account for
only 20% of annual passenger kilometres driven. The integrated system would provide effective,
low-cost mobility, delivered primarily by public transport and vehicles as a service. This system
would decrease congestion and increase convenience. While achieving limited success in the
current scenario, vehicles as a service would become a popular choice in the circular scenario,
integrated fully into a seamless mobility system and supported by effective mass transportation.
Urban citizens would embrace vehicles as a service, valuing the access to vehicles at lower cost
and the elimination of the hassles of owning and parking a vehicle. Well-developed car-sharing
schemes would enable convenient use of cars all over the city. These schemes would handle 61%
of passenger kilometres driven per car, compared with 23% in the current scenario. Inexpensive,
readily available ride-sharing schemes would increase the occupancy rate of cars to 3.3
occupants per vehicle, compared with 2.0 in the current scenario. Technological innovation
would win quick adoption, especially in the circular scenario. In the current scenario, technology
adoption
would happen principally at the vehicle level, as people embraced in-vehicle connectivity and
autonomous driving to reduce congestion and accidents. This would amount to optimising
products alone, rather than taking the broader mobility system into account. In the circular
scenario, technological innovation would enable the development of an integrated and
multimodal transport system. This system would reduce reliance on private vehicles.
Uber and Disruptive Innovation

Clayton Christensen, also known as the father of theory of business disruption states, “In
business, a disruptive innovation is an innovation that creates a new market and value network
and eventually disrupts an existing market and value network, displacing established market-
leading firms, products, and alliances”

One start-up which ultimately resulted into the distortion of the existing taxi business is Uber.
Uber Technologies Inc. was founded in 2009 by Travis Kalanick and Garett Camp. To
passengers, Uber is essentially synonymous with taxis, and to drivers, it’s basically a referral
service. An app connects riders with drivers. A passenger in need of a ride can simply book a cab
via his or her mobile phone. The payment for the ride can be made through credit card,
promoting a cashless economy. Uber has changed the world’s opinion of the taxi industry.

Company Background

• Founded in 2009
• Founders: Garrett Camp and Travis Kalanick
• Based in San Francisco
• Originally a private car service for executives
• Communication through emails and codes
• Started growth in 2010
• Use technology to bring together passengers and drivers

Uber technology Inc., founded in 2009, is the world’s largest personal transport provider. With
its headquarters in San Francisco, California, Uber operates in 65 countries, covering over 600
cities. The effective peer-to-peer business model employed by Uber connects those who need the
service, in this case transportation, with those who can provide the service. The service is
digitally provided, where in, A taxi can be summoned via an Uber App available both on
Android and IOS. With a valuation of 72 billion dollars, Uber completes over 15 million trips
daily and provides employment to over 16000 people. The basic philosophy of Uber was to
increase asset utilization.

Case Highlights

 Business Model

 Impact

 Issues, Challenges, Opportunities and Recommendations

Business Model

The business model of the company helps save on both fixed and variable costs internally.
Uber has an inventory light model. Uber doesn’t own any cars, it doesn’t have to bear any
servicing and maintaining costs of taxis. Uber doesn’t have to pay parking fees or rent. Uber
provides an ecosystem for the drivers and passengers to interact without the need of a third
party. This helps them save on call center agents fees and administration costs. Uber saves a
large amount by employing individuals who are already skilled in driving. The company
doesn’t need to spend on recruiting and training drivers or issuing permits. Uber makes
money by charging a commission under 30% from the drivers. In India the commission
charged is 20% which includes GST. According to the changes in the demand supply for
cabs in the market, Uber adjusts the price by using an automated algorithm. As a result, when
the demand for cabs is high, the fares are significantly higher than usual. Before the
establishment of Uber Technologies Inc., intra-city commuting market was heavily
dominated by city taxis. These taxis were limited in number due to the restrictions imposed
by the existing drivers. For example, the number of Auto drivers in India have increased by a
marginal amount in the past 5 years. Existing Auto drivers threaten the government by going
on strikes as increasing the number of drivers, raises the supply leading to a reduction in
fares. Limited taxis made availing the service costly for customers. Even after paying such a
high fee, the quality of services received were poor. The result was that consumers started to
avoid taking taxis and use their own personal vehicles. This opened up an opportunity in the
market to be exploited by one of the start-ups. Uber managed to seize this opportunity by
providing a better transportation service than city taxis.

o Product Definition

o Tap the app, get a ride

 Uber is the smartest way to get around. One tap and a car reaches directly to
you. Your driver knows exactly where to go. And payment is completely
cashless.

Uber offers its service to two types of customers namely, drivers or providers,
and people who want a ride or users. Any individual with a driving license, a
clean criminal record, a well-maintained car and a mobile phone can work as a
driver for Uber. To order a cab, a person simply needs to download the Uber
App, register and provide their credit card details. Many countries in Europe,
for example Austria do not except payment in cash, on the other hand, in
India, cash payment in also accepted. The App is customized according to the
demography of the region. The company makes the job attractive for drivers
by allowing them to work flexible hours. It was up to the driver to decide how
many hours he wants to drive. Similarly, being able to avail rides at a faster
pace and cheaper price, knowing the exact location of the driver and hassle-
free payment system (credit/ debit card) all contribute towards the increase in
demand for Uber.

 Customer Definition

o Do not own a car

o Do not want to drive themselves to a party or function

o Like to travel in style and want to be treated as a VIP

o Want a cost-efficient cab at their doorstep

o Relationship:

 Social Media

 Customer Support

 Review Rating and Feedback System

 Value Proposition

o Customers:

 No need to wait for a taxi for long times

 Free rides on certain occasions and discounts from time to time

 Price lesser than normal taxi fares

  Uber’s tagline says – Your personal driver. It lets customers travel in
style.

 Fixed prices for certain common places.

o Drivers:

 Additional source of income

 Flexible working schedules. Can work part time or simply whenever

they like.

 Easy payment procedure

 Those who love to drive can earn money while pursuing their hobby

 Uber pays drivers to be online, even if they don’t get any request.

 Profit proposition

o Surge pricing (Exhibit 1)

o Car rides on per Km/Mile basis

o Class of rides to suit customer tastes – Uber black, UberX, Uber SUV (Exhibit
2)

o Uber keeps 20% and Driver keeps 80% fare.

 Distribution Channels

o Social Media

o Websites

o Mobile apps for Android and iOS

o Popular Destinations

 Analysis (SWOT Analysis – Exhibit 3)

o With a mission statement that reads “Transportation as reliable as running

water, everywhere for everyone”; Uber’s strategic objectives have been
aggressive growth and global expansion. With recruitment strategies engaging
with drivers, logistics and media relations, and numerous promotional events
and discounts, Uber is well positioned and has competitive advantage of being
the first mover as well as winning customer loyalty.
 o Uber has received $258 million in capital (2013) from investors and many
successful round of fundings later on (Exhibit 7 & 8). It has excellent human
resources and technological resources pioneering the “tap and ride”
technology. With core competencies and strengths which include customer
service, user experience and various ride options, it has been able to establish
itself as a reliable, safe and convenient means of transportation.

o The ride to success has not been smooth and significant environmental
challenges have been part of Uber’s journey. It is yet to be profitable, and
hence, the success may also be questioned.

 To create fair practices, competition and protect local players, many

countries and federal states have created laws banning or limiting the
number of Uber drivers. Although Uber works like a Taxi aggregator,
it has been instructed to be part of the different Motor Carrier Safety
Administrations.

The practices of Uber are not uniform across the different cities and
countries it operates in due to the different laws and regulations. E.g.
in India, Uber is allowed to use private cars for ride sharing. The
complexity of the problem gets compounded due to the fact that in
most countries, road transport is not a federal subject. Therefore, every
state creates unique regulations depending upon the progressive
attitudes as well as pressure of existing taxi lobbies. For example, in
Karnataka, Uber has been asked to ply on fix tariffs, whereas in West
Bengal there is a regulation mandating cabs to be fitted with CCTV
cameras for safety reasons. The state of Maharashtra has asked the cab
aggregators to have a composition of 30% of their taxis in luxury
segment. A similar scenario can be observed in America. For example,
in Seattle the council has imposed restrictions on ride sharing services
to protect the already existing taxi drivers. A cap on the number of cars
and the number of driving hours was levied.

 Introduction of Uber as a means of transportation has also brought

increased competition, economically friendlier alternatives and
decreased driver wages leading to limited presence in certain areas as
well.

To make the model more sustainable, Uber had a need to increase the number of
drivers and cabs. This would reduce the waiting time per customer and make the
model more dependable. Only by increasing the reliability of the system, the demand
for it could be increased (Exhibit 9). The company had a business plan and an IT
 backing but to make the model scalable, funding was required. Many investors
including Google ventures helped finance the company (Exhibit 7 & 8). The increase
in funds allowed Uber to pump in more money to attract drivers and also provide
discounts and take other initiatives to attract the customers. Even after attaining new
heights of success, Uber is still in losses, but with the massive increase in demand
their scale of operation has increased. The model can now be call sustainable. The
company has slowly withdrawn the initial incentives it offered to both the drivers and
the customers. It is now up to the driver to make more money by driving more. With
rising demand, drivers tend to accept more rides and hence generate more income.
The success of Uber can be easily explained by studying its business model. Uber’s
biggest advantage in USA was using private cars. This helped the company avoid,
commercial insurance, commercial registration, commercial plates, special driver’s
licenses, background checks and commercial vehicle inspections. To maintain the
quality of services, Uber also provides both the driver and the customer the chance to
rate rides and give feedbacks according to their experiences. The App also offers a
feature to share one’s ride with others making passengers feel safe and secure. These
features have positively impacted the demand. Uber continues to introduce
innovations in existing ideas which lead to better asset utilization. The introduction of
Uber POOL reduced the per person cost. This helped Uber expand its market to the
lower end of the population who couldn’t afford calling an Uber before. The company
also encourages the system where 2 to 3 drivers drive the same car. Such a technique
allows a single car to be used 24 hours a day, resulting into maximum asset
utilization. Uber has also diversified the services it offers. The company has expanded
its business to the food delivering sector by creating an App called UBER eats.
UBER FREIGHT is a free app that matches carriers with shippers, where the shippers
can instantly book the loads they want to haul. Due to upfront pricing, carriers always
know how much they’ll get paid. Uber is also working rigorously on changing the
future of autonomous transportation technology. An advanced technologies group is
dedicated to building safe, reliable, and cost-effective self-driving technologies. In all,
Uber has managed to introduce a successful business in the market based on a simple
idea, “How would you be able to request a trip from your phone?”

Impact

Cars could become obsolete as companies such as Uber, nix the need to purchase personal cars
for intermittent use, or help reduce traffic by partnering customers into a carpool.

This concept of “peer production” implies coordinated cooperation among many individuals
facilitated through the usage of the Internet and other shared resources. Another differing
characteristic of this type of production as opposed to traditional organizations is a relatively
flattened hierarchy among organization (community) members. Uber here is an exception as
having a top down hierarchy.
One could challenge that Uber using Materials as a source (Maas) is more a part of sharing
economy than a circular economy but The sharing economy is sometimes related to the circular
economy, which aims to minimize waste and which includes co-operatives, co-creation,
recycling, upcycling, re-distribution, and trading used goods. It is also closely related to
collaborative consumption in which an item is consumed by multiple people.

Countless startups have imitated Uber’s business plan – Ola, Mytaxi, Didi and many others.
Digitalization and peer to peer model to create a dynamic start up has changed the perception of
the taxi business.

Uber has leaned towards what one calls a “sustaining innovation”. Uber has helped sustain the
already existing taxi business. Services provided by Uber from the start have lived up to the
demands of the customers. The product is hardly ever described as inferior to the existing taxi
business. The myriad of features provided by the company has made getting rides so easy as
compared to when taxis had to be hailed on the streets. The quality of services provided by Uber
is maintained through the fantastic rating and feedback features available on the Uber app to both
the customers and drivers. it has definitely caused a digital disruption in the transportation
market. Uber has managed to generate value by improving the taxi procuring ability of the
consumer in terms of saving on time money and simplicity of the operating procedure.

Uber has some fundamental differences that set it apart from classical taxi companies, although
they are starting to offer services similar to Uber.
The first difference is the dynamic pricing system, powered by computer algorithms which work
with user data collected from Uber’s mobile app. In times of a surge in demand, for example on a
Saturday night or a rainy day, there is an excess of demand. Consequently, there is a lack in the
supply of available vehicles. Based on the number of users who open the app (but not necessarily
ask for a ride), Uber’s algorithm calculates a percentage price surge which causes a lower
demand and a higher supply. In that way, a certain portion of users decides not to ask for a ride
because the price surge makes it too expensive, and a certain portion of drivers decides to make
themselves available for a ride because the price surge is high enough. A price surge that doubles
the fare is expressed as 2x, a 20% price surge is noted as 1.2x, and so on. Further analysis shows
that, even with a certain price surge, an Uber ride is cheaper than a taxi ride.

Driver earnings and working conditions

Data from Croatia show that the average Uber driver can earn up to 5000 HRK per month and
even 10000 HRK per month, which makes these earnings comparable with the average Croatian
monthly wage of around 8000 HRK before tax (Croatian Bureau of Statistics, 2017). Uber
drivers are paid per ride, and 20-25% of the ride earnings go directly to Uber, and the driver is
left with 75-80% of the fee, for which he pays tax.
Issues, Challenges, Opportunities and Recommendations

World over, the taxi drivers have been able to create a very strong pressure group. This pressure
group has deep-routed local support from the policy makers as well as politicians. The result has
been that due to the strong influence exercised by the taxi lobby, citizens have often been left in
lurch. The focus of the government policies has often eluded the citizen centric approach. This
led to a situation where the taxi market remained restricted, mostly unavailable, inaccessible,
unsafe, unaffordable with inconsistent service level to the customers who found it convenient to
shift to private mobility than to rely on the existing taxi industry. There was a wide gap available
waiting to be bridged in ride sharing services. Uber grabbed this opportunity with detailed
planning and meticulous implementation to meet the expectations of the consumers, there by
winning back the trust of the existing customers as well as attracting the new ones. Capitalizing
its strength in IT applications, Uber has been able to develop systems which exploit the full
potential of the assets (cars), resulting in lower cost and high turnover, thereby resulting in
benefits to the customers as well as the drivers. The new ecosystem of ride sharing services
created by Uber has been able to create a dent into the otherwise “hard to crack” taxi industry.
Uber has universally transformed the taxi industry. The company has managed to restore the
confidence of consumers in ride sharing services. Uber changed the dynamics all together by
making it possible to order cabs digitally.

Venture funds have played a significant role in helping Uber continue with its expansion while
making cash losses. With multiple competitors such as, Didi and Ola, it will be a challenge for
Uber to seek more funds and retain its dominance in the ride sharing market. This will directly
impact future fund flow. This might necessarily force Uber to go for force corrections in its
strategies across the globe without losing its drivers as well as consumer base to keep a healthy
top line. Sustainability of business models on long term bases remains unproved as nowhere
across the globe has Uber turned profitable.

Issues:

● The idea can be easily copied. Nothing will prevent competition from presenting the same
product.
● Very unpredictable business model.
● The relationship between Uber and the drivers is ethically questionable. It lacks the real
connection. So, it is expected that loyalty between Uber and its drivers is quite low.
● There are privacy concerns within the application itself with its users.

Challenges:

● Some new legal regulations in countries like Germany may ban Uber from operating.
● Problems with local authorities can lead to fines. It will also earn bad publicity.
● Increasing competition will ultimately decrease prices. This will result in loss of customers.
Yet to turn profitable. Increased competition may also lead to reduced venture funding.
● As new markets and drivers are joining, fraud and scandals are also increasing. It is damaging
for the brand.

Opportunities:

● Can tap growing markets in suburban areas where taxi services are not available.
● It can exploit new and big markets in countries like India where taxi services are inconvenient
and expensive.
● Additional services like transporting older patients to hospital, transporting children to school
and transporting pets to the vet can be offered.
Exhibit 1

Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6
Exhibit 7 & 8
Exhibit 9
Sources:

- https://kenniskaarten.hetgroenebrein.nl/en/knowledge-map-circular-economy/how-is-a-
circular-economy-different-from-a-linear-economy/

- https://www.mmcventures.com/research/the-circular-economy-were-investing-in-a-
sustainable-future/

- https://www.greenbiz.com/article/8-ripple-effects-circular-economy-2017

- International Journal of Advanced Research and Publications: ISSN: 2456-9992 Volume

2 Issue 11, November 2018

- ACTA ECONOMICA Volume XVI, No. 28 / June 2018 ISSN 1512-858X, e‐ISSN
2232‐738X

- Circular Economy in India: Rethinking growth for long term prosperity: Ellen
Macaurthur foundation - https://www.ellenmacarthurfoundation.org/

- Companies in the circular economy: Wiley Publications - Circular economy business

models in developing economies: Lessons from India on reduce, recycle, and reuse
paradigms by Sandeep Goyal | Mark Esposito | Amit Kapoor