Uber is a company that has been talked about a lot. When we talk about platforms in business schools, Uber is one of the most frequently cited examples. We might think of Uber as a successful company because we have heard about it so often, but I would argue that this is not the case. In fact, Uber has suffered immensely with profitability. Despite having its best ever quarter in terms of revenue in Q2 2022, it still racked up losses of 2 billion dollars (Browning, 2022). So let’s look at a couple of possible explanations why Uber is struggling with profitability.
First, Uber is a two-sided platform, with drivers on the one side and riders on the other. One of the reasons why Uber has struggled to make a profit is that people on both sides can switch between different platforms easily. For example, in the US it is not rare to see drivers with both Uber and Lyft logos on their cars (Santoro, 2018). The drivers have both apps and can easily compare to see which one offers a higher fare. If they are not happy with Uber, they can change to Lyft in a few seconds. Same goes for the riders. I find myself doing this quite a lot as it takes only a minute to check across multiple platforms for the cheapest ride or the fastest pick up time. Because the switching costs are low, Uber faces a problem of retention and has to compete for both riders and drivers.
Second problem with the Uber business model is that it is fairly easy to imitate and barriers to entry are low (Cohan, 2019). We have seen lots of local competitors copying the business model. Examples of these are Yandex in Russia, DiDi in China, and Bolt, an Estonian company, with strong presence in Europe (Keane, 2022). Tough local competition combined with low switching costs means that prices are pushed down, customer acquisition becomes more expensive, and Uber (along with the whole industry) faces challenges with profitability. Due to these reasons I believe that Uber will continue to struggle with profitability in the foreseeable future. Do you think that the business model and industry characteristics are such that there is no way for Uber to achieve sustained profitability? Or do you see Uber sustaining profitability in the near future?
Browning, K. (2022, August 2). Uber Posts Record Revenue but Loses More Money From Investments. The New York Times. Retrieved October 8, 2022, from https://www.nytimes.com/2022/08/02/business/uber-quarterly-earnings.html
Cohan, P. (2019, April 13). Why Uber Lacks A Sustainable Competitive Advantage. Forbes. Retrieved October 8, 2022, from https://www.forbes.com/sites/petercohan/2019/04/13/why-uber-lacks-a-sustainable-competitive-advantage/?sh=17c3307f2065
Keane, J. (2022, March 1). Uber And Bolt Sever Links To Russia But Didi Stays Put. Forbes. Retrieved October 8, 2022, from https://www.forbes.com/sites/jonathankeane/2022/03/01/uber-and-bolt-sever-links-to-russia-but-didi-stays-put/?sh=2553c50c75c4
Santoro, P. J. (2019, June 11). Uber Switching Costs Could be A Lyft. C[IQ] Customer Intelligence Solutions. Retrieved October 8, 2022, from https://www.c-iq.com/blog/2018/11/2/uber-switching-costs-could-be-a-lyft
Very interesting article! I find it quite remarkable that Uber has made such a huge loss up until now. Especially, considering the fact that they are making more revenue now than ever. I know that Uber’s net loss has increased due to the pandemic, but the two problems you mentioned have indeed played a very big part in the net loss of Uber. Furthermore, the war in Ukraïne certainly has not helped with increasing Uber’s profit, as the gas prices have increased substantially. I personally think that ultimately, Uber can do two things to achieve sustained profitability. The first thing would be to buy out their competition. This however would require a lot of money, as it wont be cheap to buy out competitors who do not have a net loss this big. The second option for Uber would be to differentiate itself with its competitors. In 2014, Uber started Uber Eats, but they were not the first one to do this as there already was DoorDash. A few years ago, Uber started Uber connect. It is possible to transport your packages, mail or even food with Uber Connect to a friend or family member. This function however is not used quite often, but is a step in the right direction for Uber to take. The best option for Uber would be to differentiate even more before it is too late, as their competitors are growing in an alarming rate.
Interesting article! Also since I’m using the app myself and I recognize Uber as an example in several classes I’ve taken. I also recognize myself comparing prices in other apps (like Bolt) to see where the ride is cheapest. Which of course is annoying for Uber, competing with competitors. The problem is that it’s easy to get into the market and the tricky part is to do come up with a business model that is profitable. What is true is that Uber does remain cheaper than cab companies, which is good. However, Uber needs to differentiate itself from the competitive other apps. I wonder if Uber will come up with something in the future that will still make the company more profitable and stand out above its competitors.