Paulus Pietilainen

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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

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You have probably heard of APIs. If you have a more technical background, you probably understand APIs quite well. But have you thought about how APIs will affect the economy and businesses in the future? This text will not be very technical. I will mostly talk about the side of APIs that might interest business students more: how APIs have changed businesses and industries, how consumers benefit from them, and what are some business-related challenges in the new API economy. But first, let’s get a one-paragraph introduction to APIs so that we are all on the same page.

APIs, or Application Programming Interfaces, are tools that allow software components to exchange information with one another (“What Is an API? – API Beginner’s Guide – AWS,” n.d.). There are many different protocols and architectures that APIs use, but I will not dive deep into this. If you want to dive a little deeper into the technical stuff I would recommend the above reference from Amazon. For the scope of this blog, I think it’s just important to understand that APIs facilitate communication and data exchange between two different softwares.

To make you understand how important these APIs are in the 21st-century economy, I will provide a few examples of where APIs are used. If you have ever visited a website that requires you to create a user, you have probably seen the possibility of logging in with a Google or Facebook account. This is possible because of APIs that allow the website to communicate with Google or Facebook. When you order something from a website and pay for it by clicking on the PayPal logo, or iDEAL in the Netherlands, you are seeing an API in use. So as you see, we rely on APIs every day, probably without thinking about it at all. In these examples, we see some of the benefits of the API economy for both companies and users. For companies, this means that products can be developed faster and easier. For example, log-in integrations from Google and Facebook mean that you do not need to code a log-in service for your website yourself, but instead it is provided to you by another company. Third-party log-in also helps consumers as you do not need to create a new account and password for every website. In general, APIs enable a more seamless customer experience for end users.

However, APIs do not come without their challenges. There are many areas of concern in the API economy and obstacles that firms need to overcome to take advantage of the opportunities that APIs provide. In older companies, the culture of closed-off, proprietary product development is often in contradiction with the openness of APIs that aims to create an ecosystem where third-party providers offer an integrated solution (Sisk, 2015). Also, APIs have some security concerns and poorly designed APIs have resulted in considerable data breaches (Munsch & Munsch, 2020). In addition, APIs make a company more dependent on other companies. In the log-in example above, a website using Google’s log-in is dependent on Google so that users can access their accounts.

Despite these concerns and obstacles, APIs are here to stay. For example, Google and Twitter alone process billions of API requests a day (Savitz, 2012). The breakthrough of the API economy also goes beyond big tech companies as considerable adoption is already seen in industries, such as finance and real estate (Sisk, 2015) Thus, it is important for managers to think about strategies to make the most of this technology and for students to understand the API economy in which they will most likely be working in the future.

References

Munsch, A., & Munsch, P. (2020). The future of api (application programming interface) security: the adoption of apis for digital communications and the implications for cyber security vulnerabilities.(article 2). Journal of International Technology and Information Management, 29(3).

Savitz, E. (2012, August 29). Welcome To The API Economy. Retrieved September 15, 2022, from https://www.forbes.com/sites/ciocentral/2012/08/29/welcome-to-the-api-economy/?sh=50bbb9e53a21

Sisk, D. (2015, January 30). API economy. Retrieved September 15, 2022, from https://www2.deloitte.com/us/en/insights/focus/tech-trends/2015/tech-trends-2015-what-is-api-economy.html

What is an API? – API Beginner’s Guide – AWS. (n.d.). Retrieved September 15, 2022, from https://aws.amazon.com/what-is/api/

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