Can Uber ever become profitable?

11

October

2022

5/5 (1)

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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Does Uber have a future?

30

September

2019

5/5 (1)

Uber has updated its app in a way that CEO Khosrowshahi has branded as the beginning of Uber’s step to becoming the ‘Amazon of transportation’ (Hawkins, 2019). The app includes new elements such as Bike lane alert, Improved Real-Time ID check and Verify your ride (Vasile, 2019). Besides new safety features, the app will now integrate UberEATS so riding and ordering can be done in one app, under the same Uber umbrella. More about the safety features later, first let’s take a look at why the company decided to also integrate public transit information into its app and why it believes that this will be useful since we already have an app for this (Google Maps, anyone?).

Uber is trying to expand from simply being an app to becoming a true platform business, targeting city life and transportation. As Khosrowshahi put it: “We want Uber to be the operating system for your everyday life” (Nuttall, 2019), meaning that it is attempting to build a complete experience for their consumers and aims to become a city life partner on all fronts: food, ride-hauling and even public transit. In a recent interview with The Verge’s reporter Andrew Hawkins, Uber’s CEO revealed the company’s ambitions in providing a platform that not only provides information but allows you to take action, advancing previous CEO Kalanick’s goal to brokerage all human movement in cities (Hawkins, 2019). However, what makes the Uber app more special than for example Google Maps or Citymapper? Khosrowshahi demonstrates the app and explains how it will be a comparable experience but provide all services in one place and allows customers to take action in the application, increasing app engagement which will provide more business (read: data) down the road (Hawkins, 2019). The choice to integrate public transit information, and eventually ticketing, into the app was not motivated by money: Khosrowshahi simply explains that it hopes to complement transit, offer Uber users all options and therefore cater to the individual user’s needs, whether that be timeliness or budget. Khosrowshahi says the company aims for profitability in the long run, achieved by creating “the right solutions for consumers, even if it’s not making them money” (Hawkins, 2019).

The decision to incorporate transit information is not entirely random, as Uber, Lyft and other ride-hailing apps have been proven responsible for declining rates of public transit usage; both rail and bus ridership falling by 1-2% after the entrance of a ride-hailing app into the market (Graehler et al., 2019). As clarified by the CEO, Uber wants to complement transit, beside the fact that it has competition anyways, it merely wants to provide its users with all options, not compete or draw customers away from public transit. Uber released its beta version where users can see transit schedules, directions and some ticketing options in a few cities like San Francisco, Mexico City and Paris on September 27th (Hawkins, 2019).

Some other features in the app were included to improve the privacy and safety of both riders and drivers. The most important feature being Verify Your Ride, which uses a four-digit pin code that needs to be verbally communicated to drivers, to ensure riders meet their paired drivers and do not take the wrong car (Vasile, 2019). Other features encompass a 911-alert function through the app, as well as Bike lane alert that notifies riders when they get dropped off near bike lanes to prevent ‘dooring’ bicyclers. Lastly, the company incorporated a better Real-Time ID Check to guarantee Uber drivers match the account in the company’ systems. All these features are implemented to increase safety surrounding Uber after significant security-related issues in the past.

This update sounds good, but these new features also sound like they should have been incorporated all along and are targeted at relieving the pressure the company has faced around privacy and safety issues in the past, think Grey Ball and God View (Hawkins, 2019). The company has improved its firewalls and introduced a Report Safety Incident function that allows riders to report concerns during their trip (instead of only after), to regain riders’ trust and prevent future reports of kidnappings, sexual assaults and sometimes even deaths that have occurred in the past (Silicon Canals, 2019).

Uber has not only struggled with safeguarding its users but also has reported billions in losses over the past years and is of yet unable to turn its business profitable. With a $3 billion operating loss and an accumulated deficit of almost $8 billion in 2018, the company could be in serious trouble now that its earnings are being monitored as it has issued its IPO earlier this year (Poletti, 2019). Since the innovative self-driving cars will most likely not arrive soon enough to save Uber business model, their unprofitable business model will probably result in price hikes for rides to cover costs and improve profitability, but will riders accept these higher prices or simply revert to one of the many alternatives (public transit, Lyft, grab etc.). Further, major investors’ lockup periods are about to end in early November, which might have disastrous consequences for the company’s stock. The financial and security matters are enough to get investors worried, yet Uber also faces legislative and environmental challenges. A few examples are the AB5 California bill undermining its current business model by enforcing drivers to be recognised as employees that receive benefits, democratic candidates placing blame on Uber and Lyft for increased congestion problems, and prolonged efforts to retain its operating licenses in European cities like London (Hawkins, 2019).

This leaves the question if Uber will survive the existential crises it is currently strung up in. Despite Uber’s positive claims that it expects to be around in the future, it will first need to survive the present. With many global and local challengers like autonomous driving, Grab, Lyft or Bolt (Silicon Canals, 2019), competition has arrived and a simple app update will not solve the bigger existential threats that are attacking Uber from all fronts: legislative, financial and environmental. Do you think Uber will crawl its way to the top and become the urban city life-app it desires to be, or will it fall from grace and be forced out of business by financial and legal difficulties?

Leave your thoughts and comments below!

References

Graehler, M., Mucci, A., & Erhardt, G. D. (2019). Understanding the Recent Transit Ridership Decline in Major US Cities: Service Cuts or Emerging Modes?. In Transportation Research Board 98th Annual Meeting, Washington, DC, January.

Hawkins, A. J. (2019). Exclusive: INSIDE UBER’S PLAN TO TAKE OVER CITY LIFE WITH CEO DARA KHOSROWSHAHI. [online] The Verge.  Available at: https://www.theverge.com/2019/9/26/20885185/uber-ceo-dara-khosrowshahi-interview-exclusive [Accessed 30 September 2019).

Nuttall, C. (2019). All hail Uber’s everything app. [online] Financial Times. Available at: https://www.ft.com/content/85e5b38e-e149-11e9-9743-db5a370481bc [Accessed 30 September 2019].

Poletti, T. (2019). Opinion: Uber and Lyft IPOs mean the cheap rides are coming to an end. [online] MarketWatch. Available at: https://www.marketwatch.com/story/uber-and-lyft-ipos-mean-the-cheap-rides-are-coming-to-an-end-2019-05-09 [Accessed 30 September 2019].

Silicon Canals (2019). Uber to focus on rider’s safety with new features, but here are 7 alternatives if you’re in London. [online] Silicon Canals. Available at: https://siliconcanals.com/news/startups/uber-focus-on-riders-safety-new-features/ [Accessed 30 September 2019].

Vasile, C. (2019). Uber launches new mobile app, adds important new features. [online] phoneArena.com. Available at: https://www.phonearena.com/news/Uber-new-mobile-app-new-features_id119278 [Accessed 30 September 2019].

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Lyft vs. Uber

24

October

2017

No ratings yet. After having read the news article ‘Alphabet is leading a $1billion round in Lyft – despite being an investor in Uber’ (Balakrishnan, 2017), I believe it is time to blog about the two ‘kind of the same’ companies.

Both companies offer the same service: A ride when you need one. Uber, being worth $70billion, is still the largest of the two, since Lyft is ‘only’ worth $11billion. Alphabet, the mother company of Google, noticed the potential of Uber and its business model already in 2013. They invested $250mln in Uber at the time, and this got them a seat on the board.
However, yesterday the newspapers were full with the news that Alphabet now leads a $1billion investment round in Lyft.

So, what happened and what is the situation now?

In 2014, Alphabet gave its seat on the board of Uber, since they intended to compete in the ridesharing space with Uber in the future. This, of course, was inconvenient for Uber. After this, Uber has had to deal with several other incidents. Incidents about repeating sexual assault by drivers, but also with the incident of board member David Bonderman, who made sexist comments during a meeting (Maessen, 2017; Rawstorne, 2017). More recently, Uber had to deal with its CEO who resigned, hoping that the company would recover from the lost reputation under the lead of someone else (The Guardian, 2017).
Meanwhile, Lyft is getting the $1billion investment and the company benefits from a good reputation (Nu.nl, 2017). Nevertheless, the company is still only available in the USA, but is becoming a serious competitor of Uber. Especially after the investment lead by Alphabet and the announcement that Alphabet want to partner with Lyft on a self-driving car project (Isaac, 2017).

All this makes me wonder whether we will soon be ordering Lyfts instead of Ubers in Europe as well. I always looked at Uber as a company that was never going to give up the spot it created in the taxi market, but after reading all this, I might have been wrong…

Balakrishman, A. (2017). ‘Alphabet is leading a $1billion round in Lyft – despite being an investor in Uber.’ CNBC.com. Accessed: 23 October 2017 at https://www.cnbc.com/2017/10/19/lyft-funding-alphabets-capitalg-leading-1-billion-dollar-round.html

Isaac, M. (2017). ‘Lyft and Wymo reach deal to collaborate on self-driving cars.’ The New York Times. Accessed: 23 October 2017 at https://www.nytimes.com/2017/05/14/technology/lyft-waymo-self-driving-cars.html

Maessen, L. (2017). ‘Andere topman Uber stapt op na seksistische grap.’ NRC.nl. Accessed: 23 October 2017 at https://www.nrc.nl/nieuws/2017/06/14/andere-topman-uber-stapt-op-na-seksistische-grap-a1562925

Rawstorne, T. (2017). ‘How safe is Uber? Growing concern as police figures suffest company’s drivers are linked to one sex attack in London per week.’ Daily Mail. Accessed: 23 October 2017 at http://www.dailymail.co.uk/news/article-4741030/Figures-Uber-drivers-linked-one-sex-attack-week.html

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The rise of the sharing economy in a time where trust levels have reached a downfall

16

October

2017

Airbnb, Peerby, Snapcar, Uber, a list that seems to grow day by day. All these companies have something big in common, their business models are based on the principles of trust.  But in a time where suspicion, mistrust and fear overrule faith, hope and believe, how can these companies thrive?

The current decade has shown us that people have lost their trust in companies, governments, NGO’s and other institutions. (The Trust barometer Global report, 2017) The most recent and painful occurrence that marks this era was the decision of the United Kingdom to leave the European Union. While on one side we seem to lose faith in the power of governments and institutions, we have arrived in a worldwide where companies thrive on the fundaments of sharing. One of the companies that absolutely shook the world upside down with a business model based on the principles of the sharing economy is Airbnb. Joe Gebbia Co founder of Airbnb pitched the following idea to his investors:

“We want to build a website where people publicly post pictures of their most intimate spaces, their bedrooms, the bathrooms — the kinds of rooms you usually keep closed when people come over. And then, over the Internet, they’re going to invite complete strangers to come sleep in their homes. It’s going to be huge!” – Joe Gebbia

After his pitch he was disappointed to hear no one was interested. But no wonder the investors were not interested, this was so new, so risky and so not like anything else. Luckily Joe Gebbia did not give up on his idea. Now an average of 425000 people use Airbnb every night worldwide. Airbnb is one of the biggest ‘hotels’ in the world, without physically owning a single hotel. It is currently valued at $31 billion, almost twice the value of the 98-year old Hilton which does own actual real estate. (Overfelt, 2017)

Now the question remains, why does it work? How come people felt this idea was idiotic and ridiculous back in 2008 and are now happy to share their car, drill or even their home?

The key principle according to Joe Gebbia is “The connection beyond transaction”. (Gebbia, 2016). The foundation of the business model is still is based on the economic transaction made, regardless the nature of this trade. And the connection made is more than just a bonus. It means you actually share a part of yourself with this stranger, which in some cases even leads to a real friendship. However, you also bear a responsibility with you since the renter trusts you with his or her personal belongings. The fact that all these business models work so well is that people can step out of their comfort zone but at the same time a safety net is provided by means of a review and reputation system. In all business models the review aspect is at the center of success.

According to a recent study by PWC on the sharing economy, 89% of consumer panelists agreed that the sharing-economy marketplace is based on trust between providers and users, and 69% said they would not trust a sharing-economy company unless recommended by someone they personally trust. (PWC, 2015)

This emphasizes the bridge that people have to build in order to participate and engage in the sharing economy. People need a confirmation that the stranger they are about to do business with is indeed a trustworthy person. Bias is something that we can’t ignore and will always be present. One of the strongest biasness we have is that we tend to trust people based on their similarity only, which is called homophile. However, a good rating and review system can help to counteract as shown by a study from Stanford University. If a person has more than 10 positive reviews, the perception will change and reputation is seen as more important than similarity. (Gebbia, 2016) This shows that their is a way to break through the ceiling of bias.

That the sharing economy is booming is well known, and it has been flourishing by promising new technologies. Especially the ease at which individuals can connect and exchange information and goods is ground-breaking. However, one must not forget that these platforms and business models can only truly thrive when supported by a good, well-established political and societal context.(PWC, 2015) Especially legislation and governance has not proven to be ready for these transformational companies.

Sources

Edelman. 2017. The 2017 Trust Barometer Global Report, I [online]. Available at: https://www.edelman.com/global-results/ (Accessed: 12/10/2017)

Gebbia, Joe. 2016. Ted Talks. How Airbnb designs for trust. [online].https://www.youtube.com/watch?v=16cM-RFid9U (Accessed: 12/10/2017)

 Overfelt. M May 2017. It’s been a trip to $31 billion. Now Airbnb wants to remake the entire industry. [online] Available at: https://www.cnbc.com/2017/05/15/its-been-a-fantastic-voyage-to-31-billion-what-airbnbs-next-big-trip-isnt-booked.html (Accessed 7/10/2017)

Stein, J. January 2015. Sharing Economy: Baby, You Can Drive My Car, and Do My Errands, and Rent My Stuff… [online] available at: http://time.com/3687305/testing-the-sharing-economy/  (Accessed 8/10/2017)

Price Waterhouse Coopers C.  2015.  The Sharing Economy Consumer Intelligence Series. [online] available at: http://www.pwc.com/CISsharing (Accessed 9/10/2017) No ratings yet.

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Should we regulate companies like Uber and Airbnb?

30

September

2017

5/5 (1) In the last decade, there have been a lot of popular businesses like Uber and Airbnb operating in the sharing economy (Penn & Wihbey, 2016).  With Airbnb valued at $10 billion and Uber at $18,2 billion, they are disrupting the traditional hotel chains and taxis companies respectively (Cannon & Summers, 2014). It is not hard to see why since the pricing is lower, more transparent and on top of that gives both suppliers and users more flexibility (Zervas, Proserpio & Byers, 2014).

While there have been a lot of upsides, especially from the customer’s perspective, there are also some negatives. For example, Uber and Lyfe still have a lot regulatory issues in multiple countries and are even banned from some areas (GCF, 2017). The Uber drivers don’t have to abide all these rules traditional taxi drivers are bound by, which leads to an unfair competitive advantage. Furthermore, traditional hotels are held to a certain standard, have regulations and are being inspected for safety risks like firetraps. The apartments on Airbnb have none of the aforementioned rules and safety checks, so the customer could possibly be exposed to one or more risks.

Although services like Uber have unwritten rules, for example, an Uber drive is expected to take the shortest route. If the customer is not happy with the driver or the route he took, there is an option to leave a bad review or even ask Uber for a compensation. So in a way, Uber and similar companies are already being regulated, although not in the traditional way with rules but by the users themselves. If you add more rules and regulations to this system, it may hinder the natural process.

The sharing economy gives back power to the user, but this also comes with downsides. In general, these companies do give customers more options to pick from, though you have to be aware of the added risks. Rules do not always mean better service and could even hurt what makes the sharing economy so strong, a user regulated service. It is an interesting question how many rules exactly should be in place if any.

 

 

References:

  • Cannon, S., & Summers, L. H. (2014). How Uber and the sharing economy can win over regulators. Harvard business review, 13(10), 24-28.
  • Edelman, B.G., Geradin, D. (2015) Efficiencies and regulatory shortcuts: How should we regulate companies like Airbnb and uber?
  • Koopman, C., Mitchell, M.D. and Thierer, A.D. (2015) The Sharing Economy and Consumer Protection Regulation: The Case for Policy Change. The Journal of Business, Entrepreneurship & the Law, Vol. 8 Iss 2, 2015
  • GCF, n.d. Sharing Economy: Legal and Safety issues in the Sharing economy. [Online]
    Available at: https://www.gcflearnfree.org/sharingeconomy/legal-and-safety-issues-in-the-sharing-economy/1/
  • Penn, O. & Wihbey, J., 2016. Uber, Airbnb and consequences of the sharing economy: Research roundup – Journalist’s Resource. [Online]
    Available at: https://journalistsresource.org/studies/economics/business/airbnb-lyft-uber-bike-share-sharing-economy-research-roundup
  • Zervas, G., Proserpio, D., & Byers, J. W. (2014). The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry. Journal of Marketing Research.

Picture:
http://dailysignal.com/wp-content/uploads/airbnb-1250×650.jpg

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Uber driverless cars: the replacement of human drivers

18

September

2016

No ratings yet.

Uber is an American internet company which since 2010 mediates between consumers and private drivers of cars. Via the Uber app consumers can submit a trip request on their mobile phone whereupon the Uber software sends a message to the nearest available Uber driver. Uber is currently active in 66 countries and has a revenue of 1.5 billion USD. The company has disrupted the taxi industry with its app, as one of the effects of Uber is increased competition for taxi drivers which resulted in plunging taxi medallion prices.

Uber is now experimenting with their next step: executing trips with driverless cars. The company has started a self-driving pilot program in Pittsburgh with selected app users. The self-driving cars are fitted with sensor cameras, radar, lasers and GPS receivers. For the next few months the driverless trips will be supervised by company technicians to make sure everything goes right and to monitor the car’s behavior. During test drives the car collects data of the surroundings and compares it with preexisting maps to identify for example pedestrians and cyclists. With the move of using self-driving cars for the general public, Uber is ahead of the rest of the car industry and companies like Google and Tesla. The goal is to replace Uber’s human driven cars by self-driving cars, as quickly as possible.

While Uber thinks the launch of the self-driving car program is a step forward in transportation, Uber drivers are not so sure. The drivers fear that in the future they will be entirely replaced by software and sensors, although they do not expect it would replace them soon. An spokesperson of Uber says he expects human drivers to remain part of the equation, even after Uber works out self-driving issues like dealing with bad weather. The company believes ride-sharing will be a mix between drivers and self-driving Ubers because of the limitations of software and the need to have drivers deal with unique consumer issues. It also states that the program will create additional jobs in maintenance as the cars will be on the road 24 hours per day.

 

 

References:

https://en.wikipedia.org/wiki/Uber_(company)

http://www.bloomberg.com/news/features/2016-08-18/uber-s-first-self-driving-fleet-arrives-in-pittsburgh-this-month-is06r7on

http://www.telegraph.co.uk/business/2016/09/14/watch-uber-launches-driverless-car-service/

http://www.marketwatch.com/story/uber-drivers-wont-accept-autonomous-cars-without-a-fight-2016-09-15

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Self-driving Ubers hit the road!

18

September

2016

5/5 (1) This week, Uber launched its most promising project: Self-driving taxi’s!

Don’t get too excited. The first handful of self-driving Ubers is currently only available to the lucky residents of downtown Pittsburgh. In this pilot-stage of the project, the cars come with an engineer on the driver’s seat and a co-pilot to take down observations. Passengers taking this experimental taxi get their ride for free, instead of paying $1,05 per mile.

Uber co-founder and CEO Travis Kalanick mentions that in the long run, prices will fall so low that the per-mile cost of travel, even for long trips in rural areas, will be lower in a driverless Uber than in a private car.

And that is where things become interesting!

Imagine every time you need a ride, you push a button on your mobile phone and an autonomous car appears. Who needs a car, when a driverless Uber is more affordable than owning a private car? Technology poses the question of whether it’s necessary to own an automobile. Already, “millennials” appear to value car ownership less than previous generations do.

“That could be seen as a threat,” says Volvo Cars CEO Hakan Samuelsson. “We see it as an opportunity.” Earlier this year, Uber and Volvo signed a $300 million pact to develop a fully autonomous car that will be ready for the road by 2021. But the Volvo deal isn’t exclusive. Besides, Uber plans to install self-driving kits into existing vehicles. With its a plan to build an autonomous vehicle empire, Uber aims to replace more than 1 million human drivers with self-driving cars as soon as possible.

With the rise of autonomous vehicles and car sharing services, McKinsey recently predicted that by 2050 we can do with 75% less cars!

Has Uber, disruptor of the taxi-industry, given the start signal for the disruption of the car industry?

 

 

 

Sources:

http://www.bloomberg.com/news/features/2016-08-18/uber-s-first-self-driving-fleet-arrives-in-pittsburgh-this-month-is06r7on?utm_content=business
https://www.nrc.nl/nieuws/2015/08/21/stap-jij-straks-in-een-zelfrijdende-uber-tesla-taxi-niet-zo-snel-a1495264

Uber Launching Its Self-Driving Cars This Month


http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/a-road-map-to-the-future-for-the-auto-industry
http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/ten-ways-autonomous-driving-could-redefine-the-automotive-world

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Technology of the Week – Transport Industry Disruption

16

September

2016

5/5 (1) Travelling is something that has always accompanied us, it’s necessary to move from one location to another. During the decades, the concept of travelling has transformed in a sophisticated way. Nowadays people drive cars, take trains and subways to reach their destinations. Not to mention airplanes and boats. All those ways of travelling, how different they may sound, are subject to technological transformation. Without the transformation of software and hardware in it’s broadest sense, we still would be walking or riding a horse.

What is Uber?
Uber is a multinational online transportation network company. To passengers, Uber is essentially synonymous with taxis, and to drivers, it’s basically a referral service. The app connects riders with drivers using their phone’s GPS capabilities, letting both parties know one another’s location and removing the question of when the ride will actually arrive. In addition, the tech company also processes all payments involved, charging the passenger’s credit card, taking a cut for itself (which ranges from 5% to 20%), and direct depositing the remaining money into the driver’s account, all in the background and completely cashless.

What is BlaBlaCar?
BlaBlaCar is the largest long distance ridesharing platform that connects drivers with empty seats and passengers to share travel costs. Members must register and create a personal online profile, which includes ratings and reviews by other members, social network verification, and rate of response. Profiles of members show how much experience they have of the service, meaning those with more attract more ride shares and, importantly, each user’s profile includes a “BlaBla” measurement, which indicates how much they are willing to chat during a trip.

Future predictions: 

Uber has a quite uncertain, but nonetheless possibly promising future ahead. Only recently they have announced that they will be testing self-driving cars in Pittsburgh. Self-driving cars are a futuristic concept, which will arguably grow in the years to come. It is however possible that there are serious problems ahead for Uber, since the law regulations can get stricter, which can cause them to lose a great market share worldwide. Another future prediction is the development of better maps. Maps are fundamental to Uber and it’s expansion into new markets.

The last 5 years BlaBlacar has expanded itself throughout Europe and is growing at a fast pace. One of the most recent expansions was the expansion to India in early 2015. Because the BlaBlacar’s business model is still very innovative, the company continues to expand. Due to the nature of the product BlaBlacar offers, the popularity of the platform will presumably grow, because sharing economy is a trend that is constantly increasing in importance. However, in order to remain successful, BlaBlacar has to defend it’s reputation at all costs, since it’s a critical asset for BlaBlaCar. After all, who would like to share a car with a stranger if he couldn’t trust him?

Group 5: 

Olcan Ayaz

Tomasz Kowalik

Hady Naorie Bah

Julian Ost

Sources:
Is it safe – about ride-sharing services. Retrieved 13 September 2016, from http://blog.liftshare.com/liftshare/is-it-safe-about-ride-sharing-services-like-blablacar-and-liftshare
How much money BlaBlaCar could be making? Retrieved 13 September 2016, from http://uk.businessinsider.com/how-much-money-blablacar-could-be-making-2015-9
BlaBlaCar business model. Retrieved 13 September 2016, from http://unicornomy.com/blablacar-business-model/
Uber loses at least 1-2 bilion in gross revenue over next 12 months. (2016) Retrieved 13 September 2016, from http://www.bloomberg.com/news/articles/2016-08-25/uber-loses-at-least-1-2-billion-in-first-half-of-2016
Lyft on the road to 1 biblion in gross revenus over next 12 months. (2015). Retrieved 13 September 2016, from http://www.forbes.com/sites/ryanmac/2015/11/17/lyft-on-the-road-to-1-billion-in-gross-revenue-over-next-12-months/#2e5a59b330c9
Uber information. Retrieved 13 September 2016, from https://www.crunchbase.com/organization/uber#/entity
Lyft were closing in on Uber with path to profitability. (2016) Retrieved 13 September 2016, from http://www.forbes.com/sites/briansolomon/2016/05/12/lyft-were-closing-in-on-uber-with-path-to-profitability/#756002db464e
The thruth about how ubers app manages drivers. (2016) Retrieved 13 September 2016, from https://hbr.org/2016/04/the-truth-about-how-ubers-app-manages-drivers
Uber drunk driving study. (2016). Retrieved 13 September 2016, from http://fortune.com/2016/07/28/uber-drunk-driving-study/

 

 

 

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Ford, Mercedes and Toyota: the Nokias of tomorrow?

13

September

2016

5/5 (1) Reading Tech-Blogs nowadays, it seems like the days of traditional car manufacturers are numbered. Not only are they seen as producers of old, inefficient and not very innovative products, an image that has worsened thanks to Volkswagen’s self-made emissions scandal which has tainted the whole industry. VW, Ford and others also face a generation of consumers that increasingly sees owning a car as unnecessary, a development brought on by Uber and Lyft. And as if that was not enough, new competitors – be it an upstart like Tesla or technology behemoths like Google or Apple – are striving to wrestle market share from traditional players and revolutionize the car market with new technology – be it electric engines or driverless vehicles. But how bad is the situation really? Does the traditional car industry really run the risk of being disrupted as other industries have been before with all the catastrophic consequences this entails? Are BMW, Mercedes and Audi about to become the Nokias of the automobile industry?
To answer this question, it is useful to consider the Theory of Newly Vulnerable Markets (NVMs), developed by Eric Clemons and his colleagues. To fulfill the criteria for an industry that is ripe for disruptive innovation three conditions have to be met: it must be newly easy to enter, attractive to attack and difficult to defend. So let us examine whether these criteria are fulfilled in the automobile industry.

Newly Easy to Enter

Despite some recent technological developments, it seems that the automobile industry is still not easy to enter. Manufacturing and selling a car still requires investing huge amounts of both physical and human capital, a feat that is hard to achieve by start-ups, as they are notoriously under-funded (or so they say). It is no surprise then that the recent (aspiring) newcomers have deep pockets. A quick research on CrunchBase yields the result that Tesla raised approximately $2.37 billion over the course of the last 12 years. To some extent this was made possible solely by the support and connections of its founder Elon Musk. It is hard to see how any other start-up (that aims to actually manufacture goods) could raise that much money. And the efforts of Google and Apple in the car industry are made possible by these companies’ immense war chests, accumulated with profits from their core business. So if you are not Google or Apple and are not called Elon Musk, you will not be able to raise the huge capital outlays, necessary to bring a car to market and compete with the industry giants. Of course this does not change the fact that entry (whether it was easy or not) has already occurred. Furthermore, Uber’s popularity has the potential to undermine the traditional car manufacturers business models in the long-run.

Attractive to Attack

While the car industry is still not easy to enter, it would be an attractive target industry for an attack on the incumbents. Despite falling overall profit margins (due to intense competition), there clearly exists a product profitability gradient, inviting opportunistic pickoff of the more profitable segments. Although exact profit margins for specific models are hard to come by (most car manufacturers only publish total company profitability), it is a well-known fact that premium cars enjoy higher profits margins than low-end models. Therefore, “cherry picking” the high-end customers first, is possible. Tesla has successfully implemented such a strategy by first introducing its high-end Model S (base price: $66.000) before penetrating the mass market with its new Model 3 (base price: $35.000) that is due to hit the streets in 2017.
There is another factor that makes the car manufacturing sector attractive for attack. With recent technological advancements, the driverless car seems an achievable goal within the next two decades. This will bring a tremendous shift in the way we move, as car manufacturers will become “mobility company[ies]”, according to Ford’s CEO Mark Fields. Whoever comes to dominate this market will surely reap immense profits. This is the reason why technology giants such as Google and Apple have become interested in automobile manufacturing.

Difficult to Defend

This leads us to the last condition for NVMs: the difficulty of defending the car industry. Here the picture looks ambiguous. While traditional car companies (especially German ones) are still dominated by engineers and their often inflexible and narrow way of thinking. This could become a burden when competing against companies with a more agile and creative mindset and therefore a higher capacity to innovate.
However, there are a few silver linings that give hope that not all is lost for traditional car makers. First, some of them own hugely popular brands. In some cases, these have been built over the run of almost a century. Other forms of intangible capital that give incumbents a defensive advantage, are the complex supplier networks that also are the result of years of cooperation between companies in the car manufacturing supply chain and the specialized knowledge, accumulated in the employees of big manufacturers. Finally, the incumbents have realized the need to innovate and have started to develop new business models (e.g. Moovel by Daimler) or investing heavily in R&D of future technologies like electric vehicles and driverless cars (e.g. the decision of many German car makers to dramatically increase their electric vehicle fleet).

Conclusion

So back to the initial question: are Ford, Mercedes and Toyota (or other manufacturers) the next Nokias? In my opinion they are not. While it is true that incumbents of the automobile industry face unprecedented challenges, they also have decades of experience in their industry. Tesla’s recent difficulties in scaling up production and in dealing with the first driverless fatal crash have shown that the regulatory environment and the economics of the car industry as well as its engineering challenges are harder to navigate than the classical technology market from which the new challengers originate. Even Apple seems to have run in difficulties in developing its driverless car, firing dozens of employees working on “Project Titan”. Combining their unique industry knowledge with an openness to innovation both in technology and business model, will enable today’s car manufacturers to take on Google, Apple, Tesla and Uber.
Don’t expect a mass extinction of big car brands just yet!

 

Sources:

Clemons, E. K., Gu, B., and Lang, K. R. Newly vulnerable markets in an age of pure information
products: an analysis of online music and news. Journal of Management Information Systems, 19, 3,
(winter 2002-2003), 17-41.

https://www.crunchbase.com/organization/tesla-motors#/entity

http://www.thecarconnection.com/overview/tesla_model-s_2016

http://uk.businessinsider.com/ford-ceo-mark-fields-interview-2016-3?r=US&IR=T

http://t3n.de/news/bmw-elektroautos-744882/  (Source in German)

http://www.nytimes.com/2016/09/10/technology/apple-is-said-to-be-rethinking-strategy-on-self-driving-cars.html?_r=1&utm_source=affiliate&utm_medium=ls&utm_campaign=hL3Qp0zRBOc&utm_content=355861&utm_term=1&siteID=hL3Qp0zRBOc-cyn_bCjerUifNi5Eavmxrg

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