When we speak of disruptive innovation, one of the examples that often crop up is Uber Technologies Inc. or, simply, Uber, which was able to transform the transport industry as we know it today. It made it possible for the taxi- or cab-riding public to avail of Uber drivers – their cars and driving services – through the use of a mobile app on their smartphones.

Of course, currently, we cannot discount the fact that there are issues (most of them legal) that are being faced by the company. However, there is no denying that Uber was able to revolutionize the transport industry, and has opened doors for other similar transportation network companies to enter this growing market.

173 - 7 Strategies Uber Is Using To Disrupt The Taxi Industry

In this article, you will learn about 1) what is Uber, how does it work, and what are its benefits, 2) how Uber disrupted the taxi industry, and 3) the 7 strategies Uber is using to disrupt the taxi industry.

AN INTRODUCTION TO UBER

“UberCab” was formed in 2009 by founders Travis Kalanick and Garrett Camp, but it wasn’t until 2011 when the Uber mobile app was officially launched and introduced to the public, along with the services that are on offer. It was also during that year that “UberCab” was simplified and the company (and the app) became known as Uber.

Uber began with its headquarters in San Francisco, California, but it did not take long before it expanded to other cities in the United States. In 2011, the same year that the mobile app and Uber services were launched, the company expanded to one U.S. city every month. It eventually made its way overseas, beginning with Paris, France, where Uber first made its presence felt in December of 2011.

Today, six years after Kalanick and Camp founded the company, Uber is now operating in major cities worldwide.

How Uber Works

In order to use Uber, you only need three things: the mobile app, a smartphone, and internet connectivity. The mobile app has to be downloaded (it is compatible with both iPhone and Android devices) and installed on your smartphone. Users must first sign up for an account before they can start reserving a personal driver.

When signing up for an account, users are asked for their mobile number and billing information. Once the required information are provided, you are now ready to make use of the app.

To reserve a driver, the first thing you should do is to choose the vehicle type that you want. Uber is not a taxi service, which lets you request only for cabs or taxis. Instead, you may be provided with a private car, depending on the availability of vehicle types in your area. You will also be asked to mark your location, where the driver will pick you up. Then all you have to do is wait until the driver and the car arrives.

The fare that you will be charged with will mainly depend on the time and distance travelled. Take note that rates may vary, depending on the city or the locale where the Uber service you requested is operating.

You will not be asked to pay in cash at the end of the trip. When you signed up, you were asked for your billing information. The fare payments will be automatically charged to the credit card that you provided. At the end of the ride, you are also given the option of giving a rating to the driver.

Watch this interesting speech of Uber founder Travis Kalanick on the future of Uber.

Benefits of Using Uber

For the riding public, there are two major benefits of making use of Uber: convenience and simplicity.

Simplicity

Uber is very easy to use. The interface of the app is straightforward and easy to navigate, and requesting a driver is not complicated at all. All you need is a smartphone, with the app installed, and you can start using it.

But you are not limited to using a smartphone, because requesting a car can also be done through the Uber mobile site, or through sending an SMS or text message to a designated number provided by Uber for your city. This is particularly useful when there is no internet connectivity for the use of the app.

Convenience

Uber makes it very convenient to acquire a ride. This is especially advantageous when you find yourself without a ride, in the middle of the night, in an area you are unfamiliar with. By marking your location, the Uber driver will come and pick you up. Although Uber also ties up with taxi service providers, most of the vehicles are private-style vehicles, which means that they are generally more comfortable than cabs.

When requesting a cab, it is up to you if you want the driver to immediately pick you up, or at later time that you will specify.

The convenience in payment method is also another good point. Not everyone carries cash around to pay for taxi or cab fares, so that is one less worry for passengers. There are no worries about encountering drivers who will rip you off or jack up their prices, because the app will take care of processing the payment for you.

HOW UBER DISRUPTED THE TAXI INDUSTRY

The concept of “sharing economy” – where goods and services are shared through the use of the internet and other ICT applications as a platform – has certainly transformed the way most of the world works. The most visible and common effect of the sharing economy is the pressure that it places on traditional suppliers, manufacturers and service providers.

The many disputes and complaints, mostly coming from the taxi industry, against Uber is one sure sign of how the latter successfully caused a disruption in the way “things used to be done”. And it is not just an isolated incident, since these oppositions even reached the point where several legal actions have been taken against the company in various cities around the world. And it’s not just taxi companies and individual taxi owners and operators that are protesting Uber and its operations, as actions are also being taken by ride-sharing companies and even governments.

Despite these, however, we often hear statements lauding Uber for its innovativeness. The taxi and ride-sharing industry has always been competitive, but with the entrance of Uber into the picture, the level of competition suddenly rose higher.

Aside from these legal complaints and protests, what are the visible effects of the entrance of Uber into the market? Here are some of them:

Decline in the prices of taxi licenses and taxi medallions in many cities in the United Cities. Taxi medallions serve as permits for tax drivers to pick up customers and operate as a taxi service provider. Even before the emergence of Uber, the prices of these medallions have been on a slow decline, due to the arrival of real-time ridesharing companies. Uber’s presence only made the decline steeper. For example, in New York, taxi medallions were estimated at USD 1.3 million for the year 2013. Two years later, with the arrival of ridesharing companies and Uber, there was a significant decrease, as the value is now on an average of USD 850,000.

Increase in the number of passengers and drivers. It’s a cyclical effect of sorts. More passengers are turning towards the use of this mobile app because the pickup times are considerably reduced and using it is certainly more convenient than going the usual route of flagging down a taxi on the streets or calling a taxi service. In turn, as more and more customers are opting to use Uber, more drivers are shifting towards providing their services over Uber, since it means higher income for them. Even non-taxi drivers have the opportunity to make a living as a driver, since they will not be subjected to the rigid requirements of the state before they are allowed to drive a taxicab. They are also spared from having to pay the hefty license prices.

Creation of a more efficient car-hiring service market. On the heels of Uber’s success also rose other transportation network companies, or TNCs, such as Lyft. This is due, in part, to how investors are more inclined to put their money to these types of start-ups with innovative business models.

Decrease in the number of taxi operators and companies. Several taxi companies had to close up shop since Uber entered the market. They were losing customers as well as drivers, as both are jumping ship to Uber instead. In short, the arrival of Uber and other TNCs showed a notable decline on the rate of taxi usage.

UBER’S DISRUPTIVE INNOVATION STRATEGIES

Let us take a look at the strategies that it employed, leading to disruption in the taxi industry.

1. Elimination of various transaction costs

The taxi industry, even the sector that is dedicated to car rentals and car-hires, used to have the monopoly on the transport industry, which pretty much gave them free rein when it comes to setting fare rates and charges. Therefore, the riding public had no choice but to shoulder the search costs and other transaction costs added to their base fare.

Uber has made it so that these transaction costs no longer exist. There are no charges to be paid when reserving a car through the mobile app. This is certainly not the case with your conventional car-hire service, where you have to pay a fee for every step of the transaction of reserving or hiring the car, independent of the actual fare that you will pay at the end of the ride.

On the part of the drivers, they are not bound to comply with local regulations on costs such as their permit to operate as a transport service provider, insurance and other municipal costs. Granted, they will still pay some fees with respect to the maintenance of their private cars, but it is considerably lesser than what taxi drivers and taxi companies do.

2. Encouraging increase in productivity of assets and employment rates

The concept of sharing economy, which Uber zeroed in on, involves turning assets that are either unused or under-used into resources that are productive or, in other words, profitable. Private cars that are not used often are still incurring maintenance costs. Even if they are left to sit in a parking lot, their value still depreciates. Uber addressed this by giving car owners an option where they can get money out of these idle resources. In a way, this also provides additional income to drivers who prefer to work part-time, meaning they will only drive when they are available.

Uber skips over any licensing system and enters into a contractual relationship directly with the driver. There is no employer-employee relationship to speak of, so the drivers still maintain a degree of freedom, without having to worry about costs associated with employment.

3. Use of cutting edge technology

The development of a mobile app is quite possibly the best strategy that Uber used. People love to use their smartphones; in fact, their daily lives involve heavy usage of smartphones, with key transactions conducted over the mobile device. By tapping into this, Uber made the riding public sit up and take notice. For Uber, they were aware that they have a guaranteed market in the smartphone users; they just had to make them realize that they need their service.

Technology has been known to be able to break down and get past regulatory entry barriers (another point that governments take issue with) because of the use of the internet. The widespread reach of the internet also meant it was easier for Uber to expand to other cities all around the world.

Uber took full advantage of the concept of collaborative consumption by coming up with a mobile app that is very easy to use while packed with features that are designed for users’ convenience. For example, the use of GPS technology for matching drivers and their cars with passengers, and tracking or monitoring the trip, cuts down on time, effort, and search costs. Real-time matching also decreases the interval it usually takes between making that call to a taxi company and the taxi arriving at the location you specified to pick you up, because the app matches you with the driver that is closest to your location.

Scheduling your pickup time is another feature that makes Uber more attractive. Passengers can reserve their ride even if they have not yet arrived at the location where they will be picked up, and it certainly lessens the hassle of having to reserve their ride later.

4. Variable or flexible (and often more affordable) pricing model

Uber is not responsable to any fare regulation, so pricing is flexible. Uber argues that it is a ridesharing service, not a taxi company. As such, it is not covered by taxi regulations, which includes imposing pre-approved prices or fare rates. Therefore, it can pretty much raise its prices or lower the rates according to the demand for the service. This is a flexibility that is not present in taxi companies, whose pricing is governed by legislation.

The initial impression of many people is that using Uber service is very expensive; however, in the long run, it can actually be the more affordable option. This is because Uber does not pay taxes, and it is also exempt from being subjected to licensing fees.

The pricing model of Uber also offers transparency, which is not something that can be said of traditional taxi service providers. Passengers using Uber are already made aware beforehand of their estimated fare, and the app also allows them to compare the prices across several other applications. Comparison is made easier, instead of having to look up price lists of traditional taxi companies.

5. Convenient and frictionless payment

As mentioned earlier, Uber will get your credit card or billing information once you sign up for an account. After each ride, the fare will be automatically charged to your credit card account, and automatically paid to the account of the driver. This means you get to enjoy a cashless transaction. No more looking for spare change, or being afraid that you will be ripped off by the driver. On the other hand, the driver will not have to worry about passengers ditching them before paying their fares, because they will be automatically paid.

6. Implementation of quality control through a rating system

Uber’s business model allows customers to rate the driver at the end of a trip or ride. If the driver’s rating falls below the threshold set by Uber, then he can be removed from the system. This encourages drivers to provide and maintain the high quality of their service, from how they drive and interact with their passengers to how they maintain their vehicles.

7. Being tough and fearless

Many would argue against this being termed as a strategy, but Uber has developed a reputation of not being afraid of controversies, often ignoring local rules and regulations to carry out its core service. This was one of the main reasons for the legal suits filed and actions taken against the company, with some resulting to Uber being slapped with bans on its services by local courts. Uber has displayed fearlessness, an aggressive stance, and not a small degree of ruthlessness in most of its dealings, and this was justified by the top management by citing the nature and volatility of competition in the transport industry. Playing hardball is something the Uber is very much willing to do, if only to stay ahead of the ever-strengthening and growing competition.

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