Uber Technologies Inc. is an online cab transportation network company with headquarters in San Francisco, California. Currently, it is operational in a number of cities all across the globe. The major market for the company is in the USA; however, it also has substantial customer base in several European and South Asian cities. Uber Technologies develop and market a software application which allows the customers to request car transportation or food delivery through their smartphones. The drivers called with the app use their personal cars or rent cars personally to drive with the mobile app. It is a disruptive innovation and pioneer in the sharing economy. The company has made several changes in the transportation industry has been the subject of several legal protests. It is a digital disruption model which tries to ensure that high standard services are provided at low cost. It is based on the share economy, wherein the drivers are provided standardized services and capability to choose their work times and the customers can drive around at car taxis at relatively low cost (Uber, 2017). Since its inception in 2009, the company has observed phenomenal growth. In 2015, the net-worth of the company was almost US$ 45 billion, and it was valued by the venture capitalist as one of the most valuable startup across the globe. The profits of the company are growing manifold and the trips facilitated by the company are increasing exponentially (Mulley and Ison, 2016).
The macro-environmental or the external factors are those which can impact on the business of the organization; nevertheless, the organization cannot control them. In this regard, the present section examines the external environment of the organization in Australia. PEST framework is a strategic framework which examines the external factors which can influence the business of an organization (Graham, 2008).
Political factors: There are several protests against Uber, as it is not considered a legal taxi service. It cannot be categorized as a taxi service since it is providing a mobile application to all the users for easy use. As a result, a number of cases are filed on Uber regarding the employment law and the legality of service. In Australia, the Uber drivers are regarded as taxi drivers after a legal battle with the government. Till date, the Northern Territory of Australia has not allowed Uber to operate in the territory (ABC News, 2016).
Economic factors: The business model of Uber is based on shared economy wherein the customers are offered opportunity to take rides at relatively low cost. Therefore, the customers will prefer the ride sharing services at recessions or economic growth equally.
Social factors: The ride sharing services are becoming increasingly popular due to the low cost associated with it. Moreover, the customers also prefer it to control the instances of drunk driving (Kunkle, 2016). It is growing in popularity due to the differentiated services wherein the customers are provided safety options as well as they can provide ratings to the drivers. It increases the reliability of the service in comparison to other contemporary ride sharing services. Along with it, other customers are attracted towards the organization due to the lower price offered to the customers.
Technological factors: In the present times, technology plays a crucial part in the ride sharing services. A large number of local competitors will emerge observing the lucrativeness of the business. Since the inception of the business model is based on the technology, Uber can gain competitive advantage over other businesses by constantly developing the mobile application developed by it. The technical infrastructure of a company will also be beneficial in the car riding (Price, 2015).
In order to examine the competition in the taxi riding services, the porter’s five force model has been used in the below section.
In order to curb counterfeit organizations, Uber has filed for several patents; however, since they were filed and approved recently, the company has to resist the competition with similar companies. Moreover, since the entire business model of the organization is dependent upon one mobile application, the threat of the new entrants is high (Porter, 2008).
In the case of Uber, the buyers have high power. It is due to the high number of substitutes and competitors in the industry. It is a free app; therefore, the switching cost for the competitors is very low. The taxi riding service is a service which is not used every day by customers, but at specific circumstances. Therefore, it cannot build customer loyalty; however, it can attract the customers by offering discounts and cheap services.
The suppliers of the company are the cab drivers, who have limited power due to market dominance of the application (Porter, 2008).
The threat of substitutes is high for Uber. The customers can avail a number of substitute services such as public transportation or traditional taxi services (McIvor, 2005).
There are numerous organizations operational in ride sharing service which states that the intensity of the competition in the industry is high (Crunchbase, 2017).
The SWOT analysis is a potential tool in the analysis of the external environment and internal strengths and weaknesses of the organization (Pahl and Richter, 2009). The internal environment of Uber is examined with the help of SWOT analysis.
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Strengths · Strong brand name (Wingard, 2015) · Convenience, ease and cheap cost · High standardized service · Low cost of operations · Lack of prominent competition (Wingard, 2015) · Trust and safety · Innovative organization culture |
Weaknesses · Easily imitable business idea (Shontell, 2016) · Questionable relationship between drivers and company · Lack of competitive advantage with respect to other companies · Privacy concerns as Uber record customer data |
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Opportunities · The customers are often dissatisfied with long waiting time and high prices of traditional companies · New unexplored markets (Wingard, 2015) · Enhancing the number of service by providing emergency services or food delivery service |
Threats · Bad publicity due to large number of legal cases and dissatisfied drivers · Problems with local authorities in potential markets (Shontell, 2016) · High competition |
Uber is the pioneer brand which used sharing economy to offer the customer unique transportation services at cheap cost. The car owners can also utilize their cars to earn quick money. In the above section, the SWOT analysis of Uber is conducted to examine the potential strengths and the weaknesses of the organization. It has been identified that the biggest strength for the organization is its strong brand image which is developed due to its being a pioneer in the sharing economy. Moreover, the company has attained the trust of various venture capitalists and has robust financial base. It has developed a unique business model with various core competencies (Hill and Jones, 2009). It includes low cost travel, enhanced security and flexibility of services. It has a large number of taxis registered unlike traditional taxi services which have limited vehicles. Moreover, the customers were also dissatisfied with the high cost and the waiting time of the traditional taxi services. Therefore, the strength of the organization is its innovative services. Although several organizations have copied the business idea of Uber in providing shared economy based taxi rides, there is no prominent competition. Uber is the leading organization in the ride sharing service and retains the maximum market share by offering low cost services than its customers.
However, the main concern for the organization is easy imitation of its business model. The whole business is dependent upon a mobile app wherein the customers and the drivers can register. The customers avail the secured services at low cost and the drivers can standardize their operations and snatch customers from the large number of people who use the app. The implementation of the rating system also increases the reliability of the organization.
The company has a large number of opportunities in the unexplored markets in several European and the Asian countries. In addition to it, it can also initiate the ride sharing services in towns and middle-range cities which has potential for profitability (Griffin, 2011).
Currently, Uber is providing food delivery services along with the ride sharing. It can also expand its service horizon and provide emergency services or monthly services to diversify its business.
The primary threat to the company is the large number of competitors with the same business model. The organization has to implement unique strategies so that it can retain its position as a market leader. Moreover, legal cases and litigations against the company are also threat to the company as it tarnishes the brand image of the company. In Australia also, the government authorities have been skeptical regarding the operations of the company. The drivers of the company are also dissatisfied with the company’s operations as they are not considered as the employees of the company and employment benefits are not provided to them. There instances of protests can damage the reputation of the company.
Most of the business organizations use a number of strategies to expand their business and increase their sales or profits. The methods that a business organization uses to grow the business are dependent upon financial situation, competition and the government regulations. Currently, Uber is in its expansion phase and trying to establish its business in the USA and foreign locations. In order to expand its business and establish strong market hold, the company is pursuing the growth strategy of cost leadership. It is a strategy which is used to establish the competitive advantage of an organization. Cost leadership refers to the strategy of marketing the organization as the cheapest source for the goods and the services. It is the method of minimizing the operational cost and passing the savings to the customers. Although this strategy remains highly successful, employing this strategy is very difficult. In the cost leadership, a business organization tries to pursue economy of scale, propriety technology and access to raw materials to reduce the operational costs. The low cost producer exploits all the sources of cot advantage. If a business organization is successful to achieve and sustain cost leadership, it can become above average performer in the industry. In this regard, it could be stated that Uber is implementing the strategy of cost leadership to reduce the competition in the industry. It is offering low cost rides in comparison to the traditional taxi services and other local ride sharing services (Scheele, 2014).
Uber is using the strategy of offering products at low cost than the competitors on a consistent basis to build customer loyalty. It has been successful in implementing this strategy as due to backing by a large number of venture capitalists and other organizations. Along with it, it has implemented a dynamic pricing model wherein the pricing changes according to the demand. Moreover, about 80% of the prices charged to the customers are transferred to the drivers and the rest is attained by the company.
Along with it, the company follows a direct entry mode while entering the new markets. It has a high new market entry rate and recently expanded into a number of foreign countries in Asian subcontinent. In order to establish itself in the foreign countries, it has adopted the strategy of localization in the foreign countries (Glowik, 2009). It adapts the pricing model and the business structure according to the local culture and taste. It makes substantial efforts to hire the local managers who have experienced of the local business culture. It has also acquired the strategy of merger acquisition to reduce the compunction in various markets (Miles, 2003). In china, the company has merged with one of the local competitors, Didi Chuxing.
In order to increase the business of the organization, the company has implemented the diversification strategy. In this regard, Uber has expanded its operations to transport the grocery products and the food items. The diversification is the strategy wherein a firm tries to penetrate or enter a new market by launching a new product. It is a risky strategy as the business has no experience with the product and the consumer response with the product (Kenny, 2009).
In the above analysis, it has been identified that there are numerous challenges and the weaknesses in the current business model of Uber, which needs to be addressed so that it can grow as a sustainable business. The pricing strategy of the organization is to offer the rides to the customers at very cheap prices. The company has implemented this model to vanish competition; however, this pricing model is not ideal. Uber needs to identify the factors where it can reduce the cost and establish a robust revenue model wherein it does not have to rely on the investment from the venture capitalists.
Along with it, another major problem for the organization is several counterfeit organizations which are copying the business idea of Uber. Uber has been the pioneer organization in the ride sharing service; however, it several companies in foreign nations have copied its business model before it can obtain the patent. In this regard, the company is required to implement strategies which can increase the competitive advantage for the organization and contribute to the organization’s profitability (Kenny, 2009).
Uber should also take some serious actions in the human resource strategy of the company. Currently, the drivers to the mobile application are hired as independent business partners wherein they are required to pay a specific commission to the mobile application as they get rides through app. Several governments are skeptical regarding the relationship between the drivers and the mobile application and whether the company is breaching the rights and the business of the taxi drivers. They are also concerned about the safety and responsibility of the drivers and the customers alike. Moreover, for the organization to retain and attract the best drivers, it is important that it provide additional benefits to the drivers so that they remain with the organization instead of registering with the competitors. It has also faced protest and flak from the government all across the globe due to its confusing relationship with the drivers. The company can implement human resource strategies so that it can recruit the best talent in the industry.
However, the primary core competency of the organization is their innovative organization culture and brand value. Since Uber was the pioneer in the sharing economy business model, it is highly popular all around the world. The customers are aware of the organization and its low pricing. Therefore, it need not implement extensive marketing strategy. The organization should also take benefit from its innovative work culture and try to implement solution and approaches to increase the competency of the mobile application.
It can be concluded that the organization should Uber is a fast developing organization which has changed the dynamics of the taxi service industry. However, there still exist several challenges for the organization such as increase in the counterfeit organizations and the lack of a robust revenue model. In this regard, the company should follow the strategy of increasing the economies of scale so that it can create a profitable model with the existing strategy. Moreover, it should also focus on fostering innovation so that a mobile app can be built with better features than the competitors.
References
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Crunchbase. 2017. Competitors. [Online]. Available at: https://www.crunchbase.com/organization/uber/competitors [Accessed on: 2 March 2017].
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Porter, M.E. 2008. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Simon and Schuster.
Porter, M.E. 2008. On Competition. Harvard Business Review Book.
Price, C. 2015. Digital technology drives Uber to global success. The Telegraph. [Online]. Available at: https://www.telegraph.co.uk/sponsored/technology/4g-mobile/engaging-customers/11366554/digital-technology-uber.html [Accessed on: 2 March 2017].
Scheele, D. 2014. The trade-off between cost leadership and differentiation. GRIN Verlag.
Shontell, A. 2016. Here’s are the biggest threats to Uber according to Morgan Stanley, the bank that’s helping the $62 billion startup raise its next round. Business Insider. [Online]. Available at: https://www.businessinsider.com/Heres-are-the-biggest-threats-to-Uber-according-to-Morgan-Stanley-the-bank-thats-helping-the-62-billion-startup-raise-its-next-round/articleshow/50583413.cms [Accessed on: 2 March 2017].
Uber. 2017. Our trip history. [Online]. Available at: https://www.uber.com/en-IN/our-story/ [Accessed on: 2 March 2017].
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