Analyzing Uber’s Working Model Using Porter’s Five Force Model

Porter’s Five Force Model to Analyze the Competitive Environment of Uber

Uber, a multibillion-dollar company, was founded in California in 2009 by Gavin Camp and Travis Kalanick as a peer-to-peer logistics company. Today, Uber has managed to disrupt the transportation and delivery space like no other company. From being the “alternative to public transportation” to being the “preferential mode of transportation”, Uber has not only introduced better value to people but also has managed to do so, by seamlessly integrating core customer values and needs with the relevant technological advancements (Cramer and Krueger 2016). Uber today, provides rideshare, food delivery, healthcare and freight services to various segments of the society. Uber’s success so far has been due to its business model of acting as a matchmaker for those seeking a service, and those providing it (Jiang et al. 2018). However, in recent times, Uber needs to change its business strategy to put itself back as the most valuable tech company created in this business cycle and prevent the loss of precious momentum and market share, by restructuring and rebuilding its core strategies (Teece 2018). This essay aims to analyse the working of Uber using Porter’s Five Force Model to provide suggestions to better the working model of Uber, with relevant options.

According to Bruijl (2018), Porter’s Five Force is a framework to analyse a company’s competitive environment. Similar analysis can be done for Uber to understand the environment it operates in and how it influences the organisation.

• Customers (high): Due to availability of various ridesharing options like Lyft, Ola, taxis, the competition is relatively high, but Uber enjoys a better pricing position and brand image.
• Value (moderate): Lower transactions and search costs, and shorter waiting time, in comparison to traditional means of transportations is a key advantage for Uber, although there’s minimal difference between other key ridesharing offerings (Macy 2018).
• Buyer Information (high): The people who know about Uber, are also aware of the alternatives and their offerings.
• Distribution channels (low): In this case, all cab-hailing apps can be easily installed by the customers. The key factor is ease-of-use and accessibility. To become the dominant player, Uber has to amplify its service via the network effect (Bhattacharyya 2019).

• Bargaining power of supply side (low): There’s no visible sign of unionisation although there’s considerable amount of dissatisfaction among drivers.
• Switching cost of supply side (low): Hourly rates between Uber and its competitors are fairly similar. Hence, there’s not much room for bargaining for the drivers.
• Barriers to entry for the supply side: It is easy to join Uber and other ride-sharing companies as a driver but, the lower switching cost curbs the bargaining power of the drivers, while making it interesting for new joiners (Cho, Ke and Han 2019).

According to Kim, Baek and Lee (2018), it is relatively easy to develop an app compared to scaling it and establishing it as a widespread business. Uber has spent billions on demand generation and it is widespread globally. The same cannot be expected from it’s rivals like Lyft. However, if major players like Apple, Toyota, Volkswagen etc. want to enter the ride-sharing market, with their already huge customer base, they can disrupt the market. However, that seems unlikely in the current scenario and also Uber has its services in the form of food delivery, freight and healthcare as well. So, Uber is relatively spread out and established, and given its brand image, while temporarily it is tarnished, it is still a major player.

According to Windekilde and Henten (2017) the threat to Uber is relatively low as shown below.

• Car sharing: Names like Lyft, Zipcar, Ola, are now focusing more on regional markets rather than the global markets.
• Self-driving cars: Uber itself is leading the research in autonomous ridesharing.
• Better public transportation: Given the current infrastructure, it is unlikely public transportation can be better enough to rival Uber.
• Working from Home: While due to the covid-19 pandemic many people now are working from home, it sure has reduced Uber’s demand in some form, but it isn’t enough to reduce it’s demand altogether.
• Bike sharing: Although platforms like Rapido are offering bike sharing, Uber has introduced its own bike sharing options as well.

• Rivalry is intense and growing although, there’s no major player globally like Uber, However, there is active competition in the local geography like Ola in India, Lyft in USA and Didi in China, with risk of loss of market share.
• A lot of locally focused services may dilute Uber’s market share but its still a major player in the global market (Colangelo and Maggiolino 2017).

Porter’s Five Forces clearly enumerate the advantages Uber enjoy given its valuation, popularity, offerings and reputation. However, in the recent times, there has been huge backlash against the organisation regarding its pricing, drivers’ treatment and service quality. This calls for a significant change in its business model.

The SWOT Analysis of Uber, to understand the internal facets and intricacies of the organisation, can be categorised as under the following key sections and metrices (Jiang et al. 2018).

• It is a well-recognised brand in the global market.
• Existence of unlimited fleet of vehicles, large number of drivers and 24/7 service availability.
• A dominating position in the ridesharing market.
• A range of services for the customers to meet the needs as per the suitability.
• Investor’s confidence due to higher valuation.
• Cost effective services, compared to traditional taxis.
• Major investments in research and development to build the future ridesharing industry.
• Comprehensive two-way rating system delivers trust, safety, reliability and confidence.

• Rising competition in the regional markets.
• Ethical questions in response to relationship between the drivers and the company. Wavering loyalty is high.
• Privacy concerns from the customers as the company records a large quantity of data against their riders.
• Erratic and unpredictable business model.
• Riders do not earn as much as they deserve.
• Lack of proper incentivised mechanism for customer loyalty.

• Ability to disrupt the traditional market by being the supreme choice of transportation.
• Uber has the ability to penetrate and solidify its position in countries like India, Bangladesh, where cab services are expensive and unorganised.
• Investments in R&D can help Uber gain strategic advantage in creating breakthrough innovations in EVs and driverless cars.

• Dissatisfaction among drivers regarding the low payments and long work hours.
• The case of overvaluation can lead to overinvestments and misinterpretation of target markets.
• Legal and operating regulations are a major threat to Uber’s operations. For example, in Germany Uber faces potential ban, while in EU, Uber is under heavy scrutiny for frauds and scandals. This seriously damages the company’s image.
• Too much investment in R&D can lead to diversion of essential funds for operation and payments.

Before going public in 2019, Uber was a “unicorn”, which meant its valuation well exceeded above $1 billion. However, as of today it is yet to be profitable and with heavy “cash burn” and “no clear path to profitability”, the future for the organisation isn’t a favourable one. Moreover, recent issues like women safety, low hourly wage, reduction in service quality and similar issues have made it almost mandatory for Uber to bring in much needed reforms and strategic implementations to pave a favourable future (Giri 2019).

SWOT Analysis of Uber

According to Rastogi (2017) Uber has made it its highest priority to enter the AV and the EV ecosystem and introduce as many vehicles as possible on road by 2030. The key strategy should be to analyse how much priority should AV and EV development be given and revaluate the approaches for each sub-systems to bring these vehicles into the market. It is extremely important for Uber to get its investments and strategy in the right direction. Excessive investments can lead to shift in focus from core ridesharing and personal transportation principles, while little investment might enable other key players to introduce their vehicles before. Hence, the perfect balance in strategy is necessary.

Uber has already disrupted the traditional transportation mechanism and outpaced taxis. However, it is yet to grasp the full extent of its potentials. Uber is yet to make a dent into the personal vehicle space. It is yet to establish itself as a “complete replacement” to commute and personal vehicles. Precise geographic and utility strategies are required to establish itself as a more reliable and cost-effective alternative. The key strategy should be to strategically map out the most cost effective and realistic approach to different geographic locations (Das, Bhatt and Rath 2017).

As per Korábová (2019) Uber has always prioritized growth over profitability. Hence, Uber loses massively every year and incurred a loss of $2.1 billion during the pandemic itself. Its time Uber turns itself profitable and map out clear directives to achieve the same. The organisation will need to show its viability as well as credibility in the market to survive. Without profits, there’s risk of losing out on key investors, re-investments, growth and expansion and most importantly limitations in R&D. The key strategy for Uber now will be to map a sustainable profitability route with growth and expansion in place. Uber has the potential to scale its business and at the same time turn it profitable.

According to Basu (2017) Uber established itself along its core principles of ridesharing service, and subsequently entered the logistics market with UberEats (food delivery), UberRush (goods delivery) and UberFreight (load pooling for trucks). Uber needs a clear desicias as to how core logistics is to its long-term plans. Both transportation and logistics have different dynamics and different set of demand and supply. The key strategic decision will be the clear bifurcation of Uber into both the segments based on their importance and relevance to Uber’s plans and objectives.

Uber has been a party to many lawsuits and it’s in the best interest for the organisation to lay down clear and established regulations and adherence to the laws and legislatures. Uber primary growth point famously, was its disregard for rules and regulations and while it worked in some markets, it backfired in the rest. Now, at a different stage of evolution and management, Uber has the necessity and the means to map out a more law-abiding strategic model. The key strategic decision will be to regard the regulations and minimise scrutiny from regulators and unnecessary lawsuits (Teece 2018).

Profitability and Investment in AV and EV Development

Uber has been under the radar for low wage rates for its drivers, disregard of them as employees, lack of proper training and scattered management. As expected, Uber faced severe backlash from its drivers, with resignations, protests, lawsuits, high ride cancelation rate and global resentment. To fight back, Uber will need to have well established employment guidelines, acceptance of drivers as employees and fair and competitive payments and relevant training and development. Customers, the core element of Uber, has been falling apart lately due to concerns regarding safety, harassments and delayed pickup and drop. Uber will need to establish stringent safety and protection protocols for its customers and address any unreasonable situation immediately and effectively (Rastogi 2017).

According to Colangelo and Maggiolino (2017) Uber will need to have a clear idea of the international markets it will want to “own” in the future and go all-in to those markets, while exiting the ones not working out. With the rise of local services like Ola in India, Lyft in USA, Didi in China, Uber faces a serious threat of market loss. In order to hold on to its most prized markets, Uber will need to understand the needs and the offerings the particular geography requires and approach accordingly. The key strategic decision here is to identify and regionalize the international markets it wants to hold on to in the long-run.

Uber risks losing key investors if it cannot turn itself profitable soon. With key investors losing their money, Uber has lowered its credibility and might face difficulties holding onto its existing investors and secure additional investments. The key strategy for Uber is to find the right pool of investors who have faith in Uber’s long-term goals and objectives. Uber will need to present a clear pathway for profitability and future prospects to its existing and future investors. Alongside profits, Uber will need to establish transparent and ethical guidelines for employees and customer rights protection, with visible respect for regulations. Individual, corporate, banks, and IPOs are the key investment areas.

The SAF Matrix determines the suitability, feasibility and acceptability of strategic options in an organisation (Cramer and Krueger 2016).

From the above table it is evident that the betterment of Employment Policies and Procedures is the most important strategic decision for Uber, followed by the restructuring and reorganising the business and operational model for Uber. It is evident that Uber has been overinvesting in R&D, hence it is extremely crucial for the organisation to invest its funds primarily into the key business model of Uber, rather than research and development.

Conclusion

From the above essay it can be concluded that since Uber’s entry into the transportation industry, it has revolutionized the industry in unprecedented ways, bridging the “need and service” gap at lucrative costs and has been leading the technological innovation and advancements ever since. From ridesharing, to food delivery, to healthcare and freight services, Uber has been pivotal. However, with time, several issues also emerged like driver dissatisfaction, customer safety and concerns and Uber’s inability to turn itself profitable and the constant legal battles that Uber lands itself in, has called for a revamp and strategic shift and the essay highlights some of the ways Uber can change its business dynamics for a prospective and promising future. Strategic changes like Uber’s focus into the EV and self-driving vehicles, better driver rights protection laws, better safety and convenience standards, clear profitability roadmaps, clear legal structures and much more can transform Uber into an organisation that takes its business forward down a much more favourable and promising path and help it reverse its tarnished image, capture global market shares, and create a customer base that is loyal and provide them with incentives to stay, and provide better employment opportunities to its drivers.

References

Basu, B., 2017. UBER: Redefining Transportation. International Journal, 5(3).

Bhattacharyya, S.S., 2019. STUDY OF INDUSTRY LEVEL BARGAINING POWER: QUEST FOR VALUE CAPTURE VERSUS VALUE CREATION. Journal of Services Research, 19(2).

Bruijl, G.H.T., 2018. The relevance of Porter’s five forces in today’s innovative and changing business environment. Available at SSRN 3192207.

Chicago Business Journal. 2019. Uber may be a ‘unicorn’ now, but faces serious challenges in the future. [online] Available at: <https://www.bizjournals.com/chicago/news/2019/05/22/uber-faces-serious-challenges-in-the-future.html> Accessed 3 December 2021

Cho, W., Ke, J.Y.F. and Han, C., 2019. An empirical examination of the use of bargaining power and its impacts on supply chain financial performance. Journal of Purchasing and Supply Management, 25(4), p.100550.

Colangelo, M. and Maggiolino, M., 2017. Uber: a new challenge for regulation and competition law?. Market and Competition Law Review, Forthcoming.

Cramer, J. and Krueger, A.B., 2016. Disruptive change in the taxi business: The case of Uber. American Economic Review, 106(5), pp.177-82.

DAS, S.P., Bhatt, D. and RATH, S., 2017. Transformation Of Urban Transportation-Strategic Perspective A Case Of Uber Technologies, Inc. International, Journal of Research in Business Management, 5(3), pp.69-78.

Jiang, S., Chen, L., Mislove, A. and Wilson, C., 2018, April. On ridesharing competition and accessibility: Evidence from uber, lyft, and taxi. In Proceedings of the 2018 World Wide Web Conference (pp. 863-872).

Jordan, J.M., 2017. Challenges to large-scale digital organization: the case of Uber. Journal of Organization Design, 6(1), pp.1-12.

Kim, K., Baek, C. and Lee, J.D., 2018. Creative destruction of the sharing economy in action: The case of Uber. Transportation Research Part A: Policy and Practice, 110, pp.118-127.

Korábová, E., 2019. Analysis of the sharing economy trend: The case of Uber. LBS Working Paper, (6).

Macy, K.V., 2018. Information creates relative bargaining power in vendor negotiations. The Bottom Line.

Medium, 2017. 7 Strategic Decisions that could put Uber back on the highway. Available at: <https://medium.com/@anupamr/7-strategic-decisions-dara-needs-to-take-immediately-as-ubers-new-ceo-27cfe0c035f6> Accessed 3 December 2021.

Teece, D.J., 2018. Business models and dynamic capabilities. Long range planning, 51(1), p p.40-49.

Windekilde, I.M. and Henten, A., 2017. Domesticating the monster-the case of Uber in a social contract perspective. Nordic and Baltic Journal of Information and Communications Technologies, 2017(1), pp.1-16.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order