Gara Case Study Analysis 2017
Gara Case Study Analysis 2017
Gara Case Study Analysis 2017
Since its start in 2009, Uber had spread its operations to over 80 cities in 35 countries.i As the company
battled local regulations and worked to understand the unique transportation culture of each city they
operated in, the tenacious Kalanick looked eagerly to the future to turn Uber into more than a car
service and leverage its logistics and technology capabilities into a lifestyle and experience brand.
At the same time, customers appeared to be growing more vocal in their complaints around surge
pricing, where users could be charged 1.5 to 8 times the normal fare price depending on the time of
day and number of UberX drivers on the road. While Uber was birthed from the desire to have a black
car service available to the upwardly mobile in San Francisco, it had become a service that maintained
its luxury feel, yet was somehow more democraticit brought together drivers and riders effectively
and efficiently, with UberX typically costing less than a traditional taxi in most markets. This luxury for
the masses approach made it a well-loved company, and Kalanick frequently leaned on public support
as he aggressively fought regulators and powerful taxi commission interests. Armed with a recent
infusion of cash, and poised to further expand internationally and offer new, innovative services,
Kalanick wondered: who should he bring the fight to next?
The phrase shared economy emerged in the mid-2000s and grew in popularity between 2008 and
2010. In response to the financial crisis and global recession, several companies noticed consumers
emerging desire to earn money on the side through shared profit models. One of the early leaders and
pioneering companies of the shared economy was AirBnB, a technology company with an online
platform matching room seekers to homeowners. This consumer-driven peer-to-peer rental market
alone was valued at $26 billion.ii However, the success of this new business model attracted a more
discerning eye from government regulators worried that this new collaborative economy was simply a
means of sidestepping regulations, taxes and insurance.
The transportation system prior to Uber forced people to access taxis by chance (hailing them on the
street) or by booking well in advance. The ubiquity of GPS systems and smartphones in the San Francisco
area encouraged UberCab, the original name of the service, to do a beta test in the Bay Area in March
2010 with plans to expand to other large U.S. cities by the end of the year. After advertising their
smartphone apps through websites and various deal promotions, UberCab finally served residents of
San Francisco by the summer.
Despite ongoing battles with various local governments and taxi commissions, the success of ride-
sharing was clear and lead to other competing startups such as Sidecar and Lyft. In response, the lower-
cost UberX was launched in the summer of 2012 in San Francisco and New York.iii UberX provided low-
cost hybrid cars to its users, providing environmentally friendly transportation services. At the time,
Uber was operating in a dozen cities, two of whichParis and Londonwere outside the U.S. The
motivation for UberX came after Ubers experience in Chicago where the citys taxi supply was limited,
and there was noticeable unmet demand for cheaper transportation services. Black car services were
still available and now under the label of UberBLACK. A chart of the range of Uber services can be seen
in Appendix A.
No cash is exchanged when using Uber since signing up for an account requires providing credit card
information. After the ride, the user is charged electronically and a receipt is immediately emailed,
providing details of the trip. The user can then rate the driver (and the driver can also rate the user) and
check a map of the route taken. According to Uber, the company push[es] the limits of the
transportation industry to create a simple, more efficient, and more enjoyable car service experience.
For drivers, Uber is a revenue stream, allowing professional drivers to make more money by turning
downtime into profits.v
Ubers platform uses algorithms and heat maps to estimate how many potential users may be in an
area, which then matches with the number of drivers present in a city. Uber is able to analyze important
Uber: Driving Change in Transportation 2
statistics like the number of times the smartphone application is opened to gauge supply and demand
for taxis. As a result, there are shorter wait times for users, and drivers can be more efficient with the
use of their time.vi
Depending on the city, there is usually a base fare (similar to a cab flag fee), and a price per mile and
minute. For example, in Boston, for an UberX, the base fare is $2.25 and then the user is charged $0.28
per minute and $1.45 per mile. A tip is included in the fare for UberTaxi, which the user can manage in
her user settings on the web (0-20%). There are no tips included for UberX or UberBLACK.
Uber instituted surge pricing in 2012. Surge pricing works by using a multiplier (1.5X, 2X, 3X etc.) to the
fare as an incentive to get more drivers on the road (increase supply) in order to clear the market, and
maintain the convenience value of Uber. For example, during a massive snow storm that hit the East
Coast of the U.S. in December 2013, users faced prices at more than 6 times the normal rate.vii
Unlike the taxi industry, Uber does not employ or license its drivers, but rather views them as
independent contractors. UberX drivers do not have traditional liability insurance like taxi drivers. There
are no specific regulations that specify that Uber drivers cannot discriminate against users. In fact, Uber
drivers receive ratings of users and may receive their photographs (users choose whether or not to
upload a photograph of themselves to their account). However, where regulations exist against taxi cab
drivers discriminating against riders, they are frequently flouted.
Drivers may choose to fill roles as UberX, UberBLACK, UberSUV, or UberTAXI depending on (1) the city
they are based in, (2) possession of a commercial driving license, and (3) the type of vehicle owned
(Appendix B).
After only 18 months of operation, Uber made its international debut in Paris in December of 2011.
According to the Uber blog, as we started expanding, it became clear that individual cities were the
unique factor in our launches. Each city is unique in its transportation pain points, its density, its
transportation alternatives, regulation, even its transportation culture. As we did more research we
found that there were classes of cities that were not based on country this realization meant that
traditional thinking around domestic first, international second, just didnt apply. Furthermore, the
advent of a sophisticated cloning and copycat industry means you need to move fast to stake your
claim on the global stage.viii
Courtesy of a $258 million investment from Google Ventures, Uber would concurrently make gains in
international and domestic expansion. They began in Singapore in February of 2013 and then expanded
to Taipei and Seoul (two of the higher income cities of East Asia), before entering other East Asian cities.
In 2014, Uber began rapid expansion in select Latin American and Middle Eastern cities.
Seen as a disruptor in the car hire industry, Uber is facing fierce localized competition internationally,
from both conventional taxi drivers and new similar competitors in the local market. Sometimes such
The major obstacles for Uber in international markets are poor infrastructure, low credit card use, and
low smartphone penetration. Transportation infrastructure is lacking in many emerging marketsa
challenge Uber did not face in the United States or Europe. Rates of adoption for more advanced mobile
and banking technologies also vary drastically by country. Taking India as an example, according to the
Reserve Bank of India, there are 19.6 million credit cards in circulationapproximately a 1.7%
penetration rate.xi As Uber only takes credit cards, this represents a huge challenge. Smartphone
penetration in India is only 18%, creating further obstacles to adoption.xii
While Uber is extremely popular with consumers, the company is not without enemies. Since Ubers
inception in 2010, complaints from incumbent taxi drivers, taxi commissions, and government officials
over the legality and regulation of the company have followed their expansion from city to city. Yet, the
company has not shied away from entering new markets quickly, and battling regulators and incumbent
interests as they build their operations.
Taxi drivers insist that Uber is essentially a taxi service, yet does not have to invest in the expensive
medallions1 or follow the same regulations they do in order to operate. Regulation, Kalanick has said, is
an issue we have to deal with in every city.xiii In October of 2010, UberCabs success put it in direct
conflict with cab drivers in San Francisco. UberCab received a cease and desist letter from the San
Francisco Metro Transit Authority and the Public Utilities Commission of California (CPUC). In response
to charges of running unlicensed transportation services, UberCab changed its name to Uber. As
demonstrated in Boston, the company has been highly successful at fighting back through leveraging
social media to garner public support. This broad-based, visible support pressures elected politicians and
government officials to either re-write existing laws or strike down lawsuits charging it with illegally
operating transportation services.xiv However, Uber has not been consistently in the good graces of the
public. The company encountered a serious tragedy and controversy when, on December 31, 2013,
Sophia Liu, a six-year-old girl was hit and killed by an Uber driver. The family subsequently sued the
company, raising questions about Ubers insurance and the extent to which the company is liable.
Uber has continued securing the support of prominent technology industry executives, which has
oriented Uber as a technology pioneer rather than a transportation substitute. For example, shortly
after the unanimous vote from the Seattle City Council, Michael Schutzler, CEO of the Washington
Technology Industry Association, described how Uber is not a new transportation servicerather, Uber
is a match calculator that connects the people who want to be in cars with the people driving them.xv
1
Medallions are in essence taxicab licenses, which are for individual taxis or for taxicab fleets, and date back to the
1930s in the U.S. It was created in efforts to cap the number of taxis on the road. Medallions now sell on the
market for as high as $600,000 in Boston.
Uber: Driving Change in Transportation 4
In cities from Seattle and Chicago, to DC, Uber faces ongoing lawsuits from incumbent taxi and
limousine companies. The most ardent opposition from public utility commissions and taxi companies
claim that Uber should be classified as a motor transportation company rather than as a technology firm
(such as Orbitz or Kayak.com). If Uber were to be classified as a transportation company and regulated
as such, it would likely destroy their business model predicated upon non-ownership of physical assets,
price control, and rapid scalability.xvi
According to many critics of Uber, safety, predictable prices, and adequate insurance are still important
public interest goals that could justify some level of continued government oversight.xvii The lawyer
representing the Liu family argued,new technology does not eliminate well-established legal
principles.xviii
Uber faces a challenge in defining itself for the future is it a service offering democratic and
competitive pricing or convenience, service and luxury?
Initially, Uber did not set out to offer both super-competitive pricing and the convenience of having your
own private driverthe convenience and luxury aspect was the original value proposition. However,
with the introduction of UberX, the company attempted to balance both competitive pricing (in
comparison to cabs), and the convenience of the mobile application and rapid door-to-door service. The
implementation of surge pricing brought this tensionbetween rapid, convenient service and priceto
the forefront.
Surge pricing led to a backlash against the company, with users claiming that they were being gouged or
robbed. Ubers response on their blog was upfront and stated that the mobile application clearly shows
when surge pricing is in effect (Appendix C). Uber CEO Travis Kalanick stated:
Uber is ALWAYS a reliable ride. Being unavailable, inconvenient is the opposite of Uber. This is
a big part of why we do surge pricing. What good is it if we are as unavailable as a taxi system or
an unreliable muni system on NYE? Being Uber means being Always On and Always
Convenient.xix
The company also argued that the concept of surge pricing is very similar to dynamic pricing used by
hotels and the airlines.xx
Kalanick had publicly said that it is time for the company to move into Phase Two: becoming a lifestyle
and logistics company focused on delivering items to people, using its existing network, We need to
stamp out an urban logistics fabric in every city in the world, then its figuring out other things we can do
with that fabric.xxi
Uber will rely on dense urban networks to propel this business model forward. The company has already
been playing with this idea, and testing its platform. On July 3rd, 2013: helicopter trips were available
between Southampton and Montauk, New York as a promotion. Other recent, localized experience-
based promotions include: ice cream truck requests, boat rides in Amsterdam, BBQ sandwiches in
Uber: Driving Change in Transportation 5
Austin, sky-writing on Valentines Day, Christmas tree delivery in Seattle, and kitten delivery on National
Cat Day.
Shervin Pishevar, a venture capitalist and close friend of Kalanick, explained Ubers mandate: "Uber is
building a digital mesh a grid that goes over the cities. Once you have that grid running in everyone's
pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building
phase.xxii
A convenient, seamless delivery system for goods and services would fit perfectly into Ubers new
slogan where lifestyle meets logistics. The recent $258 million capital infusion from Google Ventures
suggests that this could be a very real possibility. The relationship with Google also points to the future
potential for driverless cars.xxiii
April 2010: UberCab creates app that is compatible with IPhone and Android
October 15, 2010: UberCab secures funding from over a dozen angel investors, including Rob Hayes who
joins the Board of Directorsxxv
October 24, 2010: UberCab changes its name to Uber in response to a cease and desist letter from local
government agencies in San Francisco
July 2012: UberX is launched, allowing low cost hybrid cars to be accessible for users
January 31, 2013: CPUC suspends its earlier cease and desist letter and rescinds its original fines on
Uberxxvi
November 2013: Uber expands to Manila, Tokyo and several Indian and Chinese cities
January 2014: In response to complaints about surge pricing, UberX cuts fares by 15% in top U.S.
citiesxxvii
February 2014: Uber opens in 5 Latin American cities, including Santiago and Lima
1. Average Fare: We calculate this range based on the average trip to give you an idea of what your
total fare will be at the current rate. This number may vary for your particular trip, depending on a
number of factors including the length of your trip, traffic and additional stops.
2. Surge Pricing Rate: This is the rate at which your fare will be multiplied. The average fare factors
this in.
3. Timer: When your rate is 30 seconds from expiring, well let you know so that you can choose
whether to request or cancel.
4. Expiration: When your rate has expired, youll have the option to request again and get the most
updated rate.2
2. If Uber follows Kalanicks current stated opinion, and prizes convenience over price, does it risk
alienating part of its user base? What are the regulatory implications for this decision?
3. Is Ubers model for dealing with regulatory issues (move fast, figure out details later)
sustainable? How should Uber approach regulatory barriers in new markets?
4. What should be next for Uber? Should they continue to expand internationally? How can the
company continue to innovate after such massive disruption to the taxi industry? Should Uber move in
to the logistics and experience space?
5. Should Uber be concerned about its competitors, Lyft, Sidecar, and other ride-sharing apps?