Uber launched in their home city of San Francisco the following
year, shuttling affluent young professionals around the booming tech metropolis in
black Lincoln Town Cars with white-glove service. Passengers loved the convenience;
drivers found an extra source of income and Uber built a business by pocketing 20%
of each ride.
With its model proven, Uber plotted a rapid global expansion, bringing the service to
more than 270 cities around the world in five years. The company’s success has
sprouted imitators like Lyft and Sidecar as well as opposition from the incumbent taxi
industry and regulators who have raised concerns about safety. The service has been
banned in Nevada and Portland, Oregon and outside the U.S. in parts of India, China
and Thailand. Mr. Kalanick, Uber’s outspoken chief executive, has courted controversy
with questionable comments and ruthless competitive tactics. Investors, however,
have grown ever more enamored with the company, sending its valuation to more
than $41 billion in a round of funding last December that made Uber one of the
world’s most valuable private startups.
With a war chest of billions, a vast network of lawyers and lobbyists and a veteran
political operative named David Plouffe, Uber is now working to ease passage of laws
that will bring its service into compliance with municipal codes. It’s responding to
concerns raised by U.S. Sen. Al Franken last year that the company does not do
enough to protect the private transportation data of its users. Mr. Kalanick has also
hinted at a more ambitious next act for the company: transforming from a
transportation provider for people into a logistics provider moving all manner of
goods and services from point A to point B.
The need for Uber
If on the outside chance you’re not familiar with Uber, the basics are as follows:
In the past, when you needed to get somewhere, hailing a cab was a nightmare. You
either stood outside—wind, rain, sleet, snow, or shine—waving your hand in the air
until you could hail a cab, or you called a taxi dispatch (if you had their number) and
had to wait 20 minutes until a car arrived. Once you arrived at your destination, you
fumbled to count out the right amount of cash plus a tip, negotiate with the driver who
never had the right change, or who “forgot” to start their meter, or whose credit card
machine was “broken”.
All told, very few people viewed finding and using taxi service as something
enjoyable—it was simply something that they dealt with due to the lack of an
alternative. Before Uber you were beholden to an entrenched, monopolistic entity,
whose sloppy execution and lack of regard for the customer experience was evident at
every touch point. This poor experience and a perceived lack of ability to change
anything about it created pent up frustration and demand from consumers who were
eager to find anything better. Uber tapped into that frustration and demand
exceptionally well.
Uber is completely changing the way getting private transportation is done in several
key ways. First, their smartphone app is integrated with Google maps so that you can
see how far away the nearest cars are, set a meeting point on the screen, and hail a
car to meet you there. You can even see your driver’s information (including ratings) as
you watch the car get closer to your location. Uber drivers call or text to confirm that
they’re on the way, giving you peace of mind that your order was received. Once your
car arrives (usually within a few minutes), the driver greets you by name and you hop
- The cars are black cars and SUVs. Uber X, a lower cost version of the service, is
made up of a fleet of well maintained sedans.
Once you arrive at your destination, the app charges your card, and you’re free to go
on about your day. There’s no need to deal with cash, change, tips, or receipts. You
just hop out. Uber has removed the friction from the typical taxi cab transaction, and
made it highly enjoyable in the process. Bill Gurley sees Uber’s key to growth as a
simple one: Uber offers a great product. He explains, “The product is so good, there is
no one spending hundreds of thousands of dollars on marketing.” While this is
certainly the case, it isn’t the only factor driving growth at Uber. First, let’s go back to
the beginning and look at some of Uber’s early tipping points.
Early traction
Though the company was founded in 2009, Uber didn’t officially launch until June
- In January 2011, just six months later, they had had between 3,000 and 6,000
users and had already done between 10,000 and 20,000 rides. So what got them
there?
Completely solves problems for riders
First and foremost (as Gurley points out, and as with Square), Uber provides a solution
to a real problem that impacts millions of people. In all sense of the word they have
disrupted the monopoly of taxi cab transportation that exists in many cities and
reinvented the experience from top to bottom. Among the many problems Uber is
tackling are: poor cab infrastructure in some cities, poor service and
fulfillment–including dirty cabs, poor customer experience, late cars, drivers unwilling
to accept credit cards, and more. Uber set out to reimagine the entire experience to
make it seamless and enjoyable across the board. They didn’t fix one aspect of the
system (e.g. mobile payments for the existing taxi infrastructure), they tackled the
whole experience from mobile hailing, seamless payments, better cars, to no tips and
driver ratings.
By avoiding the trap of smaller thinking, and iterating on one element of the taxi
experience (say, by making credit card payments more accessible in the car) they were
able to create a wow experience that has totally redefined what it means to use a car
service, sparking an avalanche of word of mouth and press.
Word of mouth from satisfied customers
Much of Uber’s success can be attributed, as mentioned above, to the fact that it is
totally mind blowing compared to the frustrating and broken taxi experience. Max
Crowley of Uber Chicago explains: “We've found that our growth is driven substantially
by word of mouth. When someone sees the ease of use, the fact that they press a
button on their phone and in under 5 minutes a car appears, they inevitably become a
brand advocate.” According to Kalanick, Uber relies almost exclusively on word of
mouth, spending virtually nothing on marketing. He explains, “I’m talking old school
word of mouth, you know at the water cooler in the office, at a restaurant when you’re
paying the bill, at a party with friends – ‘Who’s Ubering home?’ 95% of all our riders
have heard about Uber from other Uber riders.” In fact, for every 7 Uber rides, word of
mouth generates a new Uber user.
Uber has even gotten attention from the likes of comedian Dave Chappelle, actor
Edward Norton, venture capitalist Marc Andreessen—who calls it a “killer
experience,”—and AirBnB CEO Brian Chesky—who claims that “Uber makes it very
easy to not own a car.” This word of mouth is as much today’s growth engine as it was
in early days. Uber doesn’t need to do traditional marketing to drive users, they simply
find ways to fan the flame of that first trial to reach new people and grow their user
base.
Leveraging mobile technology
Mobile technology has been a source of disruption in many industries. Prior to the
launch of Uber, the taxi industry operated without major threats for decades. Uber
leveraged mobile technology to disrupt the long-established taxi industry by offering
an alternative that excels in providing convenience for passengers. Since its launch,
Uber has continued to enhance the functionality of its mobile application,
incorporating the latest in mobile technology to further improve the experience for its
users. Using the power of mobile, Uber has been able to offer consumers several
distinct advantages, including:
- Quick and reliable ride booking – GPS and mapping technology
- Transaction convenience and simplicity – Mobile Payments
- Driver Feedback Enables Improved Experience
After downloading the application and setting up an account, users can easily book a
ride through the mobile application with a couple of taps. GPS makes the Uber
application location aware, which eliminates the need for passengers to manually type
in or communicate their current location. Before and after booking a ride, users can
view the location of Uber drivers in the area. Sophisticated algorithms, GPS, and
mapping technology allow Uber to quickly match passengers with a nearby driver and
provide real-time estimates for pickup times.
The mobile application was also used to simplify the transaction process. Users attach
a credit card to their account as part of the sign-up process, which eliminates the
transfer of cash. The transaction is further streamlined by a pricing structure that
builds the fare and tip into a single price point. In April 2012, Uber further streamlined
the transaction related process by incorporating Card.io technology to simplify
sign-up. Card.io allows the Uber application to read credit cards by placing them in
front of the phone’s camera, instead of having users manually type in their credit card
information.
In recognition of the threat posed by second movers into the market, Uber has been
aggressive with its growth both domestically and internationally. Since launching in
2010, Uber has expanded its reach to include cities in 26 different countries. Uber’s
expansion has been met both with excitement and major blocks resulting from
lawsuits, technological limitations and government regulation.
Expanding internationally has involved a series of changes to the mobile application
and business model in order to localize it to the market and culture. Most obviously,
Uber has had to make changes to accommodate different languages, currencies, and
distance measures (e.g. miles vs. kilometers). International expansion requires must
more than this however. Travis Kalanick wrote about Uber’s international expansion
in a blog posting: “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.”
(Kalanick, We’re Going Global With Big Funding).
When Uber launched, one of its appeals involved the cash free transaction, which
required users to setup a credit card on their account. In some countries however,
such as Germany, credit-card adoption is much lower than it is in the United States. In
response to this, Uber announced a deal in November 2013 with PayPal, the online
payment service. The deal will allow Uber to offer an alternative payment option to
users in select countries (Kucera), thereby continuing to broaden its base of potential
users and enhancing its ability to expand internationally.
Challenges
Uber has also faced a number of legal actions against them not only from external
figures, but also from within the industry. Other cab companies that exist in cities
don’t want Uber to enter saying their wages create an unfair advantage for them and
steal the existing workforce. Internally cab drivers say they are cheated out of taxes
which Uber claims are already included in the fare. Uber’s solution to this concern also
is based on technology. Uber considers itself a technology platform, not a taxi
company. Uber only provides the branding and platform for independent people
create a small business using the technology. This absolves Uber of requiring them to
pay anything as each individual cab driver sets their own wages. Currently, Uber is
classified as a taxi company not a technology platform, a ruling which Uber has
appealed. Uber’s branding and utilization of mobile technology has made its solution
to transportation headaches more than successful. It has created a platform that has
generated envy that displays itself in copycat competition and worried taxi companies
trying to create regulation to shut them down