Uber is Not a Transportation Company: Lessons for Marketplace Leaders
Uber is a technology platform that powers “movement from point A to point B.” Even though it was founded as Ubercab, it is a technology company first. Through its app, the company connects riders to drivers and eaters to couriers. Independent contractors provide the transportation. These contractors provide rides in various types of vehicles, including rickshaws and taxis. The passenger determines what type of vehicle to call and the driver determines what type of vehicle to drive.
Uber provides the platform. It derives revenue from the use of its tech. More use and more users of the app generates more revenue for the company, regardless of how they move about.
Uber-sized User Growth
Uber users benefit from network effects as a result of its technology. The company, drivers, passengers, eaters, couriers and restaurants benefit from the network.
For simplicity, let’s focus on drivers and passengers. Let’s say there is a single city with one driver and two passengers. That single driver picks up either passenger at an appointed time. When a second driver is added to the network, the passengers have more options for pick up times and locations. Now, because there are two drivers in the market, more passengers join because there is more availability. More passengers produce the need for additional drivers and the cycle continues. The drivers benefit from having more passengers to pick up. The passengers benefit by having more options in their immediate area. The network is effectuated by the technology.
One risk with this network growth is disintermediation. This occurs when a driver defects, bypasses Uber’s app and has a few or several passengers pay them directly. There are inherent reasons why disintermediation happens less frequently with ridesharing than in other online marketplaces. But Uber’s focus on technology and app features (like the display of wait times and upfront pricing) help to mitigate this opportunity.
Risks in Reclassification
Uber does not want to be in the business of transportation. Management recognizes its gig economy workers as independent contractors. They argue that drivers and couriers get to decide whether, when and where they work. Employees do not have the option of punching out of work by turning off an app. Drivers also provide their own vehicles and work with competitors. (Roughly one in four ridesharing drivers drive for both Uber and Lyft in the U.S.)
Many jurisdictions, including Uber’s home office state of California, have challenged the classification of drivers as independent contractors. However, with much support from ridesharing lobbyists, Californians passed Proposition 22 in 2020, which essentially allowed Uber, Lyft and other ridesharing drivers to remain independent contractors. That said, Uber understands that it may not be able defend drivers’ independent status in all jurisdictions it operates in and that operating as a “transportation company” increases that risk.
Autonomous Vehicles Are Coming
Perhaps one of the biggest threats to ridesharing companies is the development of autonomous vehicles. While widespread adoption is not on the immediate horizon, it is anticipated that there will be 65 million self-driving cars globally by 2030. Autonomous vehicles have the potential to materially disrupt Uber’s current business model. The companies developing such could create a new network for driverless vehicles and passengers.
It would not be surprising to see a technology company, like Uber, increase its investment in this space. While the strategy could cannibalize its existing business model, Uber can use the technologically advanced vehicles to defend against new market entrants.
Key takeaways for marketplace leaders:
- Look for opportunities to remove your company from the transactions in your business. This will help you understand how suppliers may engage in disintermediation. Use your product, processes and people to mitigate these opportunities.
- If your business engages gig economy workers, consider how and why regulators might want to reclassify them. Stay ahead and abreast of regulatory threats in your industry.
- Determine technological advances that might disrupt your business. This exercise will help you identify new product features, key partners and/or acquisition targets in the years ahead.