Why Has Uber Been So Successful?

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Taemin Im

Why has Uber been so successful?

Uber’s success is in part due to the pre-existing taxicab industry. David Autor, a Massachusetts Institute of Technology economics professor, described the industry “by high prices, low service, and no accountability…ripe for entry [by startups] because everybody hates it.” Uber used a demand algorithm to determine the cost of transportation. By using the number of requested rides and availability of Uber cars as variables, they were able to position their pricing competitively against the taxi industry.

Uber addressed the service issues by making an intuitive app that required a user to setup a profile and payment method just once before requesting service. This app had GPS capability to track down the Uber driver’s real time location while the passenger waited for their arrival. It was common for taxi passengers to wait longer than 10 minutes for a driver especially if the pick-up destination was a passenger’s home. Taxi wait times would exceed 10 minutes 60% of the time in the weekdays, 70% during night times and weekends, and 84% of the time if the pick-up location was a residence. This app also increased the amount of accountability by giving both the driver and the client the option to rate each other on a five-star scale. This 2-way rating system allowed greater monitoring for Uber’s employees and also gave the passenger or driver the choice to choose a different driver or passenger before the service began.

The taxi industry had huge opportunities available to good ideas, but Uber’s success was partly because of their aggressive strategy. Uber had the advantage by being first to the market before services like Sidecar, Gett, Wingz, Hailo, ZimRide, and, their biggest competitor, Lyft. This didn’t stop Kalanick from approaching aggressively towards their competition. Before Lyft even stood a chance in the industry, Uber offered promotions to steer both passengers and drivers away from their competitors. Passengers could get $250 in Uber credit if they switched to Uber in 2014. They launched very creative promotions directed towards drivers in order to steer drivers away from competitors. Drivers could get $500 bonus after driving just one Uber passenger, and, if you were already a current Uber driver, Uber matched the initial $500 bonus if a driver recruited a competitor’s driver.

The taxi industry was in need of change which is why Uber was so successful. All of the pre-existing issues the taxi industry had, Uber addressed appropriately and competitively. At the same time, Kalanick’s management style kept competition at bay and led Uber on an extremely quick and efficient growth path.

Do agree with Peter Thiel that Uber is ethically challenged? Do you agree with Fred Wilson that Uber will need to change its managerial approach? Why or why not?

Peter Thiel was spot on when pointing out that Uber is ethically challenged because Uber is constantly in conflict with rules and regulations set to protect all parties involved in the day to day transaction of services. Uber took advantage of pricing when customers were hit with public emergencies such as Hurricane Sandy, snowstorms in the northeast of 2014, and so on. Complaints directly due to Uber’s price surging is one of many reasons the Better Business Bureau scored Uber with an “F” rating.

Uber’s take on passenger safety and privacy are great examples of how exactly they are ethically challenged. A responsible ethical company should always prioritize the customer’s safety before all else. Uber on the other hand was sued by the District Attorneys in San Francisco and Los Angeles for allegedly misleading “consumers about the safety of its service.” Uber claimed to have extensive background checks for the employment of their drivers but San Francisco District Attorney George Gascon claims that since there is no fingerprinting involved when screening drivers, their background checks were “completely worthless." Gascon said "the company repeats this misleading statement, giving consumers a false sense of security when deciding whether to get into a stranger's car." By using such a weak screening process, Uber knowingly operates with low safety standards.

Uber has also been under fire for using passenger data without permission. They used the GPS capabilities to gather real-time data on peoples exact locations. One example that shows how Uber is ethically challenged is to look at their decision to track and locate the whereabouts and dirt of their critics using the GPS, “God View.”

I agree with Fred Wilson that Uber needs to change its managerial approach. While this approach got Uber to where they are now, they need to begin to dig their heels into the ground. They are creating too many enemies with the government, passengers, and even the drivers. Dealing with the risk of hefty fines from the government, class action lawsuits from Uber drivers, and having 50,000 users’ accounts being compromised are not ways to grow a company. I agree with Fred Wilson because Kalanick’s management creates unnecessary conflicts while instead they should be focused solely on growth and establishment.