FlT Melbourne Long Term Sustainability of Ubers On Demand Business Model Memorandum Carefully read the case Uber: Digital Disruptor. Prepare a one page m
FlT Melbourne Long Term Sustainability of Ubers On Demand Business Model Memorandum Carefully read the case Uber: Digital Disruptor. Prepare a one page memo for a specific decision maker within the case. Summarize the organizations overall situation/predicament as accurately as possible linking business impacts to causes. In order to do so, you will need to identify the elephant in the room (i.e., while there can be several issues a company is facing, identify the most important ones). Then provide two independent recommendations that directly address the problems/opportunities identified within your assessment above. Follow the format below. To: [Address the memo to a specific decision maker within the case] Business Impact Summary: [Summarize the organizations overall situation/predicament as accurately as possible linking business impacts to causes] [Present two independent recommendations that directly address the problems/opportunities identified within your assessment above] Recommendation 1: Recommendation 2: Chapter 10 E-commerce: Digital Markets, Digital Goods
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INTERACTIVE SESSION ORGANIZATIONS
Uber: Digital Disruptor
You’re in New York, Paris, Chicago, or another major monitors sensors in drivers’ smartphones to monitor
city and need a ride. Instead of trying to hail a cab, their driving behavior.
you pull out your smartphone and tap the Uber app. Uber is headquartered in San Francisco and was
A Google map pops up displaying your nearby sur- founded in 2009 by Travis Kalanick and Garrett
roundings. You select a spot on the screen designat- Camp. In 2018, it had more than 3 million drivers
ing an available driver, and the app secures the ride, working in 600 cities worldwide, generating revenue
showing how long it will take for the ride to arrive of 2.6 billion in the first quarter of 2018. After paying
and how much it will cost. Once you reach your for drivers, marketing, and other operating expenses,
destination, the fare is automatically charged to your Uber still operated at a loss. More than 75 million
credit card. No fumbling for money.
people use Uber. However, Uber’s over-the-top suc-
Rates take into account the typical factors of time cess has created its own set of challenges.
and distance but also demand. Uber’s software pre- By digitally disrupting a traditional and highly
dicts areas where rides are likely to be in high de- regulated industry, Uber has ignited a firestorm of
mand at different times of the day. This information opposition from existing taxi services in the United
appears on a driver’s smartphone so that the driver States and around the world. Who can compete with
knows where to linger and, ideally, pick up custom- an upstart firm offering a 40 percent price reduction
ers within minutes of a request for a ride. Uber also when demand for taxis is low? (When demand is
offers a higher-priced town car service for business high, Uber prices surge.) What city or state wants to
executives and a ride-sharing service. Under certain give up regulatory control over passenger safety, pro-
conditions, if demand is high, Uber can be more tection from criminals, driver training, and a healthy
expensive than taxis, but it still appeals to riders by revenue stream generated by charging taxi firms for
offering a reliable, fast, convenient alternative to tra- a taxi license?
ditional taxi services.
If Uber is the poster child for the new
Uber runs much leaner than a traditional taxi on-demand economy, it’s also an iconic example
company does. Uber does not own taxis and has no of the social costs and conflict associated with
maintenance and financing costs. It does not have this new kind of business model. Uber has been
employees, so it claims, but instead calls the drivers accused of denying its drivers the benefits of em-
independent contractors, who receive a cut of each ployee status by classifying them as contractors,
fare. Uber is not encumbered with employee costs violating public transportation laws and regulations
such as workers’ compensation, minimum wage re- throughout the United States and the world, abus-
quirements, background checks on drivers, driver ing the personal information it has collected on
training, health insurance, or commercial licensing ordinary people, increasing traffic congestion,
costs. Uber has shifted the costs of running a taxi undermining public transportation, and failing to
service entirely to the drivers and to the customers protect public safety by refusing to perform suffi-
using their cell phones. Drivers pay for their own cient criminal, medical, and financial background
cars, fuel, and insurance. What Uber does is provide checks on its drivers. Uber’s brand image has been
a smartphone-based platform that enables people further tarnished by negative publicity about its ag-
who want a service-like a taxi-to find a provider gressive, unrestrained workplace culture and the
who can meet that need.
behavior of CEO Kalanick.
Uber relies on user reviews of drivers and the ride Uber has taken some remediating steps. It en-
experience to identify problematic drivers and driver hanced its app to make it easier for drivers to take
reviews of customers to identify problematic passen- breaks while they are on the job. Drivers can now
gers. It also sets standards for cleanliness. It uses the also be paid instantly for each ride they complete
reviews to discipline drivers. Uber does not publicly rather than weekly and see on the app’s dashboard
report how many poorly rated drivers or passengers how much they have earned. Uber added an option
there are in its system. Uber also uses software that to its app for passengers to tip its U.S. drivers, and
390 Part Three Key System Applications for the Digital Age
Kalanick resigned as head of Uber in June 2017. (He and heavy investments in self-driving cars, which
was replaced by Dara Khosrowshahi.)
management believes will be key to lowering labor
Critics fear that Uber and other on-demand firms costs and ensuring long-term profitability. After a
have the potential for creating a society of part-time, self-driving Uber car struck and killed a woman in
low-paid, temp work, displacing traditionally full- Tempe, Arizona in March 2018, Arizona suspended
time, secure jobs-the so-called Uberization of work. autonomous vehicle testing in the state, and Uber
According to one study, half of Uber drivers earn stopped testing autonomous cars in California,
less than the minimum wage in their state. Uber re- Pittsburgh, and Toronto. Even before the accident,
sponds by saying it is lowering the cost of transpor- Uber’s self-driving cars were having trouble driving
tation, expanding the demand for ride services, and through construction zones and next to tall vehicles
expanding opportunities for car drivers, whose pay like big truck rigs. Test drivers had to take over the
is about the same as other taxi drivers.
car almost every mile. It is still too early to tell
Does Uber have a sustainable business model? whether Uber and other on-demand businesses will
The company is still not profitable, and continues succeed.
to subsidize the cost of many of its rides. Uber has
competitors, including Lyft in the United States and
local firms in Asia and Europe. New, smaller, com- Sources: Steven Hill, “New Leadership Has Not Changed Uber,” New
peting firms offering app-based cab-hailing services
York Times, March 26, 2018; Bloomberg, “Uber Revenue Spiked
are cropping up, such as Sidecar and Via. Established 70% Last Quarter, But It Still Lost Tons of Money,” May 24,2018;
Daisuke Wakabashai, “Uber’s Self-Driving Cars Were Struggling Be-
taxi firms in New York and other cities are launch-
fore Arizona Crash,” New York Times, March 23, 2018; Craig Smith,
ing their own hailing apps and trumpeting their “100 Amazing Uber Statistics, Demographics and Facts (July 2018),”
fixed-rate prices.
DMR, July 29, 2018; ‘Rob Berger, “Uber Settlement Takes Custom-
ers for a Ride,” Forbes, April 22, 2016; and Mike Isaac and Noam
Uber is pressing on, with new services for
Scheiber, “Uber Settles Cases with Concessions, But Drivers Stay
same-day deliveries, business travel accounts, Freelancers,” New York Times, April 21, 2016.
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