Uber challenge

Giacomo Piazza8461862

ADM 3318APresented to: Anthony Brown

6th October 2015Telfer School of Management

Introduction

Uber is not only a transportation service, but it is becoming a global phenomena. It represents a newconcept of transportation. In fact a customer could book directly the vehicle through his or her ownmobile phone and the car closer to the client will be there in few seconds. Its big success hasinvolved many complaints from taxi services and also Governments. As a consequence in manycountries Uber is considered an illegal company and it is prosecuted with penalties. The purpose ofthis paper is to analyse what challenges face each actor and how the actors co-exist in thisenvironment sometimes focusing on the differences between Italy, where I come from, Canada andthe rest of the world.

The company

Uber is an American company founded in San Francisco. In 2009 Travis Kalanick and Garret Campdeveloped the app UberCab and in june 2010 they launched the related mobile app for iPhone andAndroid phones. The main feature of the service is that Uber drivers do not need a taxi license or ataximeters because all payments are made through the mobile app using a credit or a debit card.Thus the company do not purchase any car. Since 2012 Uber started to expand internationallyfollowing the path of globalization and nowadays it is available in almost 60 countries and in morethan 300 cities worldwide. In Canada Uber is working in Edmonton, Quebec City, Ottawa and inToronto, which is the biggest Canadian market. In fact the company is going to create by the nextyear 15.000 high quality jobs, thus taking off the city's roads almost half a million cars. It isimportant to also consider that the company is struggling to create its own market share. In ItalyUber service is available in Milan, Rome Genoa, Padua and Turin. In june 2015 (Economist06/2015) the company was valued by its investors around $18.2 dollars.

The service

Uber is mainly an online service, so it requires an internet connection. The app is available for themain operating systems like Apple and Android. Wherever Uber company is present, the customercan download the app and use it. A peculiarity of the service is that it is possible to book a Uber infew seconds and knowing exactly where the car is, how far it is and how much time it will requireto pick up the client. Before starting the ride, both for safety reasons and transparency the passengercan have a look to who the driver will be, which are his or her records and at the end of the serviceit is possible to give a feedback on the quality of the ride experienced. Prices are made availablesince the beginning as soon as the app is calculating the route for the client destination. Usually thecost of a Uber ride are cheaper that the traditional taxi service. In addition the passenger does notneed to have cash in the pocket because all payments are made online through a Visa or MasterCardcircuit.

The actors

There are some actors involved in the Uber case, here is a list of the major players on the field:

• Uber driversThey represent the main actors. People that are looking for a job “behind a wheel” arehighly interested in the company. In fact, being a Uber driver is not so much difficult and itdoes not require a lot of red tape work. The driver can use his own car, with its related carinsurance, by becoming a Uber Partner; finally the driver installs the app from the mostsuitable store and then search for a ride. The major advantages are a completely schedulefree program, that allows the employee to set his own daily working hours and a weeklypayment. Drivers are required to have the right training and knowledge; a CDL license iscompulsory for demonstrate the person's physical ability and expertise to drive acommercial vehicle. Every violations or fines will negatively influence the record and put in

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danger the CDL certificate, eventually ending up being fired. Usually the company takes the28-30% of the earnings, leaving the remaining 70% to the driver.

• Traditional taxi drivers They are the first competitors and in particular what can be define as the injured party. InItaly, as in Canada taxi drivers firmly believe that Uber is pursuing an unfair competitionand, as a consequence, they want to drive it out of the market. In Italy traditional taxi driversare referring to the law n° 21/1992 that states that the employee must be hired by thecompany in its headquarters and not while is out of it; and payments has to be settled lateron, not before the service is done. That is quite the opposite of what Uber does and that isthe reason of the dispute between the two taxi services. I had the possibility to interview and ask some questions to a taxi driver in Milan.

1. Have you noticed some changing on the demand side?

-Yes, but taxi clients are always the same. They care about the quality of the service and donot want to change. I believe that we can divide consumers in two different typologies:foreigners and native. Most of the people that take taxi are ordinary consumers: people thatdo not live in the city and do not know well where to go. Those kinds of people are stillloyal to taxi and do not have neither time neither willingness to looking for a Uber car. Onthe contrary, natives know well where to go and how, so they start thinking on possibleways to minimize their transportation costs. Uber is definitely cheaper than taxi service.

2. One of the major claims made by taxi drivers is the license, in fact Uber drivers have not acertified one. What does need someone to become a taxi driver instead?

-It's a long and a very expensive procedure in Italy; and in addition, what bother us is thatUber drivers make money without doing it. There are some requirements to respect; thesecan be divided in subjective and technical ones: being an adult and Italian citizenship, do nothave any criminal record and have this as the only job. Moreover you need a driving license,attend a 3 month taxi driver course. Subscribe on taxi driver category and purchase a taxidriving license. The latter costs around € 80000 up to € 100000.

In Canada a traditional taxi driver license cost around $250000.

3. What if there is an accident?

-It's actually a good point. Uber drivers do not have a real taxi license so if somethinghappens they are protected, but clients are not. Instead with traditional taxi service thecustomer is fully covered by assurance.

In Canada, among the principal cities, like Ottawa and Toronto, taxi drivers started protesting assoon as the service came out. They, in fact, report Uber to steal customers using a not legal service,since the Uber drivers, in first instance do not need a license to transport passengers. During thesummer, in Ottawa, taxi drivers blocked streets and protest against Uber which was temporarilyshut down.

• GovernmentsGovernments play a key role in the Uber case. In fact, in many countries the innovativeservice has been considered illegal mainly because of unfair competition that couldinevitably drive out of the market others competitors. According to economic theories and

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marketing principles, a competition based in lowering prices will came up with the defaultof the company that does not have enough earnings to cover its fixed costs. In recent days,in Toronto the Major John Tory and the Council, have decided to shut down Uber becauseof unlicensed drivers and low prices not regulated by laws. The taxi industry in fact says itsbusiness has dropped with the arrival of the new transportation service. In the city cabs havea base fare of $4.15 while Uber $2.25 (The Canadian Press, 10/2015). So Uber started toraise questions among politicians on its doubtfully behaviour. Institution will haveultimately decide the future of Uber ride sharing. Nowadays cities that initially banned thecompany to operate are trying to develop new regulations. For instance, Vancouver isreviewing the impact of ride-sharing technologies; Ottawa has launched a review of its taxi;a service similar as the one of Uber and Sao Paolo, in Brazil, the major and the mainconsumer association are finding a “middle path” to address the issue.

Uber around the world

Uber is becoming an important international company. But as it grows, it experiences all thoseproblems that a huge company can face. After being accused of raping passengers in New Delhi,being suited by San Francisco, Los Angeles, Portland and the Oregon districts attorney's office,courts limited its operation in Spain, Belgium, France and the Netherlands. However, it's nothingcompared to the huge public relations trouble in which it ran into in Sydney on the last December.During the hostage crisis at a Lindt chocolate cafe the system began charging a surge pricing out ofthe central business district as people tried to flee the area. Uber works through an automatic systemthat can calculate the demand of client rides and the offer of taxi Uber. At that time the demand wasexceeding the offer; as a consequence the centralized Uber system was increasing the base rate fare.It was a real setback to Uber's reputation, especially for an application that mostly depends on socialmedia. It was accused of taking advantage of the situation. On November 2014 it was reported by the Globe and Mail of Toronto that the company was tryingto hire investigators to discredit journalists. But this revealed more and it played against Uber: thecompany was collecting tons of data on its passengers. Uber did not have in fact a clear privacypolicy in place and called its data collection “Godview”. In other words the company employeescould see the riding patterns of any passenger and use those information for their own purposes.It is quite clear that Uber has faced numerous lawsuits and protests by conventional taxi companieswho see the service, which operates through an app, as unfair competition. Recently, on september2015, France, Italy, Spain and Germany have outlawed UberPop, that is the main service that thecompany offers, siding with taxi companies that argued the service did not conform with localtransportation rules. London, at the end of september 2015, imposed a set of rules that would infuture change how companies like Uber operate; for example, if these new regulations will beenhanced, cars will have to wait five minutes before picking up customers, available vehicles willbe banned to being displayed on the screen and customers will be forced to pay fares upfront. In thesame period Rio de Janeiro became the first Brazilian city to impose a ban on Uber service andsimilar technologies. In canada Uber was kicked out of Vancouver after six months from the day itbecame active, Ottawa consider it illegal and so does Montreal. On the other side, Uber participates and collaborates with many organizations and it is striving tocreate a good reputation. For example in April 2015 UN Women and Uber launched a partnershiparound the world toward a share vision of equality and women's empowerment. They started a longterm program to create one million jobs for women globally on the Uber platform by 2020. Inaddition in Canada Uber is offering a free ride on UberXL to all those customers that bring a friendto the new service.

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Sharing economy: The Uber effect

“The Sharing Economy is a socio-economic ecosystem built around the sharing of humanand physical resources. It includes the shared creation, production, distribution, trade andconsumption of goods and services by different people and organizations.” (Lorna Gold, 2004)

It has become common today talking about sharing economy. Inevitably, the globalization, definedas the shift toward a more integrated and interdependent world economy has created both aglobalization of markets (standardization and no barriers to trade) and a globalization of productionwith an increasing of FDI (foreign direct investment) all over the world (Charles W. L. Hill, 2014).The main driver of globalization is the technology that has drastically reduced transaction costs,making sharing assets cheaper and easier that ever before and therefore possible on a larger scale.What has changed is the availability of more data about people and things, which allows companiesto find their competitive advantage. Smartphones with GPS system let people to see where thenearest car is; social networks provide a way to check up on people and build trust; and onlinepayment systems handle the billing. So it seems that sharing economy is like an online shoppingwebsite, but it has its drawbacks. 15 years ago, when it started in USA people were worried aboutsecurity and privacy (Alex Stephany, 2015). Today, the success of companies such as Amazon.comor eBay.com has lowered the anxiety of making an online purchase. Uber does not purchase cars orhire new employee, but for the company problems don't stop here. In may 2015 in Ottawa started acontroversy over the Uber app that has already taken almost a quarter of the city taxi drivers'business. The introduction of the new transportation service was friendly welcomed by customers,in particular it is popular among young adults that prefer an innovative service to the traditionalone; thus increasing the revenues for Uber and dropping the sales for cab drivers. Ottawa citycouncil has always followed a policy of “restriction” regarding the taxi industry, in order to give totraditional drivers extra earnings and the possibility to pay insurance and fuel (Dan Hara, 2015). Asa consequence taxi drivers have never faced such an aggressive competition. In addition due to longwaitings and not efficient taxi service, customers started very fast to use Uber new system. Theconnection between the driver and the client is fast, easy to handle and safe. The use of social mediahas improved the availability of the service and the knowledge of the company throughout theworld. In Ottawa in order to introduce the service, Uber conducted a social media blitz offering freerides to users and free iPhones to new drivers, violating the city's taxi regulations. Dan Hara, anOttawa economist, argues that Uber has captured the right moment to make business; an easysmartphone app, an undersupply of cabs and an increase in the use of social network.

The economic environment

The taxi industry is not the first to be overcome by a new type of technology. The globalization, aswe have seen before, has been brought by technological change and improvements. Mp3 substitutedCDs while CDs themselves fired tapes. The internet has replaced postal delivery, music, travel,television and movie industries and even gambling. Uber is living and growing in a relatively newenvironment, supported by the new generation. This means also a social change, testified by theshift from “what is mine, it is mine” towards “what it is mine, it is also yours”. Uber is indeedoperating in a changing economic world and in fact its success is related to the new generation ofusers and their own status symbols. Possibility of growth are out of discussion since the company isearning around $40 million dollars per year (Financial Times, 2015). The most of the success comesfrom new markets and emerging nations, characterized by a relatively young population affected bywestern new trends. Governments are arguing if there is enough room in the transportation businessboth for traditional taxi drivers and Uber drivers. Moreover institutions are striving in the creation

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of regulations concerning the legalization of the service. And a question arise quite easily, will theUber effect be permanent? The answer is not immediate. Uber continues to operates fightingcharges in most cities where it has been banned, including Paris, Amsterdam, Ottawa and Montreal.

Conclusions

Uber case is in a continuos evolution process. Like the globalization it is spreading around theworld bringing with itself all the components of the sharing economy and all those new innovationsthat affect younger generations. Technological change is inevitable and people must to bear this inmind. But as the future is coming very fast it is important also to keep in mind traditions and habitsof the world before. Since the introduction of the first social network the way the information istravelling around the globe as fastens. As a consequence Uber challenge has become one of themain transportation concerning around economies. Taxi drivers, so “trendy” in the 80s and 90s arestruggling to gain the past prestigious and earnings. It seams that legal problems are playing infavour of traditional taxi drivers, since Uber drivers do not need the same requirements to do thejob; but Uber does not stop here. The introduction of Uber service was almost inevitable since thetechnology of smartphones and sharing is increasing, particularly in the last decay. People arehappy to spend less, gaining in time and in the quality of the service. Governments and institutionsare trying to find a middle path way in order to create enough room in the transportation business.Anyway it is not simple; they are feeling the pressure of customers associations and transportationdepartments. It is not clear how the issue will be over. In either case Uber is operating in what canbe defined by some cities courts, against the law. The future will depend on how traditional taxidrivers, governments and institutions will cooperate together to find a deal.

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References

Bibliography:

• The Sharing Economy: Solidarity Networks Transforming Globalization Hardcover – Aug2004 by Lorna Gold;

• International Business: Competing in the Global Marketplace Hardcover – Feb 10 2014 byCharles W. L. Hill

• The Business of Sharing: Making it in the New Sharing Economy Hardcover – Apr 7 2015by Alex Stephany

Web sites:• Uber is good for Canada's taxi drivers, says strategist David Pluffe

[http://www.ctvnews.ca/canada/uber-is-good-for-canada-s-taxi-drivers-says-strategist-david-plouffe-1.2578377], last review 27th september 2015;

• Toronto Uber vs. taxi driver confrontation caught on camera [http://www.cbc.ca/news/canada/toronto/toronto-uber-vs-taxi-driver-confrontation-caught-on-camera-1.3190708], last review 27th semptember 2015;

• Uber vs taxi: why the taxi industry will never be the same [http://www.cbc.ca/news/canada/hamilton/news/uber-vs-taxi-why-the-taxi-industry-will-never-be-the-same-1.3194893], last review 1st october 2015;

• Uber v. taxi [https://thewalrus.ca/uber-v-taxi/], last review 1st october 2015;• Uber will appeal order to shut Brussels service using non-professional drivers

[http://www.reuters.com/article/2015/09/24/us-uber-brussels-idUSKCN0RO1PW20150924], last review 2nd october 2015;

• Legal status of Uber's service [https://en.wikipedia.org/wiki/Legal_status_of_Uber%27s_service], last review 2nd october 2015;

• Uber [http://www.thecanadianpress.com], last review 3rd october 2015;• The rise of the sharing economy [http://www.economist.com/news/leaders/21573104-

internet-everything-hire-rise-sharing-economy], last review 3rd october 2015;• The Uber effect: how the “sharing economy” has shaken Ottawa's taxi industry

[http://ottawacitizen.com/news/local-news/the-uber-effect-how-the-sharing-economy-has-shaken-ottawas-taxi-industry], 4th october 2015;

• Uber and rivals: the promises [http://www.ft.com/cms/s/0/24f6aec4-6688-11e5-97d0-1456a776a4f5.html#axzz3neGPWjAT], 4th october 2015;

• Uber vs. the world: how cities are dealing with the ride-hailing technology [http://www.cbc.ca/news/business/uber-versus-the-world-1.3252096], last review 4th october2015.

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