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Uber: The power of a strategic business model

FINANCIAL STANDARD
By fred ogola | February 16th 2016

Conversations with established taxi drivers in town clearly reveals how much Uber, a transport company, irks them. The American multinational works by allowing consumers with smartphones to submit a trip request, which is then routed to Uber drivers, who use their own cars.

Since entering the Kenyan market in 2014, the firm has ruthlessly eaten into the conventional taxi market, which was already facing rising competition from professionally managed companies. But the level of disruption had not hit the levels now registered by Uber.

Some analysts have attributed this to technological disruption, while others believe it is the pricing model. But these alone do not give the full picture; there is something more than disruptive technology and pricing that better explain Uber’s success story.

It cannot be technological disruption since there is nothing new technologically that Uber has done. The mobile phone application they use is not any different from products already in the market, such as mDispatch from Pewin Cabs. Through this application, when booking online, one requests a cab and gets it within minutes through Pewin’s real-time order scheduling system.

This is almost the same thing that Uber is doing, so why didn’t Pewin disrupt the taxi business on the scale Uber has? Could it be the pricing model?

Pricing does not seem to be the reason Uber is enjoying rapid uptake since its costs are based on distance and traffic, among other variables that every other taxi driver uses.

What then is the main contributing factor?

It is Uber’s business model, rather than its pricing or technology, that explains its success. It is the reason Uber poses a much bigger threat than any other previous changes in the industry.

Uber greatly capitalises on this, and while conventional taxi operators have said they are not going down without a fight, they first need to understand the basis of the US firm’s competitiveness.

Sharing economy

Uber’s business model is based on collaborative consumption. This is also called the ‘sharing economy’.

The sharing economy stands on the maxim that instead of buying your own assets, you are better off sharing them at a fee. For instance, women who like going out with designer bags can create an online portal for sharing these bags with others at a fee.

This way, the cost of attending a wedding carrying a designer bag, for instance, would just be the cost of renting it, rather than buying something that will spend 300 days in the closet yet is of great value.

That’s what Uber has done. The cars don’t belong to the company — it’s more of car pool system that picks and drops people.

Collaborative consumption refers to peer-to-peer-based sharing of access to goods and services (co-ordinated through community-based online services), and you don’t have to own a resource to be able to utilise it.

It has made platforms such as Airbnb, a site that allows people to list, find and rent lodging, and Uber experience explosive growth, which, in turn, has led to regulatory and political battles. In fact, in the Western world, the emergence and impact of Airbnb has forced established hotels to reduce accommodation rates.

“We cannot be rendered jobless as the Government does nothing,” said the spokesman for the Kenya United Taxi Organisation, Mwangi Mubea.

So should the Government apply a protectionist stance or take a free market approach?

Proponents claim new technologies will yield Utopian outcomes — empowerment of ordinary people, efficiency and even lower carbon footprints. Critics denounce them for being about economic self-interest rather than sharing, and for being predatory and exploitative.

Not surprisingly, the reality is more complex.

In this regard, the Government needs to understand that while for-profit companies may be ‘acting badly’, these new technologies are potentially powerful tools for building a social movement centred on genuine practices of sharing and co-operation in the production and consumption of goods and services.

However, achieving this potential will require democratising ownership and governance of the platforms.

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