Introduction
Uber, a young but famous startup who was founded in 2009, created an innovative business model (Ridesharing services) in transportation industry with the help of modern technological innovations. People just need to tap on Uber app to order a ride. Due to the convenience and reliability of its service, Uber has become a global company who has $51 billion market valuation and operates in 330 cities in more than 60 countries. It can be learned from the case that a product innovation from a startup is changing the ride-service industry or even the transportation industry. This paper will analyze how product innovation helps Uber to be a well-known and highly valued company in just few years.
Arguments
Based on the case, there are three reasons of Uber’s product innovation success: an innovative business method, good timing of entry and a coherent strategy.
An innovative business model
As we all know, Uber was created to solve the problem of unmatched rides demand and rides offer due to the difference in space and time in taxi industry. The basic pattern of Uber is to provide an information exchange platform as a form of mobile application to connect passengers who need rides with drivers who can provide ride services. It can be considered as a new application of peer-to-peer model in transportation industry. So Uber actually is a platform provider. This platform helps the form of ridesharing service, which is quite different from traditional way of taking rides. Therefore, for Uber, it is a radical product innovation. However, for Uber’s users, it could be a process innovation if they use it as a new method to distribute their service or products. It also can be considered as an architecture innovation because the ridesharing service provides a new interaction method between drivers and passengers.
This product innovation not only enables Uber to satisfy the demand of the people who has hiring rides habits but also to increase the total demand of hiring rides. Take New York as an example, because the fixed number of cabs in New York city can not satisfy the increasing population, many people choose to take public transportation or drive by themselves, especially when they found the taxi service is so expensive, inconvenient and poor quality. The case quotes a comment about yellow cabs of NY that taxi drivers refused to take passengers who live an outer borough like Queens due to the monopoly status of taxi companies. So when Uber appears, these people would be big fans of Uber. Moreover, the ridesharing service of Uber is efficient and convenient. Comparing to traditional taxi, Uber provides comment system to let drivers and passengers choose consumers and cars, which helps ensure high standard of service. GPS in Uber’s cars saves the time and cost for both drivers and passengers. Passengers also can order rides service in some special conditions such as snow days or remote areas. The credit card payment method improves the efficiency of service. Furthermore, the cost of some types of Uber services such as Uber pool and Uber X are lower than taxi. In addition, its drivers and cars verification ensures safety and trust. So the market share of Uber grows very quickly. As a result, there are 2 million people rides in one day on average according to the case.
On the other hand, due to its peer-to-peer model, Uber has a lightweight infrastructure, which creates many great advantages on company operations. Although people enjoy ridesharing services via Uber, Uber does not own any vehicles, not employ any divers and do not need to pay for high costs of cars maintenance. Its duty is to maintain and improve the peer-to-peer network via software and intelligent system. As a result, this model enables Uber to have adequate capital to launch rapid global extension in such a few years and keep a good financial performance. Accordingly, its market valuation jumps to $51 billion in late 2015(from the case).
Exhibit 1 source (case study Uber: Changing the way the world moves )
Thirdly, in terms of ride service industry, Uber has become a dominant design, which could help Uber grow and ensure its market status. By the effect of network externalities (more people start to use smartphones), more drivers and passengers become familiar with Uber’s service and begin to adopt it. With the increase of Uber users, more drivers join the Uber p2p network, which brings more riding supply. More than a million active drivers use Uber to run its riding business. According to Exhibit 1, the number of Uber X drivers grows from 0 to 150,000 between 2012 and 2015. With the development of its p2p network, Uber can earn more commission and reduce its cost of system maintenance due to the economies of scale. That is why Uber wants to open Chinese and India market. Although Uber faces government regulation and tense public relationship, Uber has enough capital to hire lobbyists and excellent PRs to clear away obstacles from governments just like the example of New York mayor in the case.
Good timing of entry
Another reason why Uber succeed is its good timing of entry. First of all, the smartphone has already widely spread, especially in America. Mobile application has become a big part of people’s daily life when Uber use app as their service platform. So the learning time and cost is so little that Uber can be accepted and become popular in such a short period. Secondly, the market demand is great because the riding service by taxi cannot satisfy the increasing population, especially in big cities such as New York. Thirdly, there is no specific regulation about this new method. So Uber gains a great development opportunity and employ aggressive extension strategy before some relative regulations issues. Its market habits, price policy, development tactic and so on can be made by its own desire. Even the enact of relative regulation may be influenced by Uber’s desire. Furthermore, current financial environment are mature than before. So startups like Uber are easier to find capital resources to accelerate market acceptance and global expansion from ventures. P2P model itself is money saving and has network effects (More points in the network bring higher efficiency and profitability of the network). So the radical and architecture innovation enables Uber to become the first mover. First entrant helps Uber build brand loyalty and form switch costs when consumers change to use its followers’ products. Even though the drivers resources are undeveloped and Uber needs to spend money and time on attracting drivers to use its app, it also become a great advantage later because more drivers users brings more services and attract more new consumers. The followers have to pay much more to attract those drivers or new drivers. Although Uber, as a first mover, bears high R&D expenses and also needs to figure out customers’ requirements, it can make a price policy which ensures a great profit.
Coherent strategy
The third reason why Uber succeed is its clear and coherent strategy. As discussed above, Uber, as a leader in ridesharing service industry, it has many strengths. Uber has lightweight infrastructure, which means low operation cost. It brand is famous around the world. Its service is convenient and efficient. Its rating system and drivers verification ensures the high service quality and safety. Various level services like Uber X, Uber black, Uber pool can meet different market demand. The price is lower than traditional taxi service. There is no specific regulation to limit Uber’s business. The business method of Uber provides Drivers a flexible working time. Uber attracts new investments easily due to the high market valuation. Except for its strengths and success, Uber is also facing pressure from government regulation, public relationship issues, competition from taxi industry and other ridesharing services companies and has its own weakness. The P2P model is easy to be imitated. Uber’s users always criticize Uber’s price policy. Drivers, as a key part of Uber’s network, seems not so loyal to it.
In order to solve these problems, Uber employ its aggressive strategy. The core of Uber’s strategy is to expand its network. In P2P model, a wide spread network is the core competence of one company. When people become one point of the network and begin to takes their own benefits in the system, the loyalty and reliance of people forms. Therefore, Uber takes advantage in capitals to expand it network globally. There are two direction of its expansion. One is to expand its market share. Uber spends a great number of capitals in fast-developing countries like India and China who have great populations and poor taxi services. As discussed before, the increased number of Uber drivers can improve the efficiency of ridesharing services, which will appeal more Uber users and then drivers can make more money. Uber itself also can get more commission and reinvested in expanding its business. Uber realized that it is critical to build a wide enough network before its competitors. That is why Uber employs some over aggressive but effective tactics such as cutthroat competitive tactics and operating services without government permission. The potential risk of its aggressive strategy is the investment losses if government enacts some laws to forbid its operation. For example, some countries like South Korea, Netherlands and Germany ban Uber’s operation in their countries. In addition, it may cause a vicious competition and damage its good brand reputation. Therefore, Uber hires some public relation geniuses such as David Plouffe to revise its public policy and communication strategies. The other one is to create new businesses. Additional services like UberEATS, UberFRESH, and UberRUSH are created to meet different market demands and let more people join in Uber’s network. Uber also tries to find ways to reduce the cost of hiring rides. So they offered a new concept UberPOOL. Meanwhile, Uber foresee the future of transportation and invested in a self-driving cars program. Self-driving cars may replace drivers in Uber’s network in the future.

Conclusions

It can be concluded that a clear and coherent strategy, peer-to-peer model and good time of entry are the reasons of Uber’s production innovation success. Although Uber is changing traditional rides service via modern communication technology, there is still a probability that a new method will replace Uber due to the rapid development of technology. Uber is also facing pressure from government regulation, defective price policy, tensed public relation and unclear transportation future. Uber need to use its current advantages to build its core competence and dynamic capabilities.