Monday, September 15, 2014

Blue Ocean Strategy – Uber (Ridesharing Service) - Disruptive Cab Booking Service

Uber is a ridesharing service that connect passengers with taxi drivers through its own smartphone application and Uber App also allows customers not only to request or book rides but also track their reserved vehicle's location. Uber is headquartered in San Francisco, California, United States and its services are available in 42 countries and more than 200 cities worldwide. Uber's business model and innovative pricing looks pretty much similar to metered taxis, but unlike the regular cab companies all hiring and payment is handled exclusively by Uber through its website or smartphone App and if it is individual drivers they also receive the booking and payments from Uber nothing from customers not even tips are needed. Innovative Billing where in the customers are charged on distance basis only if the Uber car is travelling at a speed greater than 11 mph (18 km/h) or else the price is calculated on a time basis and the customers are charged to their credit card a complete fare that includes distance basis and time basis at the end of a ride. Uber has said its high prices are the premium that the customers pay for a cab service that is not only reliable, but also punctual and comfortable.

Uber’s Blue Ocean Strategy can be analyzed using the ERRC Grid where in the company eliminated the hassles of booking taxi, paying the driver exactly or change problems, tipping issues, arguments & denial of services, reduced the problems of drivers too along with customers by matching the rides and Uber just takes 20% or less from total fare and rest goes to drivers, drastically raised the customer service levels and comfort levels and created a new market by using the latest technologies and devices . Even though the services are premium customers were so satisfied and happy the company clocked revenues of US$ 750 million in 2013 and expected to cross $1 billion in revenues in 2014. Uber created a new market which in initial stages was uncontested market space but in the growth stage competitors flooded the market but most of the competitors are irrelevant to Uber as the company is not only dominating the market but also fast expanding across the globe. In India the company has expanded into 10 cities with its flagship line Uber Blacks, premium cab service and priced 25-40% lower than Uber Blacks, UberX claims to be cheaper than even a radio cab with a base fare of Rs 50 and per km charges in the Rs 14-15 range. UberX is already present in Bangalore, Delhi and Hyderabad with future launch in Chennai, Mumbai and Pune.

Ryan Graves, head of global operations at Uber, in an interview with Times of India said that UberX was growing "incredibly faster" compared to the more expensive Black service across cities where both options were present. "UberX is accessible to a much larger population because it's affordable," he said. Graves said when Uber makes a price cut, that means drivers are making more money as more trips are done. "It helps the health of the market as riders are happier, there are more drivers on the system and we become a dependable alternative versus being used on special occasions. Uber is classical Blue Ocean Strategy example where in the company tried to differentiate itself from the regular cab companies and in turn developed low cost business model that generates good revenues for drivers and company. Founded in 2009 in San Francisco by Travis Kalanick and Garrett Camp with a seed capital of $200,000 and company received funding of US$258 million from Google Ventures in 2013 and US$ 50 million in funding from other small investors.

Uber does not project itself as luxury car service but as reliable car service and the company is facing not only facing tough competition from its competitors like Lyft, Hailo, etc. globally and even in India also from local App based cab booking services like Ola Cabs, Taxi For Sure, etc. but also facing many regulatory hurdles in different countries and complaints from the local cab service and taxi players. In India it is facing problems in terms of RBI regulations related to payment mechanisms like in India there has to be payment verification process which is a multi-step process. Uber payment process is credit card based and single click without verification process. Despite all these the company is valued at close to US$ 3.5 billion dollars and is expected to continue its growth globally. Uber is one of the best recent Blue Ocean Strategy examples I have found.

Source of Business Model Picture: Contributed by Aswath Damodaran, Professor Stern School of Business, New York University to Forbes.com

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