Can Uber Be the Uber of Everything?

You’re in New York, Paris, Chicago, or another major city and need a
ride. Instead of trying to hail a cab, you pull out your smartphone and
tap the Uber app. A Google map pops up displaying your nearby
surroundings. You select a spot on the screen designating an
available driver, and the app secures the ride, showing how long it will
take for the ride to arrive and how much it will cost. Once you reach
your destination, the fare is automatically charged to your credit card.
No fumbling for money.

Rates take into account the typical factors of time and distance but
also demand. Uber’s software predicts areas where rides are likely to
be in high demand at different times of the day. This information
appears on a driver’s smartphone so that the driver knows where to
linger and, ideally, pick up customers within minutes of a request for a
ride. Uber also offers a higher-priced town car service for business
executives and a ride-sharing service. Under certain conditions, if
demand is high, Uber can be more expensive than taxis, but it still
appeals to riders by offering a reliable, fast, convenient alternative to
traditional taxi services.

Uber runs much leaner than a traditional taxi company does. Uber
does not own taxis and has no maintenance and financing costs. It
does not have employees, so it claims, but instead calls the drivers
independent contractors, who receive a cut of each fare. Uber is not
encumbered with employee costs such as workers’ compensation,
minimum wage requirements, driver training, health insurance, or
commercial licensing costs. Uber has shifted the costs of running a
taxi service entirely to the drivers and to the customers using their
mobile phones. Drivers pay for their own cars, fuel, and insurance.
What Uber does is provide a smartphone-based platform that enables
people who want a service—like a taxi—to find a provider who can
meet that need.

Uber relies on user reviews of drivers and the ride experience to

identify problematic drivers and driver reviews of customers to identify
problematic passengers. It also sets standards for cleanliness. It uses
the reviews to discipline drivers. Uber does not publicly report how
many poorly rated drivers or passengers there are in its system.

Many decisions required for running the business do not require

humans, relying instead on finely tuned computer algorithms. For
example, Uber systems use the accelerometer in drivers’ phones
along with GPS and gyroscope to track drivers’ performance and send
them safe driving reports. It’s Uber’s systems that decide how much to
price a ride in periods of peak and slow demand and where drivers
should relocate to find more ride-hailing passengers. Uber drivers
receive in-app notifications, heat maps, and emails with real-time and
predictive information. Uber’s driver rating system also is automated.
In certain Uber services, if drivers fall below 4.6 stars on a 5-star
rating system, they may be “deactivated.”

Uber is headquartered in San Francisco and was founded in 2009 by

Travis Kalanick and Garrett Camp. In 2019, it had nearly 4 million
drivers working in over 600 cities and 65 countries worldwide After
paying for drivers, marketing, and other operating expenses, Uber still
operates at a loss, with losses in developing markets swallowing up
profits generated in North America, Europe, and elsewhere. Uber’s
business strategy has been to expand as fast as possible, forgoing
short-term profits in favor of laying the groundwork for long-term
returns. As of early 2019, Uber had raised over $24 billion from
venture capital investors. In the last several years, Uber has sold its
operations in China, Southeast Asia, and Russia, where it had been
engaged in costly turf wars with competitors, to free up capital to
invest in other markets such as India, Latin America, and the Middle
East.

By digitally disrupting a traditional and highly regulated industry, Uber

has ignited a firestorm of opposition from existing taxi services in the
United States and around the world. Who can compete with an upstart
firm offering a 40 percent price reduction when demand for taxis is
low? (When demand is high, Uber prices surge.) What city or state
wants to give up regulatory control over passenger safety, protection
from criminals, driver training, and a healthy revenue stream
generated by charging taxi firms for a taxi license?

If Uber is the poster child for the new on-demand economy, it’s also an
iconic example of the social costs and conflict associated with this
new kind of business model. Uber has been accused of denying its
drivers the benefits of employee status by classifying them as
contractors, violating public transportation laws and regulations
throughout the United States and the world, abusing the personal
information it has collected on ordinary people, increasing traffic
congestion, undermining public transportation, and failing to protect
public safety by refusing to perform sufficient criminal, medical, and
financial background checks on its drivers. Uber’s brand image had
been further tarnished by negative publicity about its aggressive,
unrestrained workplace culture and the behavior of CEO Kalanick.

Uber has taken some remediating steps. It enhanced its app to make
it easier for drivers to take breaks while they are on the job. Drivers
can now also be paid instantly for each ride they complete rather than
weekly and see on the app’s dashboard how much they have earned.
Uber added an option to its app for passengers to tip its US drivers,
and Kalanick resigned as head of Uber in June 2017. (He was
replaced by Dara Khosrowshahi.)

Critics fear that Uber and other on-demand firms have the potential for
creating a society of part-time, low-paid temp work, displacing
traditionally full-time, secure jobs—the so-called Uberization of work.
According to one study, half of Uber drivers earn less than the
minimum wage in their state. Uber responds by saying it is lowering
the cost of transportation, expanding the demand for ride services,
and expanding opportunities for car drivers, whose pay is about the
same as other taxi drivers.

Does Uber have a sustainable business model? The company is still

not profitable. Uber has competitors, including Lyft in the United
States and local firms in Asia and Europe. Established taxi firms in
New York and other cities are launching their own hailing apps and
trumpeting their fixed-rate prices. The onslaught of competition from
all sides has intensified recently, causing Uber’s losses to balloon to
$8.5 billion for 2019. CEO Khosrawshahi expects Uber to turn
profitable by the end of 2020. Startups backed by deep-pocketed
investors (including Softbank Group, Uber’s biggest shareholder) are
using heavy discounts to challenge Uber’s food delivery services in
the United States, India, and Mexico, as well as Uber’s Latin American
ride-hailing business. Uber’s once-robust revenue growth in Latin
America has lost some of its steam. Uber’s senior management is
counting on the price wars eventually easing, since Uber continues to
fight back with low prices. Management is also looking for more ways
to further slash costs.

Uber’s principal markets are in dense cities, but over 70 percent of the
U.S. population lives in rural or suburban areas where car ownership
tends to be more convenient and cheaper. Ride-hailing has lured
people away from public transit, contributing to traffic congestion in
major cities and spurring calls for more regulation that would limit
growth.

CEO Khosrowshahi has been touting Uber as a one-stop shop for

disparate categories of transportation, and has launched new services
for same-day deliveries, including food delivery (Uber Eats), shared
electric bikes and scooters, and a freight shipping brokerage. He sees
Uber as the “Amazon of transportation,” with the potential to become
the dominant force in all forms of transportation. In Uber’s vision of the
future, most people won’t own cars. People will use electric bikes and
scooters for short distances. Takeout dinners will be replaced by
on-demand delivered meals. Self-driving cars will shuttle people
around the roads and autonomous trucks will roam the highways. In
the air drones will make the deliveries. Uber wants to do it all. Can it?

Along with major auto makers such as Ford and Volkswagen, Uber
has invested heavily in self-driving cars, which management believes
will be key to lowering labor costs and ensuring long-term profitability.
(A study conducted by UBS showed a self-driving “robo-taxi” costs
about 80 percent less than a traditional taxi.) But self-driving cars are
many years away from being able operate safely on the road under
any conditions as humans can. Autonomous vehicles still struggle to
anticipate what other drivers and pedestrians will do and cannot
operate safely and reliably under all weather conditions and types of
terrain.

With radar, sensors, and high-resolution cameras, self-driving vehicles

can detect and identify the objects on a street, including other cars,
pedestrians, and cyclists. But they can’t always correctly anticipate
what they’re going to do next. Self-driving cars can’t always correctly
respond to unusual circumstances, such as pedestrians crossing the
road when cars have the green light or cars making illegal turns.
Today’s self-driving cars have about 80 percent of the technology they
need to substitute for human drivers. The remaining 20 percent,
however, including software that can reliably anticipate what other
drivers, pedestrians, and cyclists are going to do, will be much more
difficult to perfect. A computer-driven car that can handle any situation
as well as a human under all conditions is decades away at best. The
Chapter 11–ending case study provides more detail on this issue.

After a self-driving Uber car struck and killed a woman in Tempe,

Arizona, in March 2018, Uber scaled back its autonomous vehicle
program. Even before the accident, Uber’s self-driving cars were
having trouble driving through construction zones and near tall
vehicles like big truck rigs. Test drivers had to take over the car almost
every mile. Uber and others will be wrestling with autonomous vehicle
technology for many years to come. In the meantime, Uber still needs
to find a way to make money. Will Uber ever be able to make money?

Sources: Dominic Rushe, “Uber to be Profitable by End of 2020, CEO

Dara Khosrawshahi Says,” The Guardian, February 6, 2020; Mansoor
Iqbal, “Uber Revenue and Usage Statistics (2020),” Business of Apps,
March 24, 2020; Eric Jhonsa, “Uber Needs to Curb Its U.S. and Latin
American Market Share Losses,” Real Money, January 21, 2020; Eliot
Brown, “Uber Wants to Be the Uber of Everything—But Can It Make a
Profit?” Wall Street Journal, May 4, 2019; Alex Rosenblat, “When Your
Boss Is an Algorithm,” New York Times, October 12, 2018; Steven Hill,
“New Leadership Has Not Changed Uber,” New York Times, March
26, 2018; Daisuke Wakabashai, “Uber’s Self-Driving Cars Were
Struggling Before Arizona Crash,” New York Times, March 23, 2018.