Professional Documents
Culture Documents
Case study 4
Case study 4
CASE
Uber’s Unintended Burdens
04 C h ri s to p her S . Tang an d Joche n Wi r tz
On August 13, 2020, Uber chief executive officer (CEO) Dara Khosrowshahi explained that Uber is
backing Proposition 22 that would exempt it from Assembly Bill 5 (AB5), a California law that would
require Uber to treat its drivers as employees with benefits effective January 1, 2020.1 To win over
California voters, Uber and Lyft were considering to shut down their services “temporarily” in
California as a means to appeal to voters who vote on Proposition 22 in the November ballot.
Given Uber lost over $8 billion in 2019 and was expected to lose $6 billion by October 2020, the AB5
law was expected to increase Uber’s operating cost dramatically. Also, it would be a major blow
to Uber and other gig economy (e.g., Uber Eats, Grubhub, Deliveroo) if other states in the United
States and other countries were to propose labor laws similar to AB5. In that case, Khosrowshahi’s
premonition that Uber may never be profitable when it filed for an initial public offering (IPO) in
2019 would come true.2 Was this law to become the beginning of the end for Uber?
ROCKY ROAD
One of the premises of Uber was that it could grow (Singapore, Indonesia, Thailand, Philippines, Malaysia,
and capture markets worldwide. As an online platform, Vietnam, Myanmar, and Cambodia) by selling its
Uber’s asset light model could enable the firm to scale operations to Grab (Singapore) in early 2018. Instead of
its operations in many markets without a huge setup cash, Uber received a 27.5% stake in Grab.
cost. However, Uber encountered many road blocks as
it expanded into other countries. The following are some Latin America. There was a lack of quality transportation
key examples. alternatives besides private cars in Latin America. This
fact attracted Uber and other ride-hailing services to
China and beyond. Due to growing demand for taxi enter the market. In 2013, Uber started its service in
service in Shanghai and the fact that new taxi licenses Bogotá, Colombia. At that time, e-hailing was nonexistent
had not been issued since 1990, Uber launched its service and there was no regulation. However, as Uber expanded
in Shanghai in 2014 and then expanded into over 100 its services in Colombia, taxi drivers launched complaints
cities in China. By using the same success recipe as in and the Ministry of Transportation banned Uber
the United States, this strategy turned out to be costly. nationwide unless Uber registered as a taxi company.
First, to compete with the incumbent Didi Chuxing that Uber refused and continued to operate covertly. After
captured 80% of the market, Uber undercut Didi’s price the government ordered Uber to cease its operation in
for riders to even below the bus fare for an equivalent late 2019, Uber suspended its operations for 3 weeks and
trip and offered extra incentive bonuses for drivers. This then resumed its operations in February 2020, claiming
pricing strategy resulted in close to $1 billion of burn that its operations comply with Columbian law.6
rate per year. Second, as Google Maps did not work
well in China, Uber had to switch to Baidu Maps, which In 2014, Uber entered Brazil and boasted an 80% market
was costly and time consuming. Third, most Chinese share by 2019.7 However, Uber remained unprofitable
consumers did not have credit cards, and Uber had to because it was engaging in a price war against Cabify, 99
switch to Alipay for payment. (which is now owned by Didi of China), and Easy Taxi.
Would Brazil become a repeat of another attrition game
Even with all these localization changes, Chinese that Uber engaged with Didi in China?
consumers were reluctant to switch because the service
was undifferentiated and Didi’s service was more India. Uber debuted its services in 18 Indian cities
convenient because its app was embedded within WeChat in 2014. To scale up its operations, Uber offered free
with WeChat Pay, which was used by virtually all riders.4 smartphones and cash bonuses to drivers. In addition,
Uber offered leasing options with incentives to enable
After losing $2 billion, Uber exited from China and drivers to use better and newer cars. Instead of doing
sold its business to Didi whereby Didi agreed to invest background checks, Uber was relying on the background
$1 billion in Uber, and Uber took an 18% stake in Didi checks performed by the government as part of the
in 2016.5 chauffeur licensing process. After an Uber driver was
accused (and later convicted) of raping a female
After Khosrowshahi succeeded the founding chief passenger in 2015,8 Uber was banned temporarily until
executive officer (CEO) Kalanick in the late 2017, Uber the ride-hailing firm agreed to implement various safety
exited its operations in eight countries in Southeast Asia measures including conducting background checks,
installing panic buttons, and enabling passengers to allow
Exhibit 3 Uber stock price history (since initial public offering in 2019)
their contacts to track their journey during an Uber ride. BACK TO THE UNITED STATES
But surge pricing was outlawed in Delhi by the end of
2016.9 By the end of 2019, Uber operated in 40 Indian After a stormy odyssey in foreign countries that began
cities, trailing behind the local incumbent Ola. Would it in 2013, Uber continued to dominate the ride-hailing
be possible for Uber to win in the second biggest ride- service in the United States. However, its market share
hailing market in the world? declined from 87% in January 2016 to 70% by May 2020
as Lyft gradually captured more market share rising from
United Kingdom and the European Union. After some 13% to 30% over the same time period.14
initial success in its Uber Black pilot program in London,
Uber decided to roll out its UberX in 2013 with heavy In the United States, Uber had encountered many
subsidies for riders and drivers. Besides pushback from challenges. First, in August 2018, New York City
black cab drivers, a British tribunal ruled in 2016 that Council voted in favor of limiting the number of new
Uber should not classify their drivers as independent licenses for ride-hailing services to operate (the total
contractors; instead, these drivers should be treated was around 100,000), and imposed a mandatory $17 per
as employees and receive benefits and pensions. 10 hour minimum wage for ride-hailing service drivers.15
Subsequently, Transport for London (TfL), a local Second, after years of complaints about its safety, Uber
government body responsible for the transport system disclosed its safety record in late 2019. It revealed 3,045
in Greater London, did not renew Uber’s license when sexual assaults and nine murders in 2018 alone. Since
it expired in 2017. Despite appeal, TfL declined to renew then, Uber improved its background checks of drivers and
Uber’s license by the end of 2019.11 Despite losing its improved its app to enhance rider safety. Third, after an
appeal in the lower court, Uber made its final appeal to exposé written by a former Uber female engineer expressing
the United Kingdom’s Supreme Court and the hearing concerns over sexism and sexual harassment, other
began in late July 2020.12 Would Uber lose its final appeal, employees came forward reporting past and ongoing
and would this end its operations in the United Kingdom? incidents of sexual harassment, retaliation, and bigotry.
Uber’s ventures in various European countries were By the end of 2019, Uber settled the claim with the Equal
bumpy. Besides the ban in Demark, Hungary, and Employment Opportunity Commission (EEOC) for
Bulgaria, a German court disallowed Ubers’ “work- $4.4 million. Also, Uber agreed to improve its internal
around” business model that offered rides through rental culture.16
car firms in December 2019. Uber was appealing this
decision in the German court and its final fate remained
to be seen.13
Study Questions
1. How could Uber retain its dominant position in the US market? Are there services and/or geographic
niche markets where Uber should have accommodated Lyft?
2. How should Uber have competed with Lyft and other providers? Was the two-sided price competition
(i.e., incentivizing drivers and riders alike to join and use its services) the right approach? How else
could Uber have enhanced its competitive position?
3. Its customers and drivers were multihoming (i.e., they signed up with its competitors). Should Uber have
aimed at exclusivity (i.e., a 100% share-of-wallet) or was it more realistic to aim to become the preferred
provider with a high share-of-wallet?