Hugo Hedlund

Jag har inte kommit över Uber

En av examinationerna på förra kursen jag läste (IT-innovation) bestod av att analysera Ubers (taxiföretaget som inte tycker att de är ett taxiföretag) prissättningsmodell. Jag hade först tänkt lägga upp den ocensurerade text jag först skrev som förklarade varför Uber förkroppsligar det mesta som kan vara fel med dagens New-Logo-Vertical-Darksönderkramade IT-företag. Den texten skulle dock aldrig bli klar eftersom Uber fortsätter att utgöra en grogrund för hemska övergrepp av olika slag.

Det lyser igenom att jag har inte mycket till övers för Uber som företag. Det är en av anledningarna att jag i min examination hade svårt att hålla mig till frågan om just prissättning. För att fortsätta ventilera mitt ohälsosamma intresse för företaget dumpar jag nedan texten jag slutligen skickade in.

Question:

Uber has quickly become a huge success. By bringing a technologically savvy and slick user experience to a highly regulated, and often deeply inefficient market, Uber has rapidly built a large customer base. One of Uber’s key selling points is the transparency with which the firm interacts with their customer base. Perhaps ironically, then, the lack of transparency has been the key critique towards the Uber model.

Indeed, many writers have offered critical perspectives on Uber’s dynamic pricing strategy and the ways in which Uber’s dynamic prizing model is seemingly random (see appendix 2). Your assignment is to present a recommendation to the Uber management: should they keep their dynamic prizing model, if so why? Or should they increase the transparency in their model, if so how and why?

Answer:

The problems with Uber’s surge prizing model is very much related to the bigger questions of their business model and their view of themselves as a company. Uber has compartmentalized the service that they provide into the smallest possible part. Uber would like to say that they are providing the service of facilitating ridesharing, which they admittedly are. Beyond this part of the service Uber is not very interested in the minutiae of running what, for all intents and purposes, is an upscale taxi business. All of this forms the basis of the company’s business model where drivers ostensibly operate as free-agents and Uber skims a cool 20 percent of any cab fare. This arrangement is the driving force behind the company’s adoption of the moniker “tech” over “cab”. However this is also the basis of many of the company’s woes.

Recently Uber has been the focus of PR-scandals related to driver poaching (Newton, 2014), assault (Huet, 2014), and kidnapping (Biddle, 2014; Moreno, 2014). However the main threat of the business doesn’t lie in these admittedly problematic scandals but in the regulatory opposition that Uber is facing around the globe concerning unfair competition with traditional taxi firms (Robinson, 2014). The critique the firm has received concerning unfair competition is not related to prizing models but rather the circumvention of fees and regulations that taxi companies in many countries has to abide by. This opposition is a larger problem than the ones connected to Uber’s prizing model.

Uber’s dynamic prizing model is designed to regulate the ebb and flow of supply and demand (Lowrey 2014). Higher prices is targeted towards attracting more drivers hoping to receive an inflated commission while the greater price also serves to keep demand on a manageable level for the Uber system. The rationale behind the prizing model follows its own internal logic, but as Lowrey illustrates, the reasoning also runs the risk of angering Uber’s customers

Uber’s dynamic prizing model bears the risk of hollowing out the company’s central value proposition thereby hurting the company’s largest asset: a large user base with a willingness to pay. Tidd and Bessant (2013, p. 611) point out that the value created by an innovation needs to be targeted towards an articulated market segment and customer group if a company intends to control their value model. Uber, by their own accord (Lowrey 2014), aim to service as many customers as possible and thereby claim their royalty from each customer served. With a prizing model that ensures a high and (to customers) seemingly random cost-variance it is likely that Uber’s value proposition will lose credibility as a reasonably priced premium cab service. Uber will not be able to retain a loyal user base if the fares determined by the proverbial algorithm prove to be too erratic in which market segment it aims to serve.

The seeming deviousness of the value proposition paired with a dynamic prizing model is enough to recommend the abandonment of the dynamic prizing model. The replacing prizing model is however hard to implement, and indeed to imagine, within the company as it is organized presently. The abandonment of the dynamic prizing model calls for a radical reframing of the business, which, fortuitously, is part of the solution for Uber’s wide-reaching regulatory difficulties.

Reframing, according to Tidd and Bessant (2013, p. 340 ff.), involves an active departure from the established ways of thinking about a company and its processes in relation to the wider context of the firm. Companies tend to become blinded to shifts in their immediate climate because of the ways they are used to doing things and how they have come to understand their domain and their place in it. This may hinder a firm’s capacity for adaption in the face of change and may lead to an organization being halted by its own rigidity. Exploring alternate paths may be a way of sidestepping potentially crippling events. Reframing of the business has the greatest potential when operating under a high level of environmental complexity where there is potential for incremental tweaks to reveal new business models (p. 347 f.).  However, the active reframing involves a high degree of uncertainty since there is no guarantee that new ways of conducting business is going to be more successful than the old ways. Tidd and Bessant (p.344 ff.) suggests setting up external organizations that explores these avenues of interest in order to reduce the uncertainty for the firm involved in a radical change of core operations.

For Uber, one alternate way of looking at themselves would be to admit that they are, in fact, a taxi company, although a taxi company powerfully augmented by IT. Of course with this admission comes the need for radical business model reframing. It is possible that the way Uber has conducted business up until now may in fact have been an anomaly, much like one might argue Napster’s early existence might have been. Napster paved the way for modern streaming services where working business models are now beginning to emerge. Uber should seek to position themselves for the future not by bypassing laws through semantics but by shouldering responsibility for their drivers and customers. This could be achieved through the more formal hiring, and indeed screening, of their drivers which would ensure a steady capacity for their customers, while at the same time creating more stable working conditions for Uber’s drivers. Of course this would also mean the end of Uber’s dynamic prizing model and an added emphasis on transparent pricing.

Another alternate route for Uber that would allow them to retain the ‘tech company’-branding would be to establish themselves as a software company selling their technological solutions to taxi companies. Other taxi companies could benefit from the implementation of Uber’s technological platform while continuing to operate within what could be described as a classical taxi paradigm. In this scenario, Uber could focus on the development and maintenance of the technological platform where there no doubt would be room for innovation through the exploitation of the customer data that a wide adoption of their platform would generate. This setup of a wide implementation of the Uber system would allow for a position for the firm that would be similar to the famous airline booking system SABRE that allowed for many applications beyond its intended use centered on the reservation of seats.

The latter reframing that allows for Uber’s continued ‘tech’ existence seems to be the more plausible one since it maintains the focus on the company’s core competencies within IT while at the same time opening up for future innovation based on the Uber platform. With the adoption of this business model Uber would get the added benefit of operating in a more socially responsible way.

References

Biddle, S., 2014. Uber Calls Woman’s 20-Mile Nightmare Abduction an “Inefficient Route” [WWW Document]. Valleywag. URL http://valleywag.gawker.com/uber-calls-womans-20-mile-nightmare-abduction-an-ineff-1645819700 (accessed 10.20.14).

Huet, E., 2014. Uber Driver Allegedly Fractured His Passenger’s Skull With A Hammer [WWW Document]. Forbes. URL http://www.forbes.com/sites/ellenhuet/2014/09/26/uber-driver-allegedly-fractured-his-passengers-skull-with-a-hammer/ (accessed 10.20.14).

Lowrey, A., 2014. Is Uber’s Surge-Pricing an Example of High-Tech Gouging? N. Y. Times.

Moreno, J.A., 2014. Off-Duty Uber Driver Allegedly Kidnaps “Bar-Hopping” Woman. KTLA.

Newton, C., 2014. This is Uber’s playbook for sabotaging Lyft [WWW Document]. The Verge. URL http://www.theverge.com/2014/8/26/6067663/this-is-ubers-playbook-for-sabotaging-lyft (accessed 10.20.14).

Robinson, F., 2014. Uber Open to “Debate” With European Regulators Over Ride-Sharing Rules. Wall Str. J.

Tidd, J., Bessant, J., 2013. Managing Innovation: Integrating Technological, Market and Organizational Change, 5th Edition. John Wiley & Sons, Chichester, West Sussex.

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