In this article for Harvard Business Review published in 1995, Bower and Christensen (1995) fairly argue that one of the patterns of business failure refers to inability of the industries’ leaders adjust to stay at the top when markets are modified by technological progress. Though this statement was voiced 25 years ago, it remains just and relevant today more than ever with digitalisation disrupting all spheres of life and business. The case of Uber, the app-based ride-hailing company (Damle, 2018) illustrates how technological progress and adoption of digital solutions may foster business success while undermining the traditional industry player’s position.
（Angela Lang/CNET, 2020)
Uber was founded in 2009 and has experienced a rapid and impressive growth operating not in more than 60 countries and hundreds of cities (Christensen, Raynor, and McDonald, 2015). Such success is commonly attributed by the market experts and researchers to the efficient strategy of disruptive innovator applied by the company, through benefiting from its different digital business model and the use of the model of sharing economy powered by the relevant technological solutions (Dudley, Banister, and Schwanen, 2017).
As it is explained by Dudley, Banister, and Schwanen (2017), the company fully bases all operations related to service provision on digital platform of a smartphone application which enable users to place an order, calculate the fares, suggest drivers the optima itinerary, and process payments. From the other side, the company clearly works within the area of sharing economy as it does not own the cars but connects the drivers and consumers to foster efficient use of spare capacity (Dudley, Banister, and Schwanen, 2017). This resonates with the main idea of sharing economy where businesses unlock what is called the “idling capacity” for monetary or non-financial purposes (Schneider, 2017).
By opting to digital business model, Uber has not only created a new more convenient taxi service for the born digital general of customers who have already become the main consumer segment globally (Moreno et al., 2017), but also eliminated the transaction costs for itself and other smaller businesses. This explains why the company is now one of the most valuable businesses globally after it went public in may 2019 (Stemler, Perry, and Haugh, 2019).
As it was previously mentioned, Uber is commonly referred to as a disruptive innovator what is the main factors of success of its digital business model. As it is defined by Bower and Christensen (1995), disruptive innovation refers to the innovation that create a product of services of a new value and hence leads to development of the new markets which disrupt the existing market for the alternative products or services and displace the established market leaders. This is exactly what Uber did by combining the benefits of digital technologies and sharing economy.
As it is outlined by Schneider (2017), there are three specific groups of factors that drive success of sharing economy and businesses operating within its frameworks: economic, societal, and technological drivers. Economic drivers include the possibility to monetize on excessive idle capacity of resources and less investment needed to offer a services, while societal factors refer to the growing demand due to the increase of population density and sustainability trend. Finally, technological drivers cover the digitalisation affordances, social networking, and mobile devices penetration (Schneider, 2017). Such drivers were effectively regarded by Uber as the needs of the customers to be satisfied and the areas of innovations to source competitive advantage.
Despite the breakthrough offer and the rapid growth, Christensen, Raynor, and McDonald (2015) still question if Uber’s business model was disruptive in conventional meaning of the concept, as the company targeted the mainstream customers of already existing market through different channel. At the same time, given the protests of traditional taxi services against Uber in many markets, it might be still argued that Uber undermines the power and market position of the established players what hence makes its business model disruptive (Reisch and Thøgersen, 2015).
Such difference of Uber’s business model and the fact that the company did not create a completely new market, but expands into the existing one combines with the increasing competition in the local markets coming from imitate services to create a threat to Uber. In particular, as it is outlined by Zhu and Iansiti (2019), Uber connects the local drivers with the local customers what limits its digital networks to the regional local clusters, unlike other sharing economy companies like Airbnb that digitally connect customers and providers from all over the world (see Fig. 1).
Figure 1: Network Structure of Digital Business Model of Airbnb and Uber
(source: Zhu and Iansiti, 2019)
Hence, the company should further consider how to remain disruptive in terms of the benefits of its digital business model and the market needs. The key approach might be the one originally adopted by Uber. While all the separate elements of the company’s business model might not be considered disruptive innovation, the best solutions and approaches with digitally empowered operation system made the story of Uber a success.
References List:
Bower, J. L. and Christensen, C. M., 1995. Disruptive Technologies: Catching the Wave. Harvard Business Review [online]. Retrieved from: https://hbr.org/1995/01/disruptive-technologies-catching-the-wave [accessed: 3 February 2020].
Christensen, C. M., Raynor, M. E., and McDonald, R., 2015. What Is Disruptive Innovation? Harvard Business Review [online]. Retrieved from: https://hbr.org/2015/12/what-is-disruptive-innovation [accessed: 3 February 2020].
Damle, V., 2018. Disruptive Innovation: A Case Study Of Uber. International Journal of Advanced Research and Publications, 2(11), pp. 21-26.
Dudley, G., Banister, D., and Schwanen, T., 2017. The Rise of Uber and Regulating the Disruptive Innovator. The Political Quarterly, 88(3), pp. 492-499.
Moreno, F. M., Lafuente, J. G., Carreón, F. A., and Moreno, S. M., 2017. The Characterization of the Millennials and Their Buying Behavior. International Journal of Marketing Studies, 9(5), pp. 135-144.
Reisch, L. A. and Thøgersen, J., 2015. Handbook of Research on Sustainable Consumption. Cheltenham: Edward Elgar Publishing.
Schneider, H., 2017. Creative Destruction and the Sharing Economy: Uber as Disruptive Innovation. Cheltenham: Edward Elgar Publishing.
Stemler, A., Perry, J. E., and Haugh, T., 2019. How Uber and other digital platforms could trick us using behavioral science – unless we act fast. The Conversation [online]. Retrieved from: http://theconversation.com/how-uber-and-other-digital-platforms-could-trick-us-using-behavioral-science-unless-we-act-fast-116722 [accessed: 2 February 2020].
Zhu, F. and Iansiti, M., 2019. Why Some Platforms Thrive and Others Don’t. Harvard Business Review [online]. Retrieved from: https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont [accessed: 4 February 2020].
My BEMM129 Journey 
Hello, qingqing, after reading your blog, I fully understand the changes that the digital business model has brought to Uber. Uber uses the advancement of technology to promote the development of mobile applications, while not harming the interests of traditional operators, but also promoting the successful development of business. However, I have some questions that I want to communicate with you. Will digital business models adversely affect Uber? I think that digital business models will have adverse effects as well as benefits, but businesses that rely on digital technology have uncertainty. But this is just my idea, I hope to communicate with you.
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Hi Qingqing, I enjoy reading your blog. Uber is undoubtedly my first choice when it comes to ordering a cab, and this is because of their user-friendly mobile app which you also mentioned in your blog. Uber is convenient, fast, and reliable (especially with their ratings and sharing status function!). And I believe this is also the same case to many other uber users. It’s transparency in information service and loyal communities have definitely contributed to their success with help of technology. I think it would also be interesting to look at how it expands to UberEats where they offers transport for food delivery, adding up to the company’s value. (110words)
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Hi Qingqing, I enjoy reading your blog. Uber is undoubtedly my first choice when it comes to ordering a cab, and this is because of their user-friendly mobile app which you also mentioned in your blog. Uber is convenient, fast, and reliable (especially with their ratings and sharing status function!). And I believe this is also the same case to many other uber users. It’s transparency in information service and loyal communities have definitely contributed to their success with help of technology. I think it would also be interesting to look at how it expands to UberEats where they offers transport for food delivery, adding up to the company’s value.
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Hello, qingqing. I enjoyed reading your blog, because rich in content and structure. Uber from technology development, found the change traditional taxi service mode of the new service, this is undoubtedly the development of the digital credit. However, as we have seen, and the Uber drops of the same business model in China, it was affected by the safety of the passengers was once stopped transportation service. I’d like to, how to identify the driver from all over the world, how to protect the customer is a big problem for Uber face. About this question, I look forward to working with you to further discuss.
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HI Qingqing,
Really enjoyed reading your post! I have been always interested in Uber and how, by hacking into the sharing economy, it has changed what hiring a cab is for many consumers. I noticed that you clearly have outlined a few interesting points on how Uber has been successful catching on with the trend among millennials of not desiring ownership of objects, but purchasing experiences, especially technology-based services.
However, following on from Uber’s underwhelming public valuation and poor post IPO share performance it seems difficult to discuss Uber without recognising the negative press surrounding the company. As Yves Smith(2018) characterised it in Intelligencer magazine prior to Uber’s IPO launch, Uber’s success has been “getting the business press to treat its popularity as the same as commercial success.”(Smith, 2018)
Whilst Uber’s gained market share with a convenient app, Ball notes today in the Guardian that much it’s popularity with consumers can be attributed to its ability to offer a service cheaper than existing players. Something Uber has only been able to do by subsidising fares with vast sums of investment funding. As such, 11 years into operation Uber still loses money for every ride it’s service offers. (Ball, 2020)
Similarly, I agree with your point about Uber monetising excess idle capacity but it’s notable that the turnover rate of Uber driver is constantly high and many drivers make ends meet with other sources of income. In this sense, Uber’s disruptor effect has been to enter an industry of traditional secure jobs and create a land of part-time, low paid work (Penn & Wihbey, 2016). Its success seems to have been to remove the financial incentive that would ensure a reliable labour force and damage the business structure of the car hire industry.
So, whilst yes, massive digital disruption in an existing industry, it seems unlikely that Uber offers the world a viable/ sustainable business model.
Reference:
Ball, J. (2020). Deliveroo was the poster child for venture capitalism. It’s not looking so good now | James Ball. Retrieved 2 January 2020, from https://www.theguardian.com/commentisfree/2020/may/02/deliveroo-venture-capitalism-food-delivery-business-model
Penn, J., & Wihbey, J. (2016). Uber, Airbnb and consequences of the sharing economy: Research roundup – Journalist’s Resource. Retrieved 3 June 2016, from https://journalistsresource.org/studies/economics/business/airbnb-lyft-uber-bike-share-sharing-economy-research-roundup/
Smith, Y. (2018). Uber Is Headed for a Crash. Retrieved 4 December 2018, from https://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html
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