Uber has become synonymous with the term “disruption”, inspiring a whole new generation of start-ups each claiming to be the Uber of their industry.
But aside from Uber’s innovative business model, there is not much left to be inspired by — unless of course one gets dazzled by the eye-popping valuation, propped up by a strategy to achieve exponential growth at all costs.
Breakthrough unicorns need Breakthrough business models
In Volans’ 2016 Breakthrough Business Models report, written for the Business & Sustainable Development Commission, we acknowledged that we are indeed living in exponential times, with innovative technologies and business models as key drivers of exponential growth.
Negative outcomes of such exponential growth will threaten to create chaos across climate, ecosystems and societal spheres. Good exponential outcomes, however, will help us close the gap between where we are and where we need to be as the world’s population accelerates towards 10 billion people.
The Sustainable Development Goals (SDGs), also known as the Global Goals, present a good outline of these needs (and opportunities), with an urgent delivery timescale of 2030. Peter Diamandis, entrepreneur and co-founder of Singularity University, agrees. His mantra to students — “Want to be a billionaire? Find a billion person problem”.
Consequently, a new breed of unicorns that enable good, rather than bad, exponential outcomes, is needed. Perhaps more importantly, a new type of business model is needed, too.
What does a Breakthrough business model look like?
Last year, Stelios Kavadias, Kostas Ladas and Christoph Loch from the Judge Business School in Cambridge, UK published a Harvard Business Reviewarticle looking at the features of transformative business models. Looking across 40 businesses from Airbnb to Amazon, each with its own unique business model, the authors found six recurring features.
Interestingly, businesses that displayed a higher number of these features correlated with a higher success rate in transforming their respective industries.
No surprise, Uber was found to exemplify five of the six features identified by the authors. But in order for Uber to place itself in good stead for achieving the type of positive exponential outcomes the SDGs require, various aspects of its business model will need to be reconsidered.
We list below these six transformative business model features, presenting our take on what the future quo for Uber could look like if they were to pivot their business model towards one that’s poised for exponential positive outcomes.
1. Personalisation: How to engage customers with unmet needs
Status quo: Users can hail a ride on their smartphone, determining when, where, what and how they want their ride. Uber’s rating system allows individuals to share their feedback on drivers and in return, choose drivers that suit their needs.
Future quo: In addition to diversifying into new markets like food delivery (UberEats) and package delivery (UberRush), there are other customer segments with more critical, unmet needs, such as the elderly or those with chronic diseases who require tailored, affordable transportation. There’s inspiration to be found in other industries ripe for disruption. Take insurance: AllLife Insurance in South Africa pioneered affordable health insurance for patients with HIV and diabetes with an innovative business model that helps and incentivizes patients to manage their health conditions through lifestyle and dietary changes.
2. Closed-Loop: How to do radically more with dramatically less
Status quo: Uber’s business model is asset light, and hence the Cambridge authors did not find the closed-loop feature to be relevant.
Future quo: Uber has already launched fleets of Electric Vehicles in some cities, and is trialling Self-Driving vehicles in others. There are tremendous potential upsides to this — as John Zimmer of Lyft makes clear: a world with lower emissions, fewer cars and fewer parking spaces is to be welcomed. But Uber (and Lyft) will need to confront the jobs issue early on, helping drivers through this transition, potentially by moving them onto other career trajectories. Consider British insurance firm Aviva, which recently asked its employees if they felt their job could be replaced by a robot. Those who answered ‘yes’ are being offered training for other jobs in the company.
3. Asset Sharing: How to unlock the access economy
Status Quo: In the majority of Uber’s services, instead of owning its own assets, Uber uses the assets of its drivers to deliver an end service to customers. Similar to BlaBlaCar in Europe, its relatively newer service, UberPOOL, takes this one crucial step further, helping to reduce the overall number of journeys by getting customers to share rides with each other.
Future Quo: While some argue that Uber’s platform largely benefits drivers who want to earn extra income in their spare time using their existing assets, the reality is that an increasing number of workers depend on ‘gigs’ with Uber and other platforms as their livelihoods. Taking into account the costs of fuel and car ownership, as well as Uber’s 20% cut, some UberX drivers report they are now earning less than the minimum wage.
Given that Uber is still reliant on its drivers (and not just those looking for a side income), there is scope for Uber to more equitably value its assets, or drivers in this case. Consider Fasten, a new ride-hailing startup in Boston, who are taking only a fixed US$0.99 in commission per ride (as opposed to Uber’s 20%).
4. Usage-Based Pricing: How to incentivise positive behaviours
Status Quo: For riders, Uber’s Usage-Based Pricing business model allows them to access the service of a ride, without having to own a car. In addition, Uber directs drivers to locations where the probability of finding a fare is high, and uses a surge pricing policy to increase the fare in such instances as a way of neutralising demand.
Future Quo: An issue that Uber’s Usage-Based Pricing model hasn’t been able to adequately address is racism. And the issue isn’t limited to the transport industry. Airbnb has faced similar issues, and has since committedto offering more training for its hosts, and has sent emails to customers saying they must agree not to discriminate in order to use the site. In India, G-Auto, a platform for auto-rickshaw drivers that utilizes GPS to help them find customers more easily, is also investing in training its drivers. This is enhancing their sense of pride in the job, and increasing drivers’ professionalism in the way they treat customers.
5. Collaborative Ecosystem: How to achieve system impact and change
Status Quo: The key collaborators in Uber’s business model are the drivers themselves, who share the risk of finding customers whilst utilising Uber’s data platform. In addition, one of its more prominent recent partnerships include Toyota, which will be providing cars for lease to Uber drivers, and also investing in such areas as self driving technologies.
Future Quo: Given its geographical reach (Uber is now active in nearly 600 cities and some 80 countries globally), the potential scope for Uber’s impact and scale is clearly immense. Uber’s recent release of Movement, a platform providing access to anonymized data of more than 2 billion trips made via Uber, will provide needed opportunities for city officials, urban planners and the general public to use this data meaningfully.
However, Uber has justified its confrontational approach and resistance to any regulatory oversight in service of its own unfettered growth. Whilst some countries like Taiwan have opposed Uber specifically in support of its taxi industries, others have just concerns over the well-being and safety of Uber drivers, and riders. If Uber were able to work with governments to resolve these concerns — there may be greater scope for the transport company to become involved in a more trusted, collaborative, ecosystem within cities, and potentially work towards resolving other city-level infrastructural and societal challenges.
6. Agility: How failing fast can build resilience
Status quo: Uber’s platform is based on Big Data and GPS, coupled with an algorithm that allows it to respond to market changes in real time (which in turn enables its use of Usage-based Pricing). As a business, Uber has also been agile in how it’s rapidly tested (and opened) new ventures outside of ride hailing — be it in food delivery (UberEats) or self-driving trucks.
Future quo: But what would agility in service of positive exponential outcomes, and not just growth, entail? For instance, what if each of Uber’s country managers were equipped with a dashboard highlighting broader societal and environmental data in real-time? Could such an awareness provide Uber with new insights on what tomorrow’s incentives for disruption might be. In order to ensure Uber’s ability to adapt to its broader context, and crucially, to remain both relevant and resilient in the future, Uber’s country managers need to look beyond their current metrics of driver and rider acquisition and dropout rates.
Going back to basics
Veteran companies have all had to earn their licence to operate, We’ve seen this with countless companies across different industries — be it with apparel companies and the Rana Plaza collapse a few years ago, or against oil and gas companies that refused to acknowledge their contribution to climate change.
Uber, and its fellow unicorns, are no different. As a baseline, companies like Uber will need to take responsibility for all its stakeholders (including female employees as well as its drivers). They will also need to take responsibility for any negative externalities created by their business, regardless of how exponential its growth potential is, or even if positive outcomes are achieved in one domain with negative outcomes in another.