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Uber: A Great Startup Business But Can it Survive?

Uber Cool, Uber Fast

As a Chicagoan, one of the worst experiences in the city one can have is arriving at Midway, on the heels of a long-delayed flight, to realize that the Orange Line is no longer running.  What this means for any downtown-bound traveler is either an interesting and lengthy bus ride through some of the more colorful neighborhoods on the Southwest side, an extended sleep in the airport, or a premium fee paid to a downtown company to come pick you up.  None of these outcomes are enjoyable, especially if you just got home from an 18-hour travel trip.

Another Great Start-up From San Francisco

Into this void, first in San Francisco (a start-up business from San Francisco, what a surprise huh?) and now in cities spreading across the country, stepped Uber (commonly referred to as Uber Cab, although the company currently only has trademarked the Uber name).

 

Mobile App Business

As a mobile app-based service that connects customers with waiting and available Uber taxis (a combination of towncars, vans, and other vehicles), Uber touts itself both for its ability to enable customers to geo-locate a nearby cab (so when that guy tells you it’s gonna take $50 for him to get out to Midway, and you see he’s around the corner, you have a nice leg to fall back on) as well as the competitive prices it can offer riders via rewards programs and cab-sharing options.

Uber

Imagine the Possibilities

While most people associate cabs with a night out at the bars, the demand for the service emerged not only from bar customers, but from the emerging and growing population of lower-income citizens left without money or means to use cars.

The startup’s focus is not based solely on finding people rides with their own fleet.  In fact, as recently as summer of 2012, Uber tested booking conventional cab rides through their system as well, offering a massive, potentially new market for contracting with existing cab companies as a servicer and network provider to ensure bookings.

On a slightly more whimsical note, with the company’s expansion to London, Uber also introduced Uber Ice Cream, which allows you the ability to summon one of the company’s ice cream trucks to your location.  A novelty for sure, but that’s the kind of innovative thinking that draws media and social attention to your brand.

As a city-dweller, I can tell you from experience that you’ll never know when and where the need for a cab will arise; and in a city like Chicago, which features a real estate and commercial market segregated glaringly by money, there are whole patches of the city not served by cabs or consistent public transit.  The expansion of Uber provides a convenient way for the large population in these areas (less affluent) to access cabs, without having to rely on long wait times from downtown-based services or additional fees for distance.

 

The SWOT Analysis

Strengths

  • First to the market; Uber has no established major competitors and has a significant headstart in the areas of branding, infrastructure, and consumer trust
  • Mobile platform; Cabs, perhaps more than any other service, are uniquely fitted to the mobile platform because, well, they are mobile.  Essentially Uber allows anyone to become their own Danny DeVito from Taxi, dispatching and ordering cabs on a whim
  • Mobile app design is thoughtful and user-friendly; glitches are minimal and responsiveness from servers and system itself is exceptional (crucial, given cab riders need to get somewhere fast)

Weaknesses

  • Standard insurance and liability questions that plague most start-ups offering services or community connections
  • More threatening, lawsuits charging illegal cab practices from multiple cities including New York. Established deals between cities and taxi companies, as well as union laws associated with these, have led Uber to be drawn into court repeatedly in just its 3 year history
  • Monetizing the idea; while there is always a proven demand for cabs, the overhead and potential legal costs required offer significant limitations to potential market cap

Opportunities

  • As an entrepreneur working with service networking systems myself, one thing that continues to amaze me is the focus on cities as the sole place to roll out ideas.  Assuredly, with high overhead costs and the social media/communication advantages of city marketing, it seems logical, but this also ignores 95% of the country.  Expansion to rural areas, or at least regional service, could open up huge swaths of untapped consumers to Uber’s idea
  • International opportunities; the expansion to London was just the first step, but with seemingly boundless overseas markets for this service (seriously, name me a city where you can’t grab some sort of cab) helps alleviate some of the legal and overhead limitations on market potential
  • Ideas like the ice cream service are indicative of the unthought-of and untapped potential expansions for this type of service. Moving trucks? Party buses? Water taxis? Maybe I need to drop the fellows at Uber a line…

Threats

  • If a city wins one of the sweeping lawsuits against Uber for illegal cab practices, the court precedent could be damning to Uber’s entire model.  Liability costs and potential risks would severely limit further growth and expansion opportunities
  • As with any other newly created mobile-based market, competition is emerging.  Car pooling applications are just one of the many new apps attempting to carve into Uber’s domain.  Also, quick-rent services like iGo and ZipCar offer potential competition as well.

 

Takeaways

Uber is a company that is currently standing on a high tight-rope, with one foot dangling over the abyss.

With the company’s growth and expansion continuing at an exponential rate, and with the ever-increasing possibilities for the company’s network as well as the massive international market for the idea, the future looks bright for Uber.  However, getting over the goal line won’t be easy. With the amount and variety of pending litigation, as well as the continual monkey-on-the-back of overhead costs required to start a feasible cab service in each new city, the company very much still has a chance of plunging into oblivion, along with at least $11.5 million in start-up funds already invested.

What do we learn from Uber as investors and entrepreneurs ourselves? Don’t let potential risks and legal issues stop a good idea from starting.  Instead, working to establish brand recognition and trust can help build customer and public support that can shield your brand, product, or service from legal ramifications.  Aside from that, we can also glean the importance of taking an idea that seems fairly black and white (Uber finds you cabs, quicker and easier) and twisting it to surprise and excite people about your service more (Call your own ice cream truck? Guarantee there’s nothing else in the App Store that can do that for you!).  Building loyal customer support and word-of-mouth in advance of expansion can really help establish a successful launch for your business in new territory, and help you anticipate some of the potential challenges that will come with said expansion.

 

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Hi! I'm Aaron, The Founder of Capitalist Creations.
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Adam Hausman is a capitalist and educator of many ventures. His ventures include ClickChores.com, a micro task service network, as well freelance work with sites like TabletLeader.com. Adam is particularly interested in the continued growth of the service networking economy, which is connecting people to share resources and skills and make life easier collectively. His own current ventures, as well as new ones he and his former roommates at Indiana University and the University of Illinois-Chicago are scheming on now, are trying to grab a piece of this emerging market.

  • http://twitter.com/aaronjhoddinott Capitalist Creations
  • Manup

    might be a good idea but I would never get involved in an industry that has so many unions

    • pointdexter

      To shut off a business just because unions are present is stupid. Unions exist and profits can be made with union cooperation. Most industries have unions so accept it.

  • pointdexter

    Uber cab is trying to do too much. A high end service with low end prices? Won’t survive or will be in court like it already is.

  • pointdexter

    To my point I would say it should be a low end service that focuses on promptness and cleanliness. People using it are looking for a discount and quick. They don’t need a schiauffer environment. That would take pressure off the drivers in respect to up keep costs like this one protester is complaining about.

  • Manup

    but if it doesn’t differentiate itself what makes it special? I think
    the model jsut doesn’t work in the taxi industry. They should apply to
    model to a different industry

    • pointdexter

      Just my opinion. The cleanliness and speed can be enough.

  • Onlineguru

    The model is a good one they just have to stick to their guns on salaries. If a driver doesn’t want to work for them then so be it. They can’t change the model to a low end service when they are saying they are a cheap high end service. That’s ridiculous. What is the incentive for someone looking for a ride then. Stick to the model but I don’t think they will have much success dispatching for unionized cab companies.

    • ClaimsAdjuster

      What unionized cab companies? Most cab drivers are independent contractors who do not get a paycheck. They lease their taxis.

      • Onlineguru

        Far as I’ve read it is the unions trying to bust up Uber. Read the paper.

        • ClaimsAdjuster

          As “far as you know” is not a refutation.

  • http://www.CapitalistCreations.com/ Aaron

    I’m of the mind, especially living in the Western World, that unions are a part of the labor force and there is nothing we can do about that. If you want to run a services business, you should’ve evaluated the pros and cons of getting involved in an industry that is, for the most part, unionized. In the service industry unions are hard to avoid and there are many companies making a killing while working with the unions.

    • Danger_zone

      There is something we can do about Unions Aaron. Don’t work with them. Companies stop letting them gain power and don’t vote for parties which support the unions.

  • Manup

    really Aaron like whjo?

  • Jawwad Rehma

    Great insight Adam and excellent coverage on the company… As they say NO PAIN NO GAIN…
    UBER needs to learn from mistakes, inefficiencies, keep the business clean, ethical and provide exceptional service. While they do that they don’t need to be the cheapest, they could charge a bit more…people who would value it will pay… America is a blessing and a curse as a place of invention and of great ideas and also lawsuit/politically motivated/Union driven country and market… Attorney are the beneficiaries in the capital America…
    Uber got to keep focus on invention, service ethical and fair business, which give people value and a great service… rest will become easier… the cab industry will never be able to compete with Uber or likes of Uber…not part of their DNA..
    Also international expansion will be key strategy for Uber to water down the risks of America and union mafia… other sister products or services makes Uber VERY VERY interesting frankly…
    My few cents…

    • Onlineguru

      Cheapest isn’t needed. Consumers will pay for a premium for convenience and speed. The reason the cab unions attack Uber is because they know it eliminates them entirely and the can’t compete.

      • jackiero

        Yes, but you forget that a medallion can cost upwards of $1 million to purchase in select cities. The taxicab industry is heavily regulated and taxed–which UBER is not. I’m all about efficiency for the customer, but it’s unfair for the existing companies to have to compete with an app that skirts just about every legality and regulation there is. It’s only going to take a few customers getting hurt or permanently disabled after using UBER service to realize that taxis are heavily regulated and insured for a reason. There’s no way a driver for UBER can possibly afford his car note and the high insurance that is mandated by the taxi industry by simply driving for UBER, so by working for the app he is actually undercutting himself.

        • Onlineguru

          so shouldn’t it be the driver’s decision if he wants to work for Uber? If it is so hard to make a buck working for Uber then why are there drivers working for Uber? Riddle me that…

  • Manup

    I’m with you Jawwad the union mafia in America makes it hard to innovate and grow. I think if there were no unions in the business then Uber would be killing it and I also think you are right that this model would work better in other countries where there aren’t so many lawyers looking for a check.

  • pointdexter

    America business is under attack by vendettas on the politic side of things Jawwad. If you are a conservative business owner in a Democrat state, tip toe lightly and don’t ruffle any feathers.

    If Uber was to charge more money then they may loose the support of the lower income people Adam mentions as a target market. I still think a low end pricing strucutre is correct with and focus on timeliness and cleanliness. The app platform on mobiel is what will be Uber’s advantage.

  • Dean

    The only reason a wage earner isn’t getting a so called fare wage is because the industry is too crowded. Simple supply and demand at work here. The cab industry needs to consolidate and Uber type technology is the way for that to happen. My 2 cents.

  • http://www.CapitalistCreations.com/ Aaron

    Adam just posted a fantastic article on a new startup that will likely force Uber to restructure its model:

    http://capitalistcreations.com/lyfts-business-model-exploiting-an-existing-competitors-weakness/

  • http://www.CapitalistCreations.com/ Aaron

    This is great clip from an interview with Uber CEO and founder, Travis Kalanick. He explains precisely what Uber created and why they did it. Kalanick is a true visionary.

    http://www.youtube.com/watch?v=mvXbGYPGvdA

  • ClaimsAdjuster

    Uber cuts corners with public safety and calls it innovation.

    The reality is that for hire vehicles are on the road far more than private cars and have higher liabilties. Cab driving is one of the most dangerous occupations in the USA not only due to the risk of accidents but also from crime. Unless regulatory authorities mandate that for hire vehicles carry the expensive commercial liability and industrial compensation insurance, the cab operator nor the dispatch service(Uber) will not do it on their own.

    That the unregulated “rideshare” operations are cutting corners can be seen in the New Year’s eve fatality accident in San Francisco where an UberX driver ran over a family killing a six year old girl and hospitalizing the rest of the family.

    http://techcrunch.com/2014/01/02/should-car-services-provide-insurance-whenever-their-driver-app-is-open/

    Uber’s response was “We can confirm that the driver in question was a partner of Uber and that we have deactivated his Uber account. The driver was not providing services on the Uber system during the time of the accident.” Stripped of the corporate double talk this means “Uber is not paying for this accident because the driver did not have our fare in his vehicle at the time. Go try and collect from the judgement proof cab driver”.

    The rub is that the UberX driver was operating with non-commercial insurance on his vehicle which excludes coverage for a business operation. This means that his private insurance will deny any claims from this accident. Uber claims to have a proprietary insurance plan that kicks in when the driver accepts a fare on his smartphone and ends when the driver hits the dropoff button. But outside these two digital events, the insurance coverage is supposed to revert back to the driver’s plan which in this case and for most of these “rideshare” taxis means no coverage at all.

    Uber brags that it checks the driver’s insurance, driving record and criminal history. But it didn’t catch the fatality accident driver’s reckless driving conviction in Florida. It is also knew that this driver’s non-commercial policy did not cover his UberX business. This is gross negligence on Uber’s part.

    • http://www.CapitalistCreations.com/ Aaron

      ClaimsAdjuster,

      Totally disagree. Look, tragedies can’t be used in your argument as to why a service is bad, unless of course they are happening all the time. Taxi drivers have killed people too many times to count. Take for example: http://www.dnainfo.com/new-york/20140111/upper-west-side/9-year-old-boy-struck-killed-by-taxi-on-uws-police-say

      Does that mean I’m never getting in a taxi again? No

      Does that mean taxis are bad? Of course not.

      Getting in a car is one of the most dangerous things we do as human beings. Uber is innovative, no matter how you slice it. And the people love it, otherwise it wouldn’t be so popular. Let the people, the customers, decide. If signing a waiver, or checking a box to release liability before getting in an Uber cab is require, then so be it. But this service is needed. If it wasn’t it wouldn’t be so successful. Don’t resist the free market.

      • ClaimsAdjuster

        “…tragedies can’t be used in your argument as to why a service is bad, unless of course they are happening all the time.”

        So do you have a number of dead little girls in mind? Would 100 convince you that driving around without insurance is a bad idea?

        “Taxi drivers have killed people too many times to count.”

        It comes with the territory. But that is why taxis are required to have insurance. And that is what will have to happen here. The California Public Utilities Commission will mandate that UberX’s cabs carry commercial insurance. Because UberX and its drivers are not going to do that on their own.

        “If signing a waiver, or checking a box to release liability before getting in an Uber cab is require, then so be it.”

        And what idiot would do knowingly do that? And what driver would turn away customers by requiring the signature? Right now, UberX and its clones are parasitically feeding off the trust that is held by regulated taxis. Naive consumers assume that the proper insurance is in place because that is the way that the system has always operated.

        • http://www.CapitalistCreations.com/ Aaron

          I guess I would be that ‘idiot’ for knowingly doing that. I accept that if I’m getting into a friend’s car, for example, I am, to put it somewhat extremely, putting my life in their driving hands. Consumer responsibility plays a part.

          “And what driver would turn away customers by requiring the signature?”

          First off, you can make the electronic signature or liability release built into the Uber app when people request a ride. It’s something lawyers could work out.

          But I am not opposed to Uber taxis carrying commercial insurance at all. I don’t see anything wrong with that. After all, I have to pay for commercial insurance for my business vehicle and I’m not driving people around in it. Doesn’t negatively impede my business.

          “So do you have a number of dead little girls in mind? Would 100 convince
          you that driving around without insurance is a bad idea?”

          My response: Semantics. I’m not even going to address that ridiculous comment. You are talking about insurance – stick to the point and don’t go all extremist on me.

          Lastly, if you think cab drivers are so fantastic and doing such a great job, then why is there such high demand for Uber? Consumers are telling us that, as is, taxi companies aren’t servicing the market well enough.