BILLIONAIRE BRANDS: CASE STUDY 1 - WHY UBER IS BOOMING

4 July 2016

Introduction


Travis Kalanick and Garrett Camp, a pair of serial entrepreneurs, struck gold in 2009, when they developed a smartphone app that could summon a private taxi with the press of a button.

Uber launched in their home city of San Francisco the following year, shuttling affluent young professionals around the booming tech metropolis in black Lincoln Town Cars with white-glove service.

  • Passengers loved the convenience.
  • Drivers found an extra source of income.
  • Uber built a business by pocketing 20% of each ride.

With its model proven, Uber plotted a rapid global expansion, bringing the service to more than 270 cities around the world in five years.

The company’s success has sprouted imitators like Lyft and Sidecar as well as opposition from the incumbent taxi industry and regulators who have raised concerns about safety.

The service has been banned in Nevada and Portland, Oregon and outside the U.S. in parts of India, China and Thailand.

Mr. Kalanick, Uber’s outspoken chief executive, has courted controversy with questionable comments and ruthless competitive tactics.

Investors, however, have grown ever more enamored with the company, sending its valuation to more than $41 billion in a round of funding last December that made Uber one of the world’s most valuable private start-ups.

With a war chest of billions, a vast network of lawyers and lobbyists and a veteran political operative named David Plouffe, Uber is now working to ease passage of laws that will bring its service into compliance with municipal codes.

It’s responding to concerns raised by U.S. Sen. Al Franken last year that the company does not do enough to protect the private transportation data of its users. Mr. Kalanick has also hinted at a more ambitious next act for the company: transforming from a transportation provider for people into a logistics provider moving all manner of goods and services from point A to point B.


The need for Uber

If on the outside chance you’re not familiar with Uber, the basics are as follows:

In the past, when you needed to get somewhere, hailing a cab was a nightmare.

You either stood outside—wind, rain, sleet, snow, or shine—waving your hand in the air until you could hail a cab, or you called a taxi dispatch (if you had their number) and had to wait 20 minutes until a car arrived.

Once you arrived at your destination, you fumbled to count out the right amount of cash plus a tip, negotiate with the driver who never had the right change, or who “forgot” to start their meter, or whose credit card machine was "broken.”

All told, very few people viewed finding and using taxi service as something enjoyable—it was simply something that they dealt with due to the lack of an alternative.

Before Uber you were beholden to an entrenched, monopolistic entity, whose sloppy execution and lack of regard for the customer experience was evident at every touch point.

This poor experience and a perceived lack of ability to change anything about it created pent up frustration and demand from consumers who were eager to find anything better.

Uber tapped into that frustration and demand exceptionally well.

Uber is completely changing the way getting private transportation is done in several key ways:

  • Their smartphone app is integrated with Google maps so that you can see how far away the nearest cars are, set a meeting point on the screen, and hail a car to meet you there.
  • You can see your driver’s information (including ratings) as you watch the car get closer to your location.
  • Uber drivers call or text to confirm that they’re on the way, giving you peace of mind that your order was received.
  • Once your car arrives (usually within a few minutes), the driver greets you by name and you hop in.
  • The cars are black cars and SUVs. Uber X, a lower cost version of the service, is made up of a fleet of well-maintained sedans.
  • Once you arrive at your destination, the app charges your card, and you’re free to go on about your day.
  • There’s no need to deal with cash, change, tips, or receipts.
  • You just hop out.

Uber has removed the friction from the typical taxi cab transaction, and made it highly enjoyable in the process.

First, let’s go back to the beginning and look at some of Uber’s early tipping points:


Early traction

Though the company was founded in 2009, Uber didn’t officially launch until June 2010. In January 2011, just six months later, they had had between 3,000 and 6,000 users and had already done between 10,000 and 20,000 rides.

So what got them there?

Completely solves problems for riders:

First and foremost, Uber provides a solution to a real problem that impacts millions of people. They have disrupted the monopoly of taxi cab transportation that exists in many cities and reinvented the experience from top to bottom.

Among the many problems Uber is tackling are:

  • Poor cab infrastructure in some cities.
  • Poor service and fulfillment–including dirty cabs, poor customer experience, late cars, drivers unwilling to accept credit cards, and more.

Uber set out to re-imagine the entire experience to make it seamless and enjoyable across the board.

They didn’t fix one aspect of the system (e.g. mobile payments for the existing taxi infrastructure), they tackled the whole experience from mobile hailing, seamless payments, better cars, to no tips and driver ratings.

By avoiding the trap of smaller thinking, and iterating on one element of the taxi experience (say, by making credit card payments more accessible in the car) they were able to create a wow experience that has totally redefined what it means to use a car service.


Word of mouth from satisfied customers

Much of Uber’s success can be attributed, as mentioned above, to the fact that it is totally mind blowing compared to the frustrating and broken taxi experience.

According to Kalanick, Uber relies almost exclusively on word of mouth, spending virtually nothing on marketing. He explains, “I’m talking old school word of mouth, you know at the water cooler in the office, at a restaurant when you’re paying the bill, at a party with friends – ‘Who’s Ubering home?'


"95% of all our riders have heard about Uber from other Uber riders. In fact, for every 7 Uber rides, word of mouth generates a new Uber user."

Leveraging mobile technology

  • Prior to the launch of Uber, the taxi industry operated without major threats for decades.
  • Uber leveraged mobile technology to disrupt the long-established taxi industry by offering an alternative that excels in providing convenience for passengers.
  • Mobile technology has been a source of disruption in many industries.

Since its launch, Uber has continued to enhance the functionality of its mobile application, incorporating the latest in mobile technology to further improve the experience for its users.

Using the power of mobile, Uber has been able to offer consumers several distinct advantages, including :

  • Quick and reliable ride booking – GPS and mapping technology.
  • Transaction convenience and simplicity – Mobile Payments.
  • Driver Feedback Enables Improved Experience.
Sophisticated algorithms, GPS, and mapping technology allow Uber to quickly match passengers with a nearby driver and provide real-time estimates for pickup times.

In April 2012, Uber further streamlined the transaction related process by incorporating Card.io technology to simplify sign-up.

Card.io allows the Uber application to read credit cards by placing them in front of the phone’s camera, instead of having users manually type in their credit card information.

In recognition of the threat posed by second movers into the market, Uber has been aggressive with its growth both domestically and internationally.

Since launching in 2010, Uber has expanded its reach to include cities in 26 different countries. Uber’s expansion has been met both with excitement and major blocks resulting from lawsuits, technological limitations and government regulation.

Expanding internationally has involved a series of changes to the mobile application and business model in order to localize it to the market and culture.

Most obviously, Uber has had to make changes to accommodate different languages, currencies, and distance measures (e.g. miles vs. kilometers.)

When Uber launched, one of its appeals involved the cash free transaction, which required users to setup a credit card on their account. In some countries however, such as Germany, credit-card adoption is much lower than it is in the United States.

In response to this, Uber announced a deal in November 2013 with PayPal, the online payment service. The deal will allow Uber to offer an alternative payment option to users in select countries (Kucera), thereby continuing to broaden its base of potential users and enhancing its ability to expand internationally.


Challenges

Uber has also faced a number of legal actions against them not only from external figures, but also from within the industry.

Other cab companies that exist in cities don’t want Uber to enter saying their wages create an unfair advantage for them and steal the existing workforce.

Internally cab drivers say they are cheated out of taxes which Uber claims are already included in the fare.

Uber’s solution to this concern also is based on technology.

Uber considers itself a technology platform, not a taxi company.

Uber only provides the branding and platform for independent people creating a small business using the technology. This absolves Uber of requiring them to pay anything as each individual cab driver sets their own wages.

Currently, Uber is classified as a taxi company not a technology platform, a ruling which Uber has appealed.

Uber’s branding and utilization of mobile technology has made its solution to transportation headaches more than successful.

It has created a platform that has generated envy that displays itself in copycat competition and worried taxi companies trying to create regulation to shut them down.




In my next post, Case Study 2 - I will be discussing a brand that rebuffed an acquisition offer from Facebook Inc. worth more than $3 billion.

Any guesses? ;)

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