Question

How attractive was the taxi industry (before Uber and other ride-hailing firms entrered the market?) What is Uber's value innovation? How did it create a blue ocean?

Answer 1

Ans 1=Uber users are increasing steadily as an outcome of their satisfaction from the brief pick up time, the augmented convenience & the lesser rates, thus, there is a resultant rise in demand for drivers.

Hence, there has been a fall in the price levels of taxicab licenses & medallions in some of the major cities. To avoid overinflating the market with drivers, taxicabs were supposed to own a permit, its number was controlled, thus safeguarding a steady demand for drivers. This was before Uber’s entry.

On account of the ‘Uber Impact’ there is a decline in the number of rides which a taxicab provides, leading to a decline in the profitability of the permits. Whereas the price level of a permit in in NYC was at 1 million dollars in 2014, currently the prices have plunged to 500,000 dollars. Identical trends have been noticed in Chicago & Boston.

The intensified competition has also resulted in the closure of some taxicab firms that were steadily losing users to Uber. For instance, in San Francisco, the biggest taxicab firm filed for a bankruptcy in the year 2016.

Drivers are feeling the impact also . In LA, for example, cab rides declined close to 30 per cent from 2012 to 2015. The greatest drops are in tourist rides, with these users choosing ride sharing options. Thus, the take home payment of the drivers in LA has fallen from $800 / week to about $450/ week.

Ans 2=Uber’s 'value innovation' is in offering an extremely flexible income source for persons who own an automobile. Drivers can decide for how many hours & when they work.

The value innovation for the passengers is in:

• Inexpensive market rates,
• a broad network of drivers,
• real-time info on where their cab ride is &
• automated credit card payments.

Also, Uber  generates value internally by not having to take care of :

• maintaining & servicing a fleet of cabs
• rentals
• parking fees
• administration
• hiring / training drivers &allotting permits.

All this implies immense savings in variable & fixed expenses.

Ans 3=Finding & developing a blue ocean market (i.e. a business which turns non-users into users; rather than competing for the very same user) pertains to generating a new value proposition, & not about developing a technological innovation. Cutting edge technology didn’t make Uber a multi-million technology firm, instead it was applying comparatively straightforward technology to conventional industry & utilizing it to appeal to new users.