Blog - Page 19 of 19 - Porter's Five Forces

Porter’s Five Forces Analysis of Uber Key Facts Name Uber Technologies, Inc. Industry Internet Services and Retailing Founded March 2009 Headquarters San Francisco, California CEOs Dara Khosrowshahi Revenues USD 17.46 billion (CY21) Profit USD 496 million (CY21) Competitors Blacklane, Getaround, and Vroom Delivery(all local delivery apps) Company Overview Uber is the largest mobility platform in the world operating in 72 countries (10,000+ cities)and 8 leading positions in its top 10 markets. As of 4QCY21, the company reported USD 45 billion in gross bookings. The company engages in the transportation of individuals, goods, food delivery, and freights among other things. Uber was ranked 712 on the Global 2000 (2022) list and America’s Best Employers by the state till 2020. From a financial standpoint, the company reported revenues of USD 17.46 billion, up 57% YoY, and a loss of USD 496 million in CY21 against a loss of USD 6.77 billion in CY20. The company has the following segments: Mobility– This is the product where drivers and passengers connect with each other to travel via motorbikes, cars, and auto rickshaws. Delivery – This product includes pick-up and home delivery of food, beverages, groceries, and any item from one place to another. In 2021, the company acquired Cornershop Cayman to expand alcohol offerings in the delivery business. Freight –This is a logistic product that connects carriers with shipping platforms and reduces overall time lag. This product serves shippers from small or medium-sized businesses to global enterprises and offers real-time shipment tracking systems. Source: Company Presentation 4QFY11 Source: Company Presentation 4QFY11 Porter’s Five Forces Analysis Uber Rivalry among Existing Competitors Aggressive Competition Uber competes in an intensely competitive environment. There are local players in all countries which offer ride and delivery services. Uber prides itself as one of the pioneers in this field, but however, due to similarities in cost structures faces difficulties in maintaining costs low to compete with local players. Blacklane Blacklane is a German company offering chauffeur services via a mobile application. The company offers pre-booking services at a fixed rate for non-fleet members. Blacklane has secured a total funding of USD 103 million in 10 rounds with Mercedes Benz Mobility and Gargash Group being the most recent investors. Getaround Getaround is a peer-to-peer car sharing platform that has a network of 5 million users and 20,000 cars worldwide. The company is a blank check company as per the latest 10K filing with no operating history or revenues. The company secured USD 259 million in IPO proceeds and is the 2nd largest player in peer-to-peer car sharing globally. Vroom Delivery Vroom provides customers the ability to buy, sell and finance cars online. Vroom Delivery secured financing of USD 160k in 3 rounds with NFX and MBA Fund being the largest investors. Contrary to being a peer-to-peer business platform, Vroom innovates by conducting the entire transaction with no-haggle pricing. Key differentiating factors One of the prime things that Uber did differently is maintaining product uniqueness and constantly expanding from peer to peer to delivery and then logistics. The company has less fixed operating costs as it does not own the cars it runs and merely provides software. The company has managed to attain a premium brand image because of the great user experience and high customer satisfaction. However, managing software and conducting business globally is an expensive feat. Uber Threat of New Entrants Extraordinary Investment in Fixed Capital The business requires low working capital investment as the company does not indulge in the purchase and sale of vehicles, however, major spending is done on providing a glitch-free, smooth software user experience and training of drivers (partners). The company also indulges in the acquisition and divestiture of other companies which allows benefits of forward and backward integration. This attracts a lot of new investment in this business as we have witnessed in recent years with Blacklane, Getaround, and Vroom. Replicable Business Model The carpooling business is one of the easiest to get in with merely needing software requirements and the business model is replicable. If somebody has the right software personnel or expertise they can get into the business. However, making the platform acceptable to a large number of users is a challenging task which involves giving free trials, early bid discounts, cheaper travel rates, and prompt resolution of conflicts between users and service providers. Less Research and Development Costs Although travel tech companies spend a lot on research to potentially determine the overall target market, this is a lot less (in % of revenues) spent on other tech businesses like Cellphone manufacturers or laptop makers, or the game development industry. Loosely Regulated Travel tech is a new field with a growing focus on standardizing. With each passing day, regulators are becoming more stringent with such businesses. However, due to the new nature of business, there weren’t any prevailing regulations (not in all the countries in which Uber operates). With fewer regulations, it is easier and more attractive for new ventures to enter this industry as overall regulatory costs (costs such as obtaining licenses and certifications) are minimal. Uber Bargaining Power of Supplier Suppliers are essentially the Drivers The suppliers who actually provide services to complete the Business model are motorbike and car riders who work as partners on a commission structure on each ride. Uber charges a certain percentage for providing its platform on the ride. The recent trend shows that platforms such as the GMB Union (union for Uber drivers)are becoming more vocalized with more knowledge of the law and power in numbers. GMB represents more than 70k Uber drivers across the UK and is fighting for the rights of more than 300k members globally legally and peacefully. Supplier Unionization Many riders/drivers have appealed to Uber to reduce platform charges and provide facilities like stable income and medical insurance (because driving is essentially a risky business)among other employment benefits which the company ignored. Uber’s prime business model is to actually keep the costs low (as the company is loss-making at the moment) and charge for software users to keep up with expenses. Partner Training Uber conducts training sessions for partners regularly and also audits. Furthermore, Uber hasa complaint tracking system built right into its software which provides the user’s opportunity to interact directly with the company and share their grievances. Being a big data company, Uber relies heavily on data gathered from its drivers whether they are delivering food, or goods or transporting people. Uber has an entire basic guide on its website. Supplier Switching Cost Low If drivers believe that they are not being paid fairly or any other competitor provides similar services, suppliers can switch at zero cost as in fact it is just a matter of downloading another app and filling out a form. Since the drivers own their car, the most important asset of the entire transaction – the car is used for another competitor. In fact, almost all drivers these days have multiple platform accounts and use the one that offers the most attractive benefits. Uber Bargaining Power of Buyers Inability to pass on Cost-push inflation Uber is in a business where elevated commodity prices (especially oil) amid supply shocks caused by the post-Russia-Ukraine crisis have increased the cost to breakeven and even operate in a loss environment. This is essential because a slight increase in prices would drive the customers away and a slight increase in platform fees would scare the drivers away. Hence, Uber always remains in a tight spot when it comes to charging high fees or keeping costs low as both ends are highly sensitive. Diversified client base Despite having an insanely diversified client base of more than 72 countries (10,000+ cities), Uber faces troubles with increasing costs even in a high inflationary environment. The business competes in a perfect competition structure where costs are mostly kept the same with minimal differences. This makes the bargaining power of customers high as they can easily switch. Moreover, Uber has to offer programs like Reward points or restaurant discounts to keep the customers attracted to its platform. High risk of International expansion International expansion comes at a risk with cultural and business differences everywhere. For example, according to Vanessa (2022), the ratio of taxis to population is higher than in America with more Second and Third world nations. The local taxis provide a cheap alternative which makes competing on price even more difficult for multinational brands. Uber Threat of Substitute Products or Services Low Switching Cost There is zero cost of switching from a platform like Uber, in fact, Uber is one of the premium brands (in the same cost structure) which is why Uber needs to invest additional amounts in effective client resolution mechanisms or offer various promotions and discounts to keep customers attracted. Furthermore, Uber directly competes with the local transport networks of any country due to which the company relies heavily on marketing and advertising. Outright ban from many countries Because the ride-sharing sector is loosely regulated, Uber has been a victim of various legal controversies over the years. Lennon (2022) believes that companies like Uber have an unfair advantage because of a lack of adherence to the same laws and regulations (locally) as other car services. Uber is currently banned in Denmark, Hungary, Thailand, Canada, Germany, Romania, Bulgaria, Italy, Hong Kong, and Australia. Ease of access to Public Transport Uber and other ride-hailing services have revolutionized how people travel in their everyday lives. According to a survey conducted by Hall and Palsson (2018),Uber’s entry into the market increased public transit use for the average transit agency and the effect grows over time. When economies are booming and there is less difference between Uber and Public transport, people prefer Uber because of convenience. On the contrary, when economies are in recession, people are sensitive to small differences in price and prefer public transport over Uber. References Fortune, (2023), Topic: Uber [Online], Available at: Fortune Annual Financial Statements, Reports and Presentations (2022), Company Website [Online], Available at: Uber Forbes, (2022), Uber [online], Available at: Forbes The Wall Street Journal, Topic: Uber [online], Available at: Wall Street Journal Sam Schechner, (2023), Uber Working with Auto Makers to Design EVs Customized for Ride-Sharing, Delivery [Online], The Wall Street Journal Len Sherman, (2023), Uber’s New Math: Increase Prices and Squeeze Driver Pay [Online], Forbes MBA Skool Team, (2021), Uber SWOT Analysis, Competitors & USP [Online], Available at: MBASkool GMB Union, (2021), GMB and Uber pledge to end exploitation of more than 200,000 drivers [Online], Available at: GMB Union Uber Training, [2023], the basics of driving with Uber [Online], Available at: Uber Vanessa Page, (2022), 4 Challenges Uber Will Face in the Next Years [Online], Available at: Investopedia Jonathan D. Hall and Craig Palsson, (2018), Is Uber a substitute or complement for public transit? [Online], Available at: Digital Commons Madison Lennon, (2022), 11 Countries Where Uber Isn't Available [Online], Available at: The Travel