Sharing Economy companies | 615 INSIGHT ON BUSINESS UBER REVS UP In today's digital age, there's some- thing about hailing a cab in a major mark your location on the map within the app, city that feels decidedly inefficient. and wait for your ride to arrive, with a display Four years ago, Uber launched a showing the car making its way to you, the iden- transportation service built on the tity of the driver and a satisfaction rating from mobile platform that promised to correct other passengers, and a real-time estimate of its this problem. Their goal was to revolutionize arrival time. transportation and disrupt existing industries like Both Uber and its competitors use a data- livery service. Today, they're well on their way to driven approach made possible by its app-based achieving these goals. Uber's long-term vision, as interface to improve service as well as their own laid out by its CEO Travis Kalanick, is to make profitability. Uber uses surge pricing at times of peak usage, which can cause fares to skyrocket taxi transportation a thing of the past. Uber is beyond their normal rates. The cost of an Uber now the largest venture-backed company of all ride can become three to ten times more expensive time, carrying a $18.2 billion valuation as of June than usual during unique conditions like holidays, 2014. Some analysts dream of Uber becoming the emergencies, or inclement weather. The driver is eventual final piece in Amazon's plan to achieve charged a fee of 25% of the value of the ride, up same-day delivery. from 20% in 2013. But those normal rates are Uber works primarily because of the intu- often much lower than what traditional taxi com- itiveness and seamlessness of its app platform. panies charge. Instead of wandering around a city Both drivers and passengers rely on the app to in search of fares, Uber drivers can speed directly make the service work. Prospective Uber drivers from passenger to passenger, saving time and fuel sign up via the Uber Web site. Drivers must be and maximizing driver productivity. licensed livery drivers to use Uber's flagship The taxi industry is one of the most heavily service, but Uber has also launched a cheaper regulated industries in the United States and the option called UberX for regular drivers with rest of the world. Taxi firms are required to pur- chase medallions (certificates) for upwards of $1 nothing more than a car, car insurance, and a million in some cities like New York or London; valid driver's license. Potential drivers must and they must comply with driver certifications, also pass a background check. Once drivers are approved, Uber dispatchers notify them via the insurance, and health regulations. Uber is a direct threat to the taxi industry because its drivers have app when they are the closest driver to a nearby no special training, no medallions, and no com- passenger. Rates are calculated and payment mercial vehicle insurance. This has led to protests occurs automatically through each passenger's from taxi drivers and firm owners throughout the account, and drivers do not receive tips. For pas- Sengers, the process is quite similar—sign up via CEO Kalanick claims that Uber has doubled the site using their e-mail and credit card infor- its revenue every six months since its inception, mation, download the app to their smartphones, but explosive growth is no guarantee of long-term select the type of vehicle you would like to use, (continued) ក. world. | CHAPTER 9 Online Retail and Services off der sitte ren is ch thro pote milli firms prope is pos hotel had a impa tive o or har to reg sharin and su would begin ticketing UberX drivers in June 2014 success. Uber faces a number of obstacles as shortly after Uber launched their service in the it attempts to achieve its lofty goals. Uber's city. Uber has also encountered problems with its competitors, including Lyft and Hitch (acquired drivers picking up passengers at airports. Never- by Lyft in September 2014), have few barriers theless, in San Francisco, Uber's pilot city, and to entry from developing their own services, and Washington, D.C., Uber has overcome regulatory could easily take market share away from Uber resistance and galvanized lawmakers to loosen despite its status as a first-mover. Uber hopes that the network effect will give it an unbeatable edge restrictions on newer ride services. over its competitors and potential newcomers to Another complication for Uber is that many the transportation app industry. Uber does have of its drivers also split time between competing the biggest network of cars and drivers, but some services. Uber has slashed its prices by as much analysts are skeptical regarding whether network as 20% at times to undercut these competitors, a effects apply to this industry. Uber doesn't actu- practice that simply cannot succeed over the long ally own a great deal of infrastructure or intel- term. And these companies are jockeying for a lectual property, making it easier for competitors big slice of Uber's market share. Lyft's business to enter the marketplace, assuming they can over- model is simpler than Uber's, and employs regular come the initial regulatory barriers for insurance. people as drivers as opposed to full-time profes- For example, California requires a $1 million sional drivers. Lyft also limits the amounts that excess liability policy for its ride service compa- fares can increase during times of high-demand, nies, including app-based companies. making it slightly more user-friendly at peak Many of Uber's longest-tenured professional hours. Some cities, such as New York City, have drivers were unhappy when the UberX service reached agreements with Uber to limit the cost was launched, allowing "regular Joes" to become increases of surge pricing during emergencies, and Uber drivers and cutting into their business. Uber Uber may be forced to change its surge pricing has also faced regulatory challenges. Uber has policies in the future. engaged in ongoing legal battles with state and Lyft's app interface is also regarded as being local governments regarding the legality of their slightly more intuitive than Uber's. Lyft sacri- service. Many cities require companies like Uber to have permits or licenses to operate their ser- fices some of the professionalism of the Uber experience in return for a fun, light-hearted expe- vices, and existing taxicab companies argue that the only reason Uber can offer such competi- rience. Hitch focuses on ride sharing with other tive prices is that they aren't required to spend nearby passengers, lowering costs for everyone money to comply with the same level of regula- involved. Other competitors are likely to spring tion. In London, taxicab drivers staged a strike up, given the relative youth of the industry as a to protest. Some cities, like Miami, forbid Uber whole. Whether Uber achieves its goals of ren- from operating entirely, due to existing laws that dering car ownership obsolete or justifying its protect taxicab services from competing services $18 billion valuation remains to be seen, but the like limousines. Police in Orlando announced they company's future promises to be an entertaining ride. Mike Isaac, New York Times, July 8, 2014; "Police to Start Ticketing Uber Drives in Orlando," by Amanda Ober, Wesh.com, June 24, 2014: "What it takes Build the Next Uber," by Ellen Huet, Forbes, June 23, 2014; "Uber's $18.2B Valuation Is a Head Scratcher," Christopher Mims, Wall Streerumine SOURCES: "Lyft vs Uber," Lyftvsuber.com, accessed September 25, 2014; "Uber Reaches Deal with New York on Surge Pricing in Emerger 2014; "Lessons from Uber:Why Innovation and Regulation Don't Mix," Larry Downes, Forbes, February 6, 2014. Sharing Economy Com emakers ook ices. Uber is wat Not all peer-to-peer sharing economy platforms are successful. Among the dozens of failures are BlackJet, a Florida-based jet rental service that could not develop a stable demand; RideJoy, a carpooling site; Dogvacy, a site that matched pet owners with sitters; Neighborrow, a site that helped neighbors share tools; and HiGear, a luxury rental car business. While the reasons for their failure are several, one cause of failure is choosing a marketspace that is too small to generate sufficient and steady demand throughout the year. The infrastructure required to service a market with 100,000 potential customers costs nearly as much as the infrastructure needed to serve 10 million customers. Uber and Airbnb stand out not only as the most successful of sharing economy firms, but also as the most disruptive and controversial. For instance, with Airbnb, property renters do not have the regulatory or tax burdens that hotel owners have. It is possible that the success of Airbnb could greatly reduce the demand for regulated hotels. There is little research on this topic, but an early paper found that Airbnb had a small impact on rental income at lower-end tourist hotels, but little empirical impact on business traveler hotels (Zervas and Buyers, 2014). The possibility of nega- tive outcomes from transactions on these sharing economy sites (e.g., a driver robs or harms a passenger, or an apartment is destroyed by renters), is leading both firms to require liability insurance, or to offer such insurance for free. It is unlikely that sharing economy firms will escape regulation altogether, but due to their popularity and success, it is likely that regulation will be minimal. between coming prices by as me nese competitors cceed over the me -re jockeying in are. Lyft's busies und employs reale to full-time pres the amounts es of high-deman -friendly at cea w York to limit the g emergencia 21 e its surge pris regarded as the امکان را می سر گرمی sharing with att
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