Transportation Deployment Casebook/2018/The Uber Life-Cycle

Qualitative Analysis By Leon Skouras

Introduction

Uber is a recently implemented ride-sharing technology aimed at providing an alternative transportation option for users. The company has become increasingly popular over the last 5 years, exponentially increasing its prominence in the market as well as providing fierce competition with many ride-sharing competitors.  It operates in a similar fashion to the taxi service with the exception of the way in which rides are requested. Whilst a taxi utilises the physical aspect of ‘calling a taxi’ (as well as calling a taxi company via phone), the Uber operates concurrently with the development of the 21^st century technology; smart phones. Through the Uber application on a phone, a user is able to request a ride-share car directly to their location or a location of their choosing and the fee is charged through their credit card stored on the application. The fare pricing uses a dynamic pricing model whereby prices vary based on project distance and time, as well time of the day and day of the week according to supply and demand for ride-sharing at that time. Instead of employees, Uber utilises their drivers as independent contractors, where they operate using their own cars.

Technological Characteristics

The essential technological characteristics necessary for Uber involves the invention of automobile engines and the building blocks needed for a modern day car to operate. This includes motors, batteries, safety devices, smartphone integration and many more. Also, as previously mentioned, the creation of the smartphone is an essential technology needed for the successful operation of Uber, which involves the invention of CPU’s, LCD displays, chips and many more features. The advantages of Uber lie in its ability to seamlessly utilise smart phones to take you to a destination through a personal driver with limited effort involved. The ability of the technology to ‘call’ a driver without physically finding one or calling one enables a competitive edge. The idea’s simplicity allows it to flourish in the market today. Uber’s market involves the companies in which are present within the somewhat limited ridesharing market including Lyft, Curb, Grab, Ola and Didi Chuxing worldwide. Along with these competitors, Uber is extremely present in the taxi market as its overbearing presence in this market has allowed for a major in passengers from taxi to Uber.

Advent of Uber

Before the advent of Uber in 2009, the only hire vehicles with a driver available for the general public was the taxi. This meant that taxis were responsible for all personal pick-up and drop-off type transport for at least a century and had completely saturated this market. It provided a much more personal and possibly efficient alternative to any other public transport that existed and was utilised. The drawback to the transportation mode involved the difficulty in finding a taxi, especially in the era before cell phones were made popular. Users could not simply use the taxi service if they were in a desolate or quiet area as taxis must have been physically spotted and stopped. After the invention of cell phones, taxis became easier to utilise but a problem remained with the difficulty of describing an individual’s location or exact drop off point. Moreover, another issue lies with the increasing costs of taxis and the relative costs of this transport to other cheaper transportation methods. Other possible modes of transportation for passengers at this time included trains, buses, trams and light rail, dependent on the city.

The sudden technological surge of cell phones and smart phones enabled the efficient evolution of this form of ‘vehicle hire with a driver’ transportation. It brought new meaning to being transported to any location at any time through the flexibility of the phone as it allows customers to call up taxi companies and request a pickup at a specific time and location of their choosing. This naturally led into the evolution of the ridesharing technology as the smart phone developed to a certain point. The ability for a smart phone to carry data over networks to other phones as well as utilise satellites and connect with GPS’s enabled the swift progression of the technology. These factors stirred interest in new possibilities of ridesharing types (such as Uber) and allowed the initiation of Uber into the saturated taxi and transportation market, promoting its beneficial use of technology.

Shift in Technologies

Since Uber was majorly influenced by the transportation technology of taxis, the principal of an Uber is largely similar to that of a taxi, whereby you pay for a hire car to take you to specific destination. Since the taxi has existed and become predominant (in automobiles) since the late 19^th century, the Uber has adapted from this early experience of technology but only in some ways. It has manipulated the use of technology to further enhance the ride sharing experience, as acknowledged earlier. Moreover, since Uber is only a recently existing technology, it has not significantly changed in the way it operates. Several additions and features have been implemented since start-up of the company including new vehicle types, splitway (fare splitting), free rides and improved rating and feedback systems. The early and slow start-up of Uber allowed the company and technology to learn and adapt to the market in order to create the successful Uber we have today. Various changes in software in phones as well as the Uber application has enabled this to occur, as well as the important physical aforementioned technologies.

Early Market Development

The early market development played a crucial role in Uber’s lifecycle as a company. At the point of start-up, they had implemented the vision to address the ‘taxi problem’ involving the connection of passengers with drivers using mobile technology. The early years of Uber weren’t without losses and roadblocks. Facing criticism from several states and government regulators in USA, as well as backlash from taxis nationwide, Uber struggled in its early development. At this time they also faced rivalry from their competitors Lyft, whom had started at similar times. As Uber grew, they managed to not only utilise the existing markets in which taxis governed, but they grew to serve new markets and aid this sense of functional discovery. This technology was able to appeal to an untapped market of customers (as well as a shift in the existing taxi customers) as it served as a cheaper, faster and more effective alternate way of travelling around cities and towns. By also making use of the smart phone boom, it allowed a large amount of people to utilise these technologies seamlessly and take advantage of them in an environment where consumers are accustomed to poor and expensive taxi services. This allowed the exponential growth of Uber throughout many countries and differing market conditions, enabling an effective sense of globalisation.

Birthing Phase

Policy is an extremely significant aspect in the birthing phase of any company. Although Uber is a relatively new and innovative idea, it has adapted policies utilised from precursor models, such as those used in taxis and even other public transportation. Such policies include standard fare pricing policies, safety policies, privacy policies, etc. As well as having adapted various policies, new policies were innovated due to the untapped market of mobile phone ride sharing and the inventive nature of the company. These policies include non-discrimination policies, updated privacy policies (in regards to location sharing of users), driver hour’s limitation policies and many more. In some countries and states, the service and operation of Uber was not officially legal, especially in the birthing phase of the company. Furthermore, privacy policies that could access user’s public information was sanctioned at this time.

Growth Phase

The growth of Uber occurred and is occurring at an increasing and exponential fashion. From the birthing phase, it has sparked millions of people’s interests and consistent business, successfully delivering more and more passengers to their destinations with increasing revenues year after year. Uber’s initial marketing ploy at the start of its growth phase aided its huge increase in activity and popularity, with word of mouth and the advertising of ‘free rides’ with every friend recommended significantly contributing to this sense of growth. From mid-late 2013, Uber began its growth period, globally expanding to a number of various countries and become the most popular ride-sharing technology on the market. Although Uber’s success is evident, there were many policy issues which created a bumpy road in the growth of Uber. The global expansion provided a clear issue for Uber as it attempted to recreate the same business models that it did in the United States for other countries with varying civil law systems. The attempt in entry in countries like China, France, Germany, Spain and much of Europe proved extremely difficult for Uber due to the much more rigid government laws and the judicial system. Uber faced further issues with taxi drivers and the bypassing of local laws enabling unfair competition. This opposition is still occurring and has been a major concern in Europe, causing a slower growth of Uber in that continent, although it was taken to Europe’s top court at the end 2016. Moreover, sexist and culturally clashing behaviours have forced various policy issues amongst various countries, causing an international public-relations crisis. Some policy issues are still yet to be resolved whilst others are resolved through fines or complete market exits of countries, such as in China. Therefore, the policy environment heavily influences policy-making and operations of this transportation method, especially in the case of global expansion of Uber, where legal, cultural and political situations differ country to country.

Quantitative Analysis

Figure 2 - Number of New US Uber Drivers Versus Time

Figure 1 - Number of US Uber Drivers Versus Time

From Figure 1 and 2 above, it is suitable to assume that the birthing period of Uber is between March 2009 (Uber's startup) - July 2013. This notion is further explored and emphasised below using a three parameter logistic function.

Three Parameter Logistic Function:

The three parameter logistic function was used to predict the number of daily Uber trips in New York City using the following equation and data obtained in Table 1 below:

S(t) = K/[1+exp(-b(t-t0)]

A linear regression model was used to estimate K,b and t₀ where:

• Y=bX+C

• Y=LN(Trips per day/(K-Trips per day))

The value of K for the predicted trip per day formula was able to be estimated from using data points of dependent variable Y for many values of K. The RSQ of all these calculated values of Y were then compared with the varying data points of K. The RSQ function was used as it determines the correlation between two sets of data points. Therefore, the highest RSQ value (correlation) found amongst these was able to be correlated to the estimated K value and this K value was used for the resultant predicted calculation for S(t). This was found to be 580,000 trips per day.

The coefficient b was then determined from the gradient between the time data set and the Y values of the chosen K. This was found to be 0.002417.

t₀ was calculated by dividing the intercept of these aforementioned data points of Y and time by the slope in order to find the time in which 1/2K was achieved. This was found to be 42849.4 (the number produced is not in years but in date format, hence producing a strange number)

t is the time which was provided in date format.

Note: R² was found to be 0.99 from the predicted number of daily trips curve which means it a very close fit to the actual data.

Figure 3 - Predicted and Actual Number of Uber Trips in New York City per Day Versus Time

Table 1 - Daily Trips In NYC Data

Time	Trips per day	Predicted Trips per day	Time	Trips per day	Predicted Trips per day
10/01/2015	58521	67994.64589	13/08/2016	195884	203544.4115
14/02/2015	76206	73237.91442	24/09/2016	211826	217147.0896
21/03/2015	71906	78823.26121	22/10/2016	229341	226414.1582
25/04/2015	86403	84763.31633	12/11/2016	237483	233456.3345
23/05/2015	58889	89778.57942	3/12/2016	249992	240568.521
13/06/2015	91960	93697.12515	14/01/2017	253185	254969.6754
18/07/2015	103948	100533.2197	18/02/2017	269548	267109.2784
22/08/2015	108890	107757.5547	25/03/2017	267892	279330.1484
12/09/2015	132336	112281.0903	15/04/2017	258875	286683.7367
17/10/2015	134168	120138.1005	13/05/2017	292686	296493.5228
14/11/2015	146945	126710.8873	17/06/2017	298959	308732.2605
12/12/2015	154632	133538.8494	15/07/2017	296682	318477.3281
30/01/2016	150309	146096.9009	12/08/2017	288823	328157.8857
13/02/2016	172646	149825.4576	9/09/2017	318868	337752.6726
19/03/2016	163326	159414.2396	14/10/2017	322013	349594.4009
16/04/2016	171514	167353.8359	11/11/2017	371784	358922.6929
7/05/2016	188877	173460.2194	9/12/2017	393273	368102.2304
11/06/2016	182996	183914.921	20/01/2018	389490	381555.9147
19/07/2016	191003	195636.7399	10/02/2018	422332	388126.7119

Figure 3 above does not show the whole lifecycle of Uber due to difficulty in data collection and Uber’s strict data sharing. It also only shows data in New York City for this reason but analysing this data in a major city such as this one is hugely indicative of Uber’s growth patterns.

The model generated in Figure 3 above shown as the orange line is an accurate representation of the data set as it provides a clear indication of the data trends as well as an R² value of 0.99. It is shown that the trips per day increase in a slight exponential way (arguably linear fashion at points) over time especially in the years between January 2015 and May 2016. Although this graph does not indicate the whole time frame of Uber’s lifecycle, we are able to deduct the certain phases of its lifecycle from a great portion of its life span (between January 2015 and February 2018) as these are the most critical stages of Uber. It is clear that the birthing phase of Uber is between March 2009 (when Uber was officially founded) and approximately July 2013. Other graphs obtained such as Figure 1 and 2 shown above were able to help determine this and approximate the birthing phase of Uber. From these graphs, the incline in number of drivers only begins from approximately July 2013, thus it is appropriate to classify the start of the growth period at this time. As evident from Figure 3 above, the predicted curve of number of Uber trips is still continually rising into 2018, therefore it is intuitive to state that Uber is not yet in the maturity period of its lifecycle due to its exponentially and consistently increasing number of trips as well as number of drivers. Having said this, the growth phase of Uber is between July 2013 - present day and is evidently continuing to increase.