Uber

Innovation leads to growth for all?

IMG_0135Taxi companies have been up in arms about the disruption to their business from Uber. Earlier this week, Deloitte Access Economics published a report that showed that Uber had grown the market in Australia by 61% (see below). We have seen similar impacts when Virgin and Jetstar were introduced in the domestic airline market. Often a market will have latent demand and so a lower priced disrupter will create growth way beyond what is expected.

So while it is understandable for the incumbents to be concerned about their business, more time should be focused on how the they will differentiate themselves from the disruptor.  In the taxi industry, the effort seems to be on trying to create a regulatory block, rather than developing a winning proposition against Uber.

I have been asking taxi drivers (booked through Uber) where their business comes from. At the moment, 1/3 is flagged, 1/3 called through the taxi cooperative and 1/3 through Uber. This is anecdotal but seems to support the Deloitte Access Economics research.

“Ride-sharing company Uber is generating annual benefits to Australian consumers worth more than $80 million a year, according to analysis by Deloitte Access Economics. Deloitte’s report, Economic effects of ride sharing in Australia, commissioned by Uber, showed uberX, the standard ride-sharing service offered by Uber, had grown the market for commuting to a specific destination via a third-party driver by 61 per cent as consumers switched from driving their own car, using public transport, walking, or were simply enticed to travel. Uber operates an app that connects drivers to users, processes fare payments and identifies drivers who are given a rating by consumers. Deloitte found the service was delivering an annual benefit of $81 million. Less than half, or $31.5 million, of the benefit was the result of cheaper prices, while $49.6 million was derived from a “consumer surplus”, or the amount consumers would have paid above the price charged for the service.”

Do we all face disruption?

  A great article by Adam Lashinsky @adamlashinsky on Fortune.com talking about the San Francisco taxi cooperative filing for Chapter 11 due to the disruption impact of Uber and Lyft. 

He rightly poses the question ‘ are you at the risk of being disrupted by a fast moving, lightly capitalised upstart? He also rightly answers the question at YES. 

“It has become a cliché in the technology world that everything moves faster now than it used to. The cost of starting a company is lower. The time it takes to get to market is shorter. The ability to disrupt even established and powerful players is greater.

Clichés must be challenged because they often mask a shallow understanding of the facts. In this case, however, the cliché is true.

Take, for instance, the blink of an eye it has taken to all but cripple the U.S. taxi industry. Lyft and UberX (Uber’s ride-hailing app for amateur drivers, versus its earlier service for licensed limousines) both started in 2012. On Friday, San Francisco’s Yellow Cab cooperative filed for bankruptcy protection, a development Fortune’s Kia Kokalitcheva previewed two weeks ago. At the time, it appeared Yellow Cab’s financial woes had more to do with a personal-injury damage award, than competition from cleverer upstarts. Yet according to court papers examined by the Wall Street Journal, the San Francisco taxi organization cites worsening business conditions as a reason for its Chapter 11 filing. (The co-op intends to continue operating as usual.)

It’s a safe bet that no healthy business would experience weak business in a market as overheated at San Francisco. The city at the heart of the global technology boom will prove a curious footnote in the demise of the global taxi industry. San Francisco’s taxi service was particularly bad. Hailing a cab on the street was more like a small-town experience, and calling for one was an erratic proposition at best. Adding insult to injury, Yellow Cab now offers a ride-hailing app of its own, pathetically named, and I am not making this up, YoTaxi.

What began in San Francisco has spread lightning quick around the world. Yet so many questions remain. Can Uber consistently make money? Is Uber the global winner, given the many competitors it faces, including a global anti-Uber alliance? Will regulators step in and alter the path of progress. (It wouldn’t be the first time.)

Are you in a business that could be disrupted by a fast-moving, (initially) lightly capitalized, risk-taking upstart? Without knowing what you do, the answer is far more certain than these others. The answer is yes.”

Adam Lashinsky