Alongside Airbnb, Uber has become a byword for disruptive technology. Any potential franchise system wanting to know how to break into and disrupt a mature market, needs look no further than Uber. It has set the template for innovation and thinking big.
Uber has famously responded to an accusation of unfair competition by the taxi industry by explaining that it didn’t see itself as an alternative to taxis, but rather saw itself as an alternative to car ownership.
The disruptive model involves de-constructing the offering to change the game. Disrupters can change consumer behaviour by initially aligning with consumer interest, then changing the expectation and finally delivering the difference. Uber does this by bringing the car to you.
Alon Lits, MD Uber Sub-Saharan Africa, described the Uber story at the FNB Franchise Leadership Summit 2016, held on September 1 at Monte Casino , and which was themed ‘Disrupt – the future of franchising’.
“The idea behind starting Uber was surprisingly simple. It was a familiar situation – three guys in Paris were struggling to find a taxi. They had the wild idea of being able to get a ride with a single keypad stroke. Once back in San Francisco, they developed an app which had as its backbone the idea of making it easier for travellers to get around town. You make contact via your app, wait five minutes and your ride arrives,” said Lits.
Uber was launched in June 2010 in San Francisco. It started small but rapidly spread in the US. Paris became the first European city followed by London. Thereafter, the concept went global, arriving in South Africa in August 2013 in Johannesburg, Cape Town and Durban.
In classic disrupter style, its growth is exponential: by December 2015 Uber had a billion users and only six months later hit the two billion user mark, across 500 cities and 70 countries, with more than a million partner-drivers.
“Uber breaks the conventional economic model, in that the more services you supply the greater is the demand. This is because the more people that use Uber, the more people want to use it. We facilitate that momentum by lowering Uber prices, and as a result demand grew even quicker,” said Lits.
One of the sure signs that a company has disrupted its market is when the traditional market, in this case taxi drivers, push back and ultimately seek regulatory protection. This is precisely what has occurred against Uber, but by this time the concept had such broad consumer appeal that stopping it has become impossible.
“In South Korea, for instance, it was made illegal for locals to use Uber, although foreign travellers were permitted to continue using it. South Korea Uber is about to be relaunched. Uber’s benefits, not only to passengers but to cities and public infrastructure, is becoming too well-known to be ignored.”
Uber is now making waves in sub-Saharan Africa, where it is already established in 12 cities across six countries. “Africa wants Uber, and we are signing up driver-partners. The model is the same – the average time to pick-up is five minutes. We have already grown phenomenally in South Africa, having done the equivalent of 121 trips to the moon and back,” said Lits.
Uber continues to seek ways to reduce the cost and to deepen its market. The next evolution of its business model is to upgrade the app so that passengers can share one car when going to similar destinations, called Uber Pool. The driver would consequently spend some more time on one trip, but having two people sharing a ride has multiple benefits: it causes less traffic congestion; costs less for the ride (consequently further accelerating demand) and results in less carbon emissions. “The theory is that you can increase marginal revenue for a proportionately lesser cost.”
Another key evolution in the Uber model has been to become a cash business. “Some people did not have access to a credit card and some people are not happy giving their personal details when using the app for the first time. We have detected an increase in turnover since the introduction of the cash option,” he said. “It’s been controversial.
However, we only make a decision when we have data to back that decision, and there is no data to suggest cash makes it unsafe for the drivers.”
Uber is showing the way towards the next milestone evolution in car ownership – the driverless car, which is already under prototype and will become the norm within 10 to 20 years. “Driverless cars will ultimately take over the entire transport market – this is the major disrupter of our time,” said Lits. It will result in drastic changes in the infrastructure around us as far-fewer parking bays will be required around shopping centres and office blocks. Cars are the most under-utilised asset, they spend most of their lives parked. As a result, demand for vehicles will decline.”
Uber has calculated that if people used Uber for every trip they undertake, it would cost them R4,500 a month – considerably less than the average person currently spends in aggregate for their car instalments, monthly petrol and insurance, and periodic servicing. In addition to the cost saving, it frees up time as commuters can work in the car, answer emails and much more. Furthermore, as drivers are screened and have a professional driver’s license, passengers experience greater safety both in terms of driving and personal safety.”
The next evolution? “Uber Eats will be in Johannesburg soon,” said Lits. People will be able to order food on demand from their favourite restaurants. Expect this to disrupt the fast food industry!