Learning outcomes are as follows: to understand the repercussions of a disruptive technology, in addition to its perceived benefits; to incorporate the human element into the technology benefits; to appreciate alternate sides of an argument regarding an issue; and to analyse the cross-functional implications of an innovation that changes the “rules of the game” for doing business.
Uber, a US-based multinational, provides a real-time technology platform to enable users to utilise ride-sharing with Uber drivers. This is an example of a “shared economy” or “collaborative consumption” business model, which has disrupted the status quo of the taxi industry around the world. Uber was launched in South Africa in 2013, creating many job opportunities but causing much reaction from the taxi industry and the authorities.
Complexity academic level
This is a short case which can be used across a number of programmes, as most students will have had some experience or exposure to the Uber model, and is very useful as an “ice-breaker” case to introduce students to the case study method of analysis and teaching. This case can be used for undergraduate and postgraduate students in business schools or other institutions or on executive education programmes as part of a strategy, marketing, business model innovation or entrepreneurship module.
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CSS 11: Strategy
CitationBick, G. (2019), "Uber SA: disruption of the local taxi industry?", Emerald Emerging Markets Case Studies, Vol. 9 No. 2. https://doi.org/10.1108/EEMCS-05-2019-0099 Download as .RIS
Publisher: Emerald Publishing Limited
Alon Lits was in his office in Johannesburg preparing his annual report to Uber head office for 2017. As general manager for Uber Sub-Saharan Africa, he was responsible for the overall performance of the operation, including achieving profit and growth targets. Armed with his MBA from INSEAD, and seeking entrepreneurial opportunities in the technology field, he had joined the organisation at start-up in 2013. However, his financial and actuarial background had not prepared him for the challenges he faced: taxi drivers up in arms and protesting violently, Uber drivers striking over working conditions, authorities dragging their heels in issuing permits, new competitors starting up, and calls for regulation of the Uber operation. While pondering how to incorporate these challenges in a manner that Uber head office would appreciate, there was a knock at the door – his PA advised that a group of Uber drivers wanted to hand him a list of grievances.
“Oh, well”. he thought. “An annual report will have to take second place to my partner problems,” and he rose to go out to meet them.
Uber is an American multinational online transport platform with its headquarters in San Francisco, CA, USA. It is a real-time technology platform that enables a network of users of Uber’s mobile application (app) or websites to arrange and schedule ride-sharing options with Uber drivers. The company started in 2010, with international expansion from 2012, and is available in over 66 countries and 449 cities worldwide, with an estimated worth of US$62.5bn. It develops markets and operates the Uber app, which allows customers with smartphones to connect with Uber drivers in a convenient, inexpensive manner for both the drivers and passengers. It may be a “taxi service” but Uber does not own cars, does not employ drivers, and pays no maintenance costs. Unlike with traditional taxis, users can access the drivers directly. The business model is a leading example of the “shared economy” or “collaborative consumption” model, enabling peer-to-peer or consumer-to-consumer transactions and thus disrupting industries; a similar example is Airbnb in the accommodation industry.
Uber is active in nine Africa cities and provides not only a viable public transport method but also an additional revenue channel to drivers. In South Africa alone it has created 4000 work opportunities for Uber drivers since launching in 2013, with another 15,000 two years after that, and provided safe and reliable transport to Uber users. The pricing of rides is calculated on a base fare with a per-minute and per-kilometre charge added and is quoted upfront through the app. Uber keeps a commission of 20 per cent of the gross fare while the driver keeps the rest of the fare. Uber’s pricing can be subject to “surge” pricing, operating on supply-and-demand principles that can increase the rates considerably. According to Uber’s website, the company uses surge pricing to encourage more drivers to drive during busy hours. The benefit of this is that it improves reliability of the transportation by increasing availability of the supply when demand is high, thus increasing customer satisfaction and, hence, loyalty. Because of Uber’s continued popularity amongst consumers, the platform is disrupting the status quo of the taxi industry around the world. There are consequences for the taxi industry structure, jobs, wages, and regulations. Many taxi associations and companies as well as governments have challenged the legality of Uber, arguing that the use of unlicensed taxi drivers is unsafe and illegal.
The idea for Uber originated in 2008, when Travis Kalanick and Garrett Camp, both successful serial entrepreneurs, were in Paris and struggling to find a taxi in the snow. They came up with the concept of developing a smartphone app that would simplify summoning a car service; back in San Francisco, UberCab was officially launched in 2010 as a private luxury car service catering to San Francisco executives. Customers downloaded the Uber app on their smartphone, entered their credit card information, and then summoned a private car with the press of a button. The app allowed passengers to track the car’s approach, the built-in GPS guided the driver to the rider’s destination, and the cost of the ride was automatically charged to the customer’s credit card at the end of the ride. The app also allowed the customer to view the name of the driver, the driver’s quality rating, and to rate the driver at the end of the journey, thus ensuring service quality standards. This was also much more convenient to executives than walking onto the street to hail a cab.
However, as with many disruptive technologies, this has not been without backlash, particularly from authorities and the taxi industry. In October 2010, the company received cease-and-desist orders from Californian and San Francisco municipal authorities, demanding that the company immediately cease “all advertisements and operations” for operating without a taxi licence, or else face stiff fines and jail sentences for staying in business. However, because Kalanick believed that Uber was not in the taxi business, as it simply provided the software platform to connect town car chauffeurs and riders, he just changed the company name from UberCab to Uber and otherwise ignored the order. By 2015, the battle between Uber and regulators, politicians, and the taxi industry was in full force. In some countries such as The Netherlands and South Korea, Uber was banned or treated as an illegal taxi service; in others, taxi drivers would sometimes go on strike to protest their government’s failure to regulate ride-sharing businesses. In reality, the legality of Uber’s business was unclear, as the technology that was core to Uber’s network represented an unprecedented disruption that city and country regulators were ill equipped to deal with. The laws governing the regulation of taxi industries were written before regulators could conceive of a time when passengers could summon rides from devices kept in their pockets.
There have been many benefits to the Uber model. To customers there is the ease of use, the trust experience of regular users, the economic benefits of saving transport costs, greater flexibility, and reliability compared to public transport and the option of reduced car ownership. This could also potentially provide spin-off benefits such as a reduction in the cases of drunk driving and less congestion on the roads and parking facilities. To the drivers, this model enables them to earn income on a full-time, part-time, or second-income basis, on a guaranteed payment system, and on a flexible basis on days and times to suit their personal requirements.
In South Africa, an estimated 70 per cent of the 35 million motorised trips travelled each day in 2013 were made by unregulated, non-subsidised minibus taxi services provided at a relatively low price and quality point. These minibus taxis largely served people commuting from neighbourhoods where public transport was not available or deemed unreliable into the suburbs or city centres for work. By contrast, the metered taxi industry was highly fragmented: Of the approximately 2,000 metered taxis operating in Cape Town, around 700 were part of large fleet operations and enjoyed big brand recognition; the remainder were small business operators. Local regulations required metered taxis to be fitted with a metre and have an operating licence in order to earn fares. Obtaining this licence was a lengthy process for any driver who wanted to operate. The Uber model provided an alternative and reliable method of transportation in SA, at a lower cost, where metered taxis had never really caught on among middle-class riders. However, there were initial concerns over passenger safety and vehicle roadworthiness by customers.
Uber SA followed the “owner-partner” model, where the owner partners could engage driver-partners as they saw fit, typically splitting 50 per cent of the fares with drivers after the Uber’s 20 per cent connection fee. The target was a weekly fare generated of around R8000, which gave the driver around R2000 per week or R8000 per month income. Uber also went into financing arrangements with Wesbank to enable owners to finance vehicles.
However, not all Uber drivers were happy. A 20 per cent cut in fares by Uber to stimulate demand created an uproar. In 2016, they complained that weekly revenue was only half the target and that there were “too many cars on the road” as “the business is flooded now; we can’t make as much as we used to make”. Competitors such as Taxify (now Bolt) and Lyft were adding to the over-supply situation. Other complaints from local South Africans included that the influx of foreign drivers from other African countries to create a surplus supply led to excessive waiting time and not enough fare time. In June 2018, hundreds of Uber drivers blocked Somerset Street in Greenpoint with their vehicles to raise awareness of what they termed “unethical driver abuse” from Uber and the City – the former for not raising fares despite rising petrol prices, and the latter for the slow rate of issuing permits, which led to vehicle impounding. They had protested earlier in the year because they were being barred from operating at the airport by metered taxi drivers, who they said intimidated them and incited violence against them.
There had been a number of metered taxi protests as well. In September 2017, violence erupted between taxi and Uber drivers in Johannesburg, with two Uber vehicles being torched. In 2018 in Cape Town there was a clash between dozens of metre taxi drivers and police, with threats to burn any Uber that entered the city centre. “Uber is illegal”, “It is taking our jobs away”, “They don’t have permits” were a number of allegations, referring to the fact that Uber was not regulated as the taxi industry was. Santaco (the South African National Taxi Council) claimed that the government was giving Uber drivers special treatment, which was a recipe for violence.
However, Uber claimed that the industry should be self-regulating, positioning itself as a technology partner rather than an employer. They wanted their technology to be a self-regulating tool in the invisible hand of the market rather than a control device wielded by managers over employees. By 2013, the model had already created employment for some 4,000 drivers in the country and continues to increase, and the Uber platform giving pricing options and driver rating information provided good-quality service for customers without the need for formal legislation.
However, it would appear that, despite all its advantages, the challenges still remained. As Lits strode to meet the Uber driver delegation, he thought:
Perhaps the industry is not self-regulating after all? Or is this the beginning of the demise of the taxi industry with a new disruptive technology?
Indeed, looking further into the future, a transition towards self-driving vehicles, a technology seen as potentially dramatically lowering costs, could also disrupt the Uber model itself.
[Sources: Adapted from Preller, A. (2016), “Factors that influence consumer adoption of sharing economy platforms in South Africa”, unpublished MBA dissertation, University of Cape Town; and Moon, Y. (2017), “Uber: Changing the way the world moves”, Harvard Business School; various internet news sources such as ewn.co.za.]
Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision-making. The authors may have disguised names, financial and other recognisable information to protect confidentiality.
About the author
Professor Geoff Bick is based at the Graduate School of Business, University of Cape Town, Cape Town, South Africa. He is Emeritus Professor of Marketing at the UCT Graduate School of Business, where he was formerly Academic Director and Acting Director. He has extensive industry experience as a marketer prior to becoming an academic, and researches and teaches in the field of Marketing to MBA students and Executive Education delegates. He has published extensively locally and in international marketing journals.