uber technologies inc. ba

Running head: UBER TECHNOLOGIES, INC. BUSINESS ANALYSIS 1

Uber Technologies, Inc.

Business Analysis

For Transportation With Technology

Omar Khafagy

December 2014

UBER TECHNOLOGIES, INC BUSINESS ANALYSIS

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Abstract

This paper will explore Uber Technologies, Inc. company’s detailed analysis of all

aspects of the organization as regards the business model of its service in the ridesharing

and transportation market, the company’s structure, operational and marketing strategies

pursued as well as challenges and future potential opportunities. Building on its available

financials, recent growth and some market findings, conclusions for stakeholders and

potential investors are made. Uber’s controversial valuation is reviewed in the light of

current information in attempt to justify or deny.


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The ridesharing industry underwent very little change let alone innovation in the

last century until Uber Technologies, Inc. penetrated the market with its creative

technology resulting in a revolutionary super service for consumers. Its fast spread and

success came along in spite of governmental oppositions, market challenges and

competitors arising. Whether Uber will continue to succeed with its exceptional pace in

such circumstances or not; its current and future market valuation is phenomenal and

worth analysis to uncover the company’s business methodology behind.

Executive Summary

Uber Technologies Inc. is a startup founded in 2009 and was officially launched in

San Francisco in 2010. Uber is a matchmaker smartphone app that provides a platform to

both drivers and passengers allowing them to deliver a ridesharing service in more

efficient means. Uber operates in the shared (Collaborative) economy market given its

business model and continues to successfully take advantage of the efficiency perks

associated with such market.

Uber currently in its rapid-growth stage has managed to capture a remarkable

market share, as it is now present in 50 countries covering over 200 cities (Uber.com,

2014a). Being market leaders of a ridesharing service operating in a market that is

relatively new, Uber landed several strong funding rounds attracting lucrative Venture

Capitals such as Google Venture.


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Google Ventures has invested showing confidence in the startup with a $258 million

investment (86% of their $300 million annual budget). Uber’s revenue is up 18% month

over month, and in the past year alone they’ve grown from just 75 employees to more

than 300 (GrowthHackers, 2014).

Travis Kalanick, Uber’s IPO and CEO, has previously stated that the company’s revenues

are doubling every six months (Blodget, 2014a). Uber is now seeking a new round of

funding to raise up to $1.8 billion which will value Uber at $41 billion, from its previous

$18.2 billion valuation in its last funding round (Mossberg, 2014). Uber will use this

money for further growth and expansion as well as penetrating the “on-demand package

delivery” logistics’ industry (Bidnessetc.com, 2014).

Due to the modernization methodology used by Uber, it is exposed to a highly

variable legal environment globally. However a significant increase in the demand for

several shared economy firms’ services will lead to changes of regulations in their favor

made possible. This eliminates a significant obstacle in Uber’s growth, positioning it as a

remunerative investment.

An analysis of the value proposition of the company and its differentiation to stay

ahead of potential competitors and defy regulated services will provide details to

potential investors with a fair understanding for further investment.


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Brief Description of The Business Model

Uber is not a conventional taxi business as it owns no cabs or has employed

drivers. However it is simply a platform that allows riders to hail a cab through a

smartphone application to summon the ride of their preference by choosing from several

brands provided by Uber. After clicking on a “request an Uber” button on the app the

user is automatically assigned a driver. Uber users have the ability of tracking the driver’s

position on a Google map and vice versa. First users subscribe to Uber by submitting

their personal and credit card information to utilize Ubers’ service. The service can be

obtained in any place Uber operates and at all times. The fare is automatically charged to

the users’ credit card and is calculated using pre-set rates for distance travelled, demand

and length of the trips. Uber charges users different rates according to the type of service

requested taking its revenue as 20% of each fare.

Uber brands. A more detailed description of these services is provided in the

company summary:

• UberBlack

• UberLux

• UberSUV

• UberXL

• UberTaxi

• Uber for Business


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Approximately a quarter of the drivers are self-employed driving their own

vehicles. These self-employed drivers have contracts with companies responsible for

referring the passengers requesting a service. Other drivers are directly employed by a

company, which provides them with the vehicle. In May 2012, the median annual wage

for taxi drivers and chauffeurs was $22,820 (Bls.gov, 2014)

Brief Description of The Market

Uber, the Ride-sharing app, operates in the Taxi& Limousine service industry.

The industry has total revenues of $11 billion in the U.S alone, $14 Billion in the UK and

$25 billion in Japan (Techinvestingdaily.com, 2014). Various products and services are

offered within this industry such as; Taxi Services, leasing to taxi operators, “special

needs” transportation services, stretch Limousine services, also Luxury and corporate

Sedan services. This industry underwent changes in the 20th century’s second half: Taxi

companies made drivers independent contractors, and cities permitted medallions to be

leased to cabdrivers for a fee. The industry also comprises other app-based rides such as

Lyft , Hailo, GetTaxi, LeCab and many more .

Uber’s Uniqueness

Various differences make Uber unique in the Taxi &Limousine service industry.

The way the app simply works adds fun to necessary short waiting times. As the

customer waits, the app shows a Google map image of his exact location and tracks the

location of his assigned driver. Unlike regular Taxi services, the app gives the users

beneficial data they did not ask for including the length of the trip, miles traveled and the

average speed. These differences also include; reliability, wages, accessibility, legal and


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registration differences (Egan: Started determined nun et al., 2014).

Uber vs. local taxi

Uber Taxi

Reliability Uber is more reliable and offers a great advantage for

those who value time.

In April:

1) 94.62% cars arrive within 15 minutes.

2) 99.98% cars arrive within 30 minutes.

Cabs have worse statistics indicating less reliability

1) 27% cabs arrive within 15 minutes

2) 63% cabs arrive within 30 minutes

According to the City and County of San

Francisco Office of the Controller 2005 Taxi Commission Survey

Report:

1) 34% of the surveyed “almost always get a

cab. 2) 43% sometimes get

a cab 3) 23% usually never

get a cab

Wages Uber reported that UberX (Uber’s cheapest tier

service) drivers can make a median income of $90,000 a

year in New York if they work at least 40 hours per week. It says drivers can

make up to $60,000 per year in Dallas. UberX is the startup's cheaper tier

service.

Income varies by the number of hours drivers work and the fees they pay. Drivers renting or leasing a plate can earn in between $25,000 to $30,000 a year if they work six days a week

Accessibility Uber uses a more efficient delivery of the service. The

app directly assigns the closest car to the passenger.

Customers in need of the service can either go

through a taxi broker that assigns a car to the


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The app provides a platform where both the driver and the passenger have a direct channel of communication,

the ability to locate each other on a map using the

GPS technology as well as easier methods of payment.

passenger or stop a cab on the street. If assigned a car through a taxi broker, the

communication is with the broker and not directly with

the driver which could result in delays i.e.

inefficiency.

Legalities (Registration) Uber faces some legal instability regards the

restrictions on the number of cars operating. In some

cities no medallions or registration fees are required which lowers Uber’s and its

drivers expenses.

Taxis and limousines face a more strict policy. A taxi

medallion, which is a license that puts a quota on

the number of cars operating.

Business Strategy For Success

Uber has employed various strategies that lead to their current level of success,

which is relatively high compared for newly established companies. Uber’s entrance

strategy of the market captured a continuously growing customer number spending $100

/month in less than 3 years (Mangalindan, 2012).

Uber understood the growing market of consumers that use smart phones, which is

now estimated to be 50% of the United States, and the fact that early adopters are willing

to pay a premium price for convenience, professionalism, and cleanliness. App

technology is straightforward and there is a very small learning curve for early adopters

to understand the Uber product (Tofel, 2010). Even with a niche customer base of upper

class professionals, Uber has been able to grow its installed base 30-40% per month and

our future growth section will highlight plans for that growth to continue throughout the


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World (Mangalindan, 2012)

Uber pursued a fearless “disruptive” strategy where it played the role of a new

entrant on a status quo market disrupting it and capturing profit excess of such market

(Wohlsen, 2014a) .In addition, Uber used a “noisy” marketing strategy for branding sake,

even fighting legal issues publicly where bad PR and press is considered better than none.

Uber also utilized a strategy of “more rides in more places quickly” where initial

profitability is of less importance than popularity, resulting in undercutting competitive

prices following price wars (Wohlsen, 2014a).

Uber’s investment in technology innovation is believed to be the main driver of

success penetrating an obsolescent transportation industry subsequently resulting in a

revolutionary cab service company. Uber announced recently that the app has been opened

to all developers (UberAPI) to take the advantage of being an open source and

continuously improving the app (Uber Blog, 2014c). Now other apps can process an Uber

request and pass the destination address to the Uber app, display pickup times, provide fare

estimates, and access trip history.

Furthermore, Uber’s emphasized and evident strong public presence and

convenience to use acted as a potent weapon to gain political leverage decreasing its legal

opposition (as more people will complain if the service was stopped) (Wohlsen, 2014a).

In regards to the its political struggles, Uber’s most effective weapon in fighting

back was how Uber was perceived as a force for modernization and freedom and acted

against bureaucrats and politically connected interests.


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Frequent Market studies were performed by Uber to provide evidence that the

service contributes positively to the overall welfare thus holding a strong argument

against regulators and critics. An example of these market studies is a study that analyzes

the correlation between the demand for Ubers’ services and alcohol related accidents.

According to the study, 7,666 alcohol-related motor vehicle accidents in New Jersey,

resulting in 72 deaths and 4,005 injuries. The data showed that the alcohol-related

accidents were more frequent during the weekend with 42.5% of accidents occurring

from midnight Friday through Sunday night, and of those, 34.5% of weekend accidents

occurred between 12am and 4am(Uber Blog, 2014b). An observation made by Uber’s

team is that the number of Uber requests increases significantly during that period of

time. This serves, as evidence that the service Uber provides is highly beneficial as it

promotes safety by delivering a highly accessible option of transportation.

Despite running background checks on the drivers, Uber established an efficient

driver monitoring and rating program to secure the quality of the service, which in turn

vastly impacts Uber’s reputation. Since Uber depends on the Word of mouth, having the

ability to monitor the quality at which their passengers are being served is essential.

Uber broadened their target market by providing the service “ Uber for Business”.

Uber for business has managed to lure their customers by providing them with tools that

help them manage and track any employee transportation expenses. One payment source

per company covers all its employees’ transportation bills thus avoiding the hassle of

requesting reimbursements later on (Uber.com, 2014b).

Also, Uber utilized a strategy of establishing deals with firms or other apps that


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could elevate the quality of the service. Uber recently managed to cut deals with General

Motors, Toyota and various financing firms (Milian, 2013). This move was believed to

highly encourage drivers to obtain cheaper financing costs in buying a car, which would

motivate them in joining Uber’s fleet. Other examples of these deals are contracts with

American Express and PayPal to ensure all electronic methods of payment are covered

(Uber, 2014). A recent deal with Spotify (Music App) can now give the passengers the

luxury of playing their favorite tunes during their Uber ride in 10 cities so far (Uber Blog,

2014m).

Uber’s Management Team Qualifications

Travis Kalanick CEO & Co - Founder at Uber Technologies Inc. He is a

successful entrepreneur who founded Uber in 2009. He dropped out of college at UCLA.

Today he owns 13 investments in 10 companies (Crunchbase.com, 2014)

Ryan Graves -Head of global operations. He holds a B.S. in Economics from Miami

University. He is strategic problem solver that turned Uber’s operations team from a

single employee to an international workforce (Crunchbase.com, 2014).

Garrett Camp - Co-Founder & Chairman. He holds a Masters in Software

Engineering at the University of Calgary, researching interfaces for collaborative

systems, evolutionary algorithms and information retrieval. Garrett co-founded Uber.com

in 2009 with Travis Kalanick (Crunchbase.com, 2014).

Salle Yoo-General Counsel. She is a graduate from Scripps College and Boston

University School of Law. Salle secures Uber’s rapid expansion globally and sustain

growth (Crunchbase.com, 2014).


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Than Pham - Chief Technology Officer. He holds a B.S. in Computer Science and

Engineering and an M.S. in EE/CS from MIT. He creatively solves any challenges that

face Uber’s growth (Crunchbase.com, 2014).

Brent Callinicos - Chief Financial Officer. He is a graduate of University of North

Carolina, Chapel Hill and Ex-VP, Treasurer and Chief Accountant at Google

(Crunchbase.com, 2014).

Jeff Holden -Chief Product Officer .He is Graduate of University of Illinois, Urbana,

Champaign. He is Ex-Senior Vice President of Product Management of Group on since

April 2011 also Ex-CEO and co-founder of Pelago, Ex-VP at D. E. Shaw & Co., L.P. in

New York (Crunchbase.com, 2014).

Revenue Projection

All of Uber’s revenue comes from the taxi business. Recently, several analysts have

valued Uber as an $18.2 billion company (Blodget, 2014b) Uber earned approximately

$26.4 million in revenues providing 1.23 million rides (Borison, 2014).

Uber’s closest competitor (Lyft) made $2.2 million in revenues (Borison, 2014).

The company earns 20% in gross revenue and the drivers claim the rest. (Shontell,

2014a). According to Uber’s CEO Travis Kalanick, revenue growth is high as they

double earnings every six months (Anon, 2014). Considering that Uber operates in a lot

of cities but not at a full scale yet; it is believed that as the company grows and meets

their funding requirements for expansion; growth in revenue will continue to increase

until it reaches the maturity stage. A lot of speculators anticipate that Uber could be soon


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generating $10 billion in revenues ($2 billion net revenue), which justifies the $18.2

billion valuation (Blodget, 2014a). In addition, Uber just started experimenting with on-

demand delivery service, which signals the possibility of tapping into the logistics

industry. This would create more revenue streams for Uber depending on their success

providing this service.

Uber’s Expenses

Given Uber’s structure and their operational plan, the company does not incur

expenses as large as regular Taxi companies. The main expenditures are on R&D with

the goal of creating and sustaining a platform to deliver their services (Damodaran,

2014a). The more Uber expands and builds a more complete infrastructure; a decline in

their efficiency ratio (expenses/revenues) emerges; increasing their overall efficiency.

Uber also spends on marketing as they approach new markets. They concentrate on

launch events and press conferences to get as much exposure as they can. Examples of

other expenses Uber faces are; payment processing, payment fraud, refunds,

customer support, law dispute resolution, cellular handsets and service fees for the

drivers, and local regulatory efforts (Above the Crowd, 2014).

Financial Estimate Required and Implementation

In June 2014, Uber announced a closing of a major financing deal of $1.2 billion of

primary capital and a total of $1.4 billion with a second close of strategic investors. This

round of financing puts Uber at a $17 billion pre-money valuation (Kovach, 2014).

Uber’s financing deal follows their number one competitor’s (Lyft) announcement


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of raising $250 million in Apri(Lawler, 2014) l. Until last August, both companies had

raised over $300 million in funding. According to Kalanic, Uber aims to keep raising

money to secure a dominant position in the market and brush Lyft’s competition off

(Bort, 2014).

Given that Uber completes ten times more trips than Lyft and is significantly bigger

than Lyft in terms of size and market share, having the same capital resources puts Uber

at a disadvantage as they burn through money raised at a faster rate. Another reason that

would drive Uber to keep raising money is to fund future expansion plans and upgrade

their operations. Since Uber only operates in limited markets, it is believed that Uber will

use a huge chunk of the money raised to fund their growth with the goal of increasing

their market share.

Uber may be providing convertible debt and no equity in its latest round of funding.

If so, Uber will gain cash without affecting its old shareholders controlling interest.

Investors who decide to join in this round of funding will receive a discount in coming

rounds, also liquidation preference. This new round will also assist the company to cash

out its old investors with no IPO (Mymeedia.com, 2014).

In addition, Uber has recently started experimenting a new service of “on-demand

package delivery” (UberRush) (Shontell, 2014c). Expanding their products and service

lines to operate in the logistics industry could be the motive for the financing deals as

they would be competing against more established companies such as FedEx, UPS and

Amazon.


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Company Summary

Uber Technologies, Inc. is a venture capital privately –held transportation

application for mobiles designed for the request of a car service by users. The user will be

able to view the drivers name, type of car and it’s ranking upon his request. Uber

Technologies was founded in2009 By Travis Kalanick and Garrett Camp in San

Francisco (Privco.com, 2014).

Mission Statement

“Uber is evolving the way the world moves. By seamlessly connecting riders to

drivers through our apps, we make cities more accessible, opening up more possibilities

for riders and more business for drivers. From our founding in 2009 to our launches in

over 200 cities today, Uber’s rapidly expanding global presence continues to bring people

and their cities closer”(Uber.com, 2014a).


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Company Goals

Uber’s company goals can be summarized as follows (Quora.com, 2014b):

• To penetrate as many markets as possible in the shortest of time

• To improve driver operations’ efficiency (attracting new partners and assisting

present ones)

• Continuous modification of the service to enhance Uber’s quality performance

• Plan how to build a supply of new partners for expansion markets

• Establish analytical benchmarks to support the company in new markets and

products

• Identify weaknesses for better strategic improvements and innovations

• Differentiate products to increase their market visibility

• To continuously monitor users’ needs everywhere for delivering always

efficiently

• To overcome regulatory battles facing further growth and expansion

Company Objectives (Daily Intelligencer, 2013)

• To take over the cab industry by being the most cheap, easy ride all over the

world

• To eliminate private car ownership

• To provide all types of logistical and transportation services where it operates

• To include on demand delivery of goods and services


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Business Philosophy

Uber operates with philosophy of satisfying its employees first to optimize the

customer’s benefits. Uber supports its employees to great limits and in many ways with

the following purposes, principals, methods and rules (Uberether.com, 2014):

Purposes

• Establish a strong business model that can be replicated easily by others.

• Establish a company that is owned by its employees through fairness and

democracy.

• Establish strong bonds with its workers and customers.

Principles

• Egalitarian: equality, inclusivity and non discrimination of all

• Sustainable: caring about each other and supporting everyone’s needs

• Transparent: honest communication and information sharing

• Fun: make the working environment fun

• Agile: flexibility, responsiveness and easy adaptability between team members

and towards customers

• Pragmatic: perfection performance exceeding customers expectations

Methods to adhere to company’s principals

• Decision making that is consensus-based

• Transparency in all corporate processes encouraging sharing of information

• Sharing of company’s profit among employees, partners, customers and the


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society

• Always licensing for the benefit of the company, its team, partners and customers

• Working with people of have values similar to the company’s values

Company rules

• The company’s mere existence is to create a positive environment for all workers

• The company will try to remain small and efficient for an organization with a

healthy size

• The company will establish strong bonds with its workers and customers like a

family

• The company respects individual needs and preferences

• The company hiring process will show no discrimination for any cause but

according to their professional abilities

• The company will not force working on weekends

• The company will promote vacations to avoid over work

• The company will pay double salaries or paid vacation days in highly demanding

projects

• The company may be flexible in employees’ choices of work type and goals

• The company will allow freedom of speech and expression

• The company will try to be publicly transparent

• The company will cherish employees privacy


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The company’s president leads and his actions are supervised by:

1) External experts forming an advisory board

2) Employees and advisory board members forming a governance team

Ownership Structure

Uber obtains funding through seed funding rounds given that it’s an early growth

stage. There are three types of investors that own a stake at Uber; Venture capitalists,

Angels and Private equities (Privco.com, 2014). Uber offers investors two classes of

stock, “Common Stock” and “Preferred Stock”. As of July 2010, Uber has issued a total

of 65,088,840 shares at a value of $0.0001 per share (Privco.com, 2014).

Common stock. (Privco.com, 2014) Total Common Stocks Class A Common Stock Class B Common stock

50,797858 27,000,000 23,797,858

Preferred stock. (Privco.com, 2014) Total Preferred

Stocks

Series A

Preferred Stock

Series B

Preferred Stock

Series C-1

Preferred Stock

Series C-2

Preferred Stock

14,290,982 3,811,772 3,439,589 1,913,782 775,092

Dividends. Holders of Preferred Stocks have the right to earn dividends quarterly

prior to holders of any of the Common Stocks classes. Payouts are adjusted for stock

splits, stock dividends and reclassifications (Privco.com, 2014).


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Dividend Payout per Share.

Class A

Common

Stock

Class B

Common

Stock

Series A

Preferred

Stock

Series B

Preferred

Stock

Series C-1

Preferred

Stock

Series C-2

Preferred

Stock

$0.0290 $0.0290 $0.2337 $1.1343 $11.4032 $9.1225

Liquidation. If Uber voluntary or involuntary face a dissolution scenario, holders of

Preferred Stocks have the priority and preference in claiming any proceeds for the sale of

assets or other liquidation transactions. The residual is divided among Common Stocks

holders according to number of shares owned by each shareholder (Privco.com, 2014).

Further details regard investor relations such as: Mechanics of Payment, stock

conversion, voting rights and more, are provided in Uber’s Delware incorporation

document.

Seeding rounds and suppliers of funds. (Privco.com, 2014)

1) First Seeding round

Date: 1st August 2009

Investors:

• Garret Camp (Angel)

• Travis Kalanick (Angel)

Total Funding Amount: $200,000

Series: Seed


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Investment Type: Equity

2) Series seeding rounds

Round: Seed

-Date: 10th October 2010

-Investors:

• Josh Spear (Angel)

• Oren Michels (Angel)

• Lowercase Capital (Venture Capital)

• Founder Collective (Business Incubator)

• David Cohen (Angel)

• Mitch Kapor (Angel)

• Alfred Lin (Angel)

• Cyan and Scott Banister (Angel)

• Babak Nivi (Angel)

• Naval Ravikant (Angel)

• Shawn Fanning (Angel)

• Jason Calacanis (Angel)

• Mike Walsh (Angel)

-Total Funding Amount: $1,250,000

-Series: Seed


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-Investment Type: Equity

Round: A

-Date: 14th February 2011

-Investors:

• Benchmark (Venture Capital)


• Founder Collective (Business Incubator)

• Cyan and Scott Banister (Angel)

• First Round Capital (Venture Capital)


• Alfred Lin (Angel)


-Series: A

-Investment Type: Equity

Round: B

-Date: 7th December 2011

-Investors:

• Menlo Ventures (Venture Capital)

• Jeff Bezos (Angel)

• Bobby Yazdani (Angel)


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• CrunchFund (Venture Capital)

• Goldman Sachs Private Equity (Private Equity)

• Bezos Expeditions, LLC (Venture Capital)



• Sigma Partners (Venture Capital)

• CampVentures (Venture Capital)


-Series: B

-Investment Type: Preferred Equity

Round: C

-Date: 23rd December 2013

-Investors:

• Google Ventures (Venture Capital)

• TPG Capital LP (Private Equity)



-Series: C



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Round: D

-Date: 6th June 2014

-Investors:

• Fidelity Investments (Corporate)

• Wellingtion Management Company LLC (Private Equity) (Corporate)

• Summit Partners (Venture Capital)

• BlackRock, Inc. (Corporate)

• Kleiner, Perkins, Caufield & Byers (KPCB) (Private Equity & Venture Capital)

• Google Ventures (Venture Capital)

• Menlo Ventures (Venture Capital)

-Total Funding Amount: $1,200,000,000

-Series: D


The following table demonstrates Uber Technologies, Inc. owners (Privco.com, 2014)


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Uber’s Service Products

Uber provides the service of ridesharing through several classes’ brands aiming to

satisfy a broader target market. Each brand serves for a different purpose to ensure the

satisfaction of the passengers (Web-strategist.com, 2014a) and are as follows;

1) UberBlack: Provides the passenger with a private driver operating a high-end

sedan that seat up to four people.

2) UberLux: Provides the passenger with the finest vehicles.

3) UberSUV: Provides the passenger with an SUV vehicle that can fit up to 6

passengers.

4) UberXL: Seats up to 6 people for a cheaper price than the Uber SUV.

5) UberTaxi: Users are able to request a regular taxi providing them with a more

accessible method of getting a cab in addition to a more convenient method of

payment, as cash is not required.

6) Uber for Business: Provides business organizations with more convenient

means of transportation for the employees. This service showed great

potential, as Uber was able to deal with lucrative corporations such as Morgan

Stanley. With Uber for Business, employees link to a company-provided

payment source and bill each ride directly to their account. They can even

attach expense codes or memos to their trip information, completely removing

the hassle of saving receipts and filing expense reports. Another advantage to

Uber for Business is that it enables the clients to make decisions about travel

costs based on real-time data, including an overview of expenditures, by

whom, and where. An admin dashboard is set up which allows the company to


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add or remove specific employees from the payment profile which eliminates

time wasted on approving or rejecting a specific transportation transaction.

7) Also uber launched short-term upon market demand services as follows:

• UberPOP was recently launched in Paris, this offers smaller, lower-

priced cars, which look nearly like ride-sharing business models

• Uber Helicopter was used Last summer, wealthy Manhattans who

loathe hours in traffic could take a town car to a helipad and be

whisked away to the Hamptons in minutes

• Uberboat was used by Customers riding ferries between many Boston

wharves in collaboration with Boston Harbor Cruises.

• Uber pool: Drivers pick up riders of similar destination

• Uber ice-cream trucks delivery to different neighborhood

Uber does not own any of the vehicles operated. Uber’s drivers are all independent

agents. Uber’s drivers are independent agents that are either self-employed, or work for

someone who owns multiple cars.


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SWOT Analysis

Strengths

Uber revealed several strengths as regards diverse aspects.

Competitors. Uber in comparison to its competitors showed the following;

• Uber is the first company to provide ridesharing services. Being first in the market

provided Uber with a head start building in its clientele and branding (Hausman,

2013).

• Uber currently has more cars providing its service therefore drivers reach the pick

locations faster (Quora.com, 2014a).

• Uber pays the drivers more than what Uber’s closest competitor Lyft (Huet,

2014).

• Compared to Uber’s competitors, Uber has the widest distribution as it currently

operates in 50 countries and over 200 cities (Uber.com, 2014a).

• Uber has the ability to defy competitors by providing other modified more

affordable services such as UberX, which is believed to be 20% cheaper than its

main competitor Lyft and local taxi rates (Medium, 2014).

• A unique feature that Uber and ride sharing firms possesses is that they are not

required to auction for a Medallion. Taxi companies are required to purchase a

Medallion, which is a cap, set to limit the number of cars operating for this

company.


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Profits. Ubers profits were outstanding for a startup company featuring the following;

• Revenue percentages continue to increase month to month. According to CEO

Kalanick, revenues have been doubling every six months (Rusli, 2014).

• Uber’s potential has been repeatedly proven by investor’s optimism with regards

to future performance and thus raising capital through multiple strong financing

rounds.

• Uber does not own of the vehicles providing the service therefore Uber’s startup

expenses are moderate and are mainly contributed to improving the platform by

which Uber delivers the service (Uber Blog, 2014a).

Service. Uber was unique in many aspects as follows;

• Quality service, safe and comfortable marketed as highly efficient with elegance.

Uber allows its users to rate their drivers giving them the ability to monitor the

quality at which their users are being served (Uber.com, 2014a).

• Uber provides the users with an easier method of payment as users already

submitted the required credit card information. This reduces the hassle of dealing

with cash or making sure that the vehicles credit card machine is working.

• A new feature added to the app called “Fare Split” which helps passengers split

the cost of a ride easily (Uber Blog, 2013b).

• High Transparency regards the pricing rates, and driver’s information. Uber

minimizes any extra charges due to any mistaken or on purpose detours by the

drivers raising credibility (Board of Innovation, 2014).


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• Uber has a shorter waiting time and a more guaranteed service when compared to

local taxis that currently dominate the Taxi & Limousine industry (CityLab,

2014).

• Continuous availability covering late night hours where most other transportation

means service halt

• The majority of transportation services are under vast regulations which in turn

results in lowering the quality and efficiency of their services and increasing

prices

Technology. Uber’s used technology description is as follows;

• Uber, founded in 2009, is leading in terms of patenting activity, with patent

applications for both driver and passenger-facing aspects of ride -sharing and taxi

scheduling technology (Envision IP, 2014).

• Uber is a technologically driven service in an old standstill industry, which gives

it the potential of changing the means by which the whole industry operates.

• Mobile app – upon demand based service using a push of a button technology

that geo-locates a nearby cab.

• Mobile app is user friendly and provides a medium in which the delivery of the

service is more efficient and convenient to the passengers. The app allows the

passengers to have direct contact with the driver as well as the luxury of tracking

their whereabouts on a map (Hausman, 2013).


30

Drivers. Driver’s recruitment in Uber showed the following aspects;

• Uber’s high revenue growth is due to an increasing demand for its services. This

has a negative impact on local taxi driver’s income, which encourages them to

join the Uber fleet if they are able to meet the requirements.

• Uber has many successful partnership deals with different parties (Refer to

Appendix E) for example with GM, Toyota and financing providers to reduce the

cost of new car ownership for Uber drivers encouraging more drivers to join their

fleet (Uber Blog, 2013a).

• Drivers save time as they are automatically matched with the closest customer

instead of waiting in lines to find customers.

• The nature of the service provided by Uber provides the drivers with the luxury of

flexible working schedules.

Weakness

Uber’s weakness may not be many but are extremely serious to the company’s

further continuity and growth if not resolved which are as follows;

• Uber is recognized as an unregulated service, which is the main reason why Uber

is facing a lot of legal controversy (CTVNews, 2014).

• Insurance and liability concerns frequently raised (Hausman, 2013).

• Company charged in lawsuits for having illegal practices, not following other

standard contracts between cities and cab service providers, and not in parallel

with union laws (Hausman, 2013).


31

• Idea monetizing; limitations to potential market cap may still occur because of

overhead and potential legal costs in spite of the constant demand for cabs

(Hausman, 2013)

• Uber pricing rates are very inconvenient for rides of short distances in some cities

(Hong, 2014).

• Given that Uber is a firm operates in the shared economy market, investors face

difficulty with valuation models regards such business structure due to the recent

emergence and popularity of this market development.

Opportunities

Uber’s unique business model has great opportunity potentials in the market as

follows:

• Uber has expansion plans to have full coverage for cities it is currently operating

in and to cover areas of large populations that reside in less affluent locations with

little or no cab access to decrease wait times and distance coverage to access

services downtown.

• Uber has no limitations on pursing international markets as the service provided is

of better quality and less time consuming than any of the services provided by

existing taxi companies globally (Hausman, 2013).

• Uber’s recently introduced services suggest that the company could be offering

more than ridesharing services. UberRush, a new service introduced in Manhattan

that provides the app users the ability to request pickups and deliveries is an


32

experiment to test the logistics market which Uber could be tapping in the

foreseeable future (Ong, 2014).

Threats

Uber is facing many external threats to its expansion described as follows:

• Any lawsuits won by cities against Uber for illegal taxi practices may destroy the

successful model with subsequent high liabilities and limit its expansion and

growth (Hausman, 2013).

• Due to operating in a variable legal environment it is hard to quantify the costs of

cease-and-desist orders, court injunctions and the impounding of cars.

• Threats of enforcing local bylaws if company refuses to acquire a broker’s license

whereas competitors agree to this condition could increase Uber’s expenses.

• It is illegal to drive any public regular vehicle with a charging meter in some

countries, which could hinder operations (Hype.my, 2014).

• A pre-set fixed hiring charge is mandatory for public passenger vehicles is

allowed (livery vehicles) in some countries

• It is illegal for anyone without a livery license to render a livery service in some

countries

• Taxis are forbidden from doubling or more their rates in some countries as Uber

does which could hinder operations in the future (Wikipedia, 2014).

• Extra fees or a surcharge imposed on customers for non-cash electronic payment

methods is prohibited in some countries.


33

• Collection of any fares above that set by ordinance by anyone is considered

unlawful practice.

• Banned in some countries due to insufficient driver vetting (background checks)

and insurance could hinder expansion plans (Oltermann, 2014).

• Ventures believes sharing-economy companies like Uber and Airbnb that raise

huge amounts of funding will be handicapped by the need to deliver margins that

justify investors’ cost of capital, making them vulnerable to competition by more

lightly capitalized entrants who copy their business models.

• Governmental price control and regulations restricting Uber to enter the regulated

market (Wikipedia, 2014).

• Regulated service perceived only as being safe and quality.

• Drivers can acquire new customers and implore them to call directly instead of

using the app.

• Drivers can work for multiple companies therefore it might be difficult to know

when they use the app and when they don’t.

• The app relies on social media so can easily be affected with negative experiences


34

Marketing Analysis

Marketing Plan

Price. Uber utilizes three pricing strategies; fixed airport rates, standard fees which

include a per mile/minute charge, and “surge (dynamic) pricing”. For each service

provided, Uber keeps 20% while the drivers keep the remaining 80% with no tips

(Iredale, 2014). Prices depend on the service provided with UberX (believed to be 40%

cheaper than local taxis) being the cheapest (Uber Blog, 2014j).

The pricing structure allows an easier method of payment by the passengers due to

the electronic nature of the payment as each passenger has his credit card information

submitted to create an Uber account. Fixed airport rates and standard fees are two pricing

strategies that do not differ from any regular taxi. What makes Uber’s pricing strategy

unique is their use of “surge pricing”. Surge (dynamic) pricing which affects less than

10% of the trips (Dickey, 2014b) is a strategy in which Uber sets highly flexible prices

for the trips based on current market supply and demand for drivers. Uber is able to stay

competitive by changing prices based on algorithms that take into account competitor

pricing, supply and demand, and other external factors. For example, during holidays or

other events such as Halloween, New Year’s and bad weather conditions, Uber notifies

their customers with a slight increase in pricing with an aim to decrease the number of

unfulfilled requests. Each of Uber’s brands, which serve to satisfy different preferences

of passengers, has a different pricing structure.


35

Table showing the pricing for Uber’s services in Toronto (Uber.com, 2014d)

UberX UberXL UberBlack UberSUV

Base Fare $2.75 $5 $8 $23

Per min $0.30 $0.30 $0.80 $0.80

Per Km $0.90 $1.55 $2.50 $2.50

Safe ride fees $1 $1 N/A N/A

Min Fare $2.75 $5 $15 $30

Cancellation

fee

$5 $5 $10 $10

• Uber’s formula for calculating the total fare = base fare + the maximum of per

minute or per kilometer value.

• For UberTaxi the passengers pay standard meter rates plus a 20% gratuity

automatically added for the driver.

• Passengers can incur charges such as a cancellation fees and safe ride fees

Product. Described above in the company summary


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Promotion. Uber implements various promotional strategies to attract its target

market as follows ( Refer to Appendix D);

A) Referral. Each user is assigned a referral code, which is then used by new signups

crediting both the original user and the new user $20(Uber Blog, 2014f).

B) Extensive launch campaigns at each new city. Launching in new cities, Uber

applies a lot of marketing, create a lot of launching events and press conferences.

Examples of these events are:

• Motorcades for President's Day: On President’s Day in DC, Uber picked random

users who requested a ride on that day and gave them a replica of the Presidential

motorcade ride with drivers acting as if they are working for the Secret Services.

This ride was under the name of UberCade (Uber Blog, 2014g).

• Roses for Valentine's Day: On Valentine’s day, they picked random users who

requested a ride and provided them with a free ride to and from their Valentine’s

Day plans. With the ride a bouquet of dozen roses was delivered (Uber Blog,

2014k).

• Lemonade Stand: Uber users can use the application to request information

regards the closest lemonade stand and showing the exact location on the map.

The app also provides information regards the ETA to the lemonade stand. The

Uber Lemonade stand also offers UberDogs, pretzels and various options of

chilled beverages (Uber Blog, 2014d).

• Ice Cream truck: Users can request ice-cream trucks to show up at specific

locations. The user simply requests a truck at the location preferred and will


37

receive an ETA on when the truck will show up. In addition, the user has a direct

communication channel with the ice-cream truck driver. The driver can only

deliver 5 ice- creams per order but users can also order more when the truck

arrives (Uber Blog, 2013c).

• Mariachi band, margaritas, & piñatas: A service similar to the ice-cream truck

but instead provided users with “On-Demand Mariachi Fiestas”(Uber Blog,

2012).

C) Word of mouth. The majority of Uber’s success is contributed to its customer’s

word of mouth. According to CEO Kalanick 95% of Uber riders have heard of Uber

through other Uber users (GrowthHackers, 2014). Coupled with the launch events the

word of mouth strategy utilized by Uber has been a major driver in Uber’s revenue

growth.

Place. Uber was founded in 2009 and officially launched in San Francisco in 2010,

however now available in urban areas throughout the United States. The company

expanded internationally( Refer to Appendix H) operating in cities such as Paris (Dec

2011), Toronto (March 2012) , London ( July 2012),Sydney (Nov 2012), Singapore(Jan

2013),South Korea (August 2013), Beijing (July 2014), Warsaw (August 2014), and Rio

de Janeiro(Wikipedia, 2014). Today Uber operates in 50 countries and over 200 cities

and further plans of expansion (Uber.com, 2014a).


38

Competition and Buying Patterns

Uber’s competitors in the U.S market include Lyft, Inc., Sidecar Communications,

Inc., GetTaxi, Inc., and the regular Taxi . The smartphone enabled transportation business

is spreading fast especially in U.S cities, the homeland of Uber. A comparative test

between those most famous ride-sharing apps’ services (UberX, Lyft, Sidecar) against

local cabs in six main U.S cities was performed (Fowler, 2014). The test utilized the 3

relevant apps and hailing a street local taxi over 30 rides covering the same trip at the

same traffic time to same destinations.

Some rides were triple or four times more expensive than local taxis especially in

rush hours where their prices were typically increased; UberX was 20% above local taxi

price, Lyft came in second place as regards pricing with a minimal rise above the local

taxi, however Sidecar came first with a 10% value less than the local taxi (Fowler,

2014).

Lyft and Uber apps do not calculate your fare immediately but will give alerts of

price raise due to peak traffic times and rush hours, Sidecars doesn’t raise its prices under

these conditions and unlike the other 2 apps, it calculates your estimated fare to chose to

take that ride or not. Sidecar drivers are less liable to increase their prices especially with

their knowledge of other competitors (Fowler, 2014).

In regular traffic, both Lyft and UberX rates were less than local cabs, with UberX

the cheapest and known waiting time to be never more than 13 minutes. Local taxis knew

the most quickest and shortest routes followed by UberX while Sidecar and Lyft drivers

were 20% longer in time. UberX drivers were like chauffeurs with user siting in the back


39

unlike Lyft and Sidecar (Fowler, 2014).

Service Name Least expensive most expensive Best time

Chicago Sidecar$4.00 Taxi$7.65 Taxi8: 20

Boston UberX$7.45 Sidecar$12.00 Taxi & Lyft 9:00

Los Anglos Sidecar$11.0 Taxi$ 15.05 UberX 16:52

New York Taxi$9.50 UberX $39.00 Taxi 10:53

San Francisco Sidecar $8.00 Taxi$ 14.10 Sidecar 7:59

Washington. D.C. Taxi&UberX Lyft $15.00 Taxi 8:56 $8.90

Main Competitor “Lyft”

Lyft Inc. and its service are recognized as the most potent competitor to Uber in the

ridesharing industry. Lyft was launched in San Francisco 3 years after Uber. However,

Uber is operational in three times as more markets as Lyft (Saxena, 2014), four times the

number of working drivers and five times in investor funds (MacMillan, 2014).

Spending done on car services studied by the Investment Advisory Firm revealed

that there were $3.8 million in credit card users in the U.S over the past year; $96,000

million were Uber or Lyft with the majority being Uber users (Griffith, 2014).

Revenues revealed that its users spent $26.4 million on 1.2 million Uber rides

whereas just $2.2 million on 170,000 Lyft rides by its users (Griffith, 2014). However,


40

the average cost of Uber’s ride was higher than others and Kalanick stated that the

company adds more riders faster than the regular average with 50,000 new drivers each

month (Griffith, 2014).

UberX during most times is 20-25% cheaper than Lyft with more UberX cars than

Lyft to intentionally put Lyft out of business except during rush hours where it exercises

its surge pricing where it becomes 1.5 times to 3 times as much (Quora.com, 2014a).

Uber riders pay 25% less than the regular UberX fare whereas the drivers still get

their 80% cut, this means where users get a cheaper ride $11.25 instead of $15 ride the

driver gets $12 surprisingly more than they earn (Huet, 2014).

Uber lowered its UberX prices by 20 percent last January, lowering its commission

from 20% to 5 % and Lyft also dropped its prices in April, by not getting its 20 %

commission at all which is clearly translated that not only both companies are losing

money on their rides but Uber is actually paying the their drivers a 5% extra on every ride

(Huet, 2014).

A more general comparison between the two services revealed the following:

Service type. Both companies provide the full range of rides; luxury, premium and

limos and they are different from city to city, rides are $1 initially, $1.50/mile, and

$0.25/min. In general, it is approximately $2/mile or 20-30% cheaper than regular cabs

and is more expensive in big cities with more demand (LA and San Francisco)

(Lyftvsuber.com, 2014).


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“Prime Time” in Lyft vs. “Surge Pricing” in Uber cost.In peak traffic times and in

certain locations the cost of both Lyft and Uber increases significantly. This dynamic

pricing is termed “Prime Time” in Lyft and “Surge pricing” in Uber. For Lyft, "Prime

Time" can increase the cost of a ride by 25 to 200% and is clearly evident to users before

a ride however Uber’s "Surge Pricing" can increase the cost of a ride up to 7 to 8 times

were observed and more difficult to note before the ride. In conclusion Lyft’s "Prime

Time" is more efficient and convenient than Uber’s "Surge Pricing" (Lyftvsuber.com,

2014).

Company funds. Lyft to date has raised approximately $330 million in total to value

it at $700 million whereas Uber raised $1.6 million to date with a $18.2 million valuation.

Taking in consideration that Uber is more recognized and popular to investors, Uber is

offering bonuses to Lyft drivers upon sign-ups to their teams instead (Lyftvsuber.com,

2014).

Service experience. Lyft offers a friendly, fun, and social ride in comparison to a

classic back seat ride with Uber. Lyft drivers greet their passengers upon riding with a fist

bump, attaches a pink mustache to their cars and has diverse fun themes such as Harry

Potter Lyft, the Karaoke Lyft, etc. whereas Uber drivers open the back door for you and

are classically dressed. In conclusion Lyft might be more appealing to some than others


Ride safety. Both Lyft and Uber drivers must own a car with a recent insurance as

well as a valid driver's license. Drivers are DMV and criminal background checked and

their car inspected. For Uber, drivers are at least 23 and own a 4-door car, 2003 or newer

while Lyft drivers are at least 21 and own a 4-door car, 2001 or newer. Both


42

companies rate their drivers to rapidly exclude bad drivers. Lyft seems to have more

female drivers and passengers. A risk is always present, but both rides are perceived so

far to be safe (Lyftvsuber.com, 2014).

Driver benefits. Both companies provide their drivers with excellent benefits.

Different perks are offered in both companies, which include discounts on movie tickets,

gym memberships up to offers on new car purchases. Uber also offers incentives to

drivers in busy weekends and holidays. Both companies treat their drivers generously


The software. Lyft app is more users friendly and easy for both drivers and

passengers also they can use their own smartphone while Uber drivers must use the

provided 3G iPhone. These restrict the drivers from using any non-"Uber" apps while as

well as being charged $10 / week to use them. Also Lyft allows via its app a custom tip

after the ride trip while Uber offers a percentage choice before the ride starts


Taxi Regulations and Legal Issues

Uber is up against the Taxi and Limousine industry regulations and laws that

protect their rights, that both restrictive locally and globally. Controlled Taxi medallions

differ from one country to another but was primarily introduced in NYC and was meant

to regulate the number of taxis entering the city to maintain their economical status. The

values of taxi medallions continued to rise in accordance with rising taxi demands

reaching a value in December 2011 to be above $1 million (Gastaldo, 2014). This

medallion policy is present in U.S and other big cities worldwide.

The dispute arises from whether such regulations are applicable to a service such as


43

Uber with no owned cars or hired employees but simply a mobile application. Uber

argues that it is a technology company and should not comply with taxi service

regulations which old fashion and damaging to consumer demands (The Globe and Mail,

2014). Vast investments in such medallions for registration, driver’s licenses and other

maintenance costs make any new competitor not abiding with the same rules and has a

great potential to steal a large market share a real threat.

As a result, Uber received its first cease-and-desist order in 2010 in its homeland

San Francisco that didn’t stop its operation (Wikipedia, 2014). Later in 2012 the

Washington D.C Cab Commission aimed to stop Uber from launching its service based

on the fact that its pricing scheme doesn’t follow city regulations but failed to do so

(Privco.com, 2014). Also in 2012, an Uber driver was fined by Cambridge officials

(Massachusetts) for the operation of an unlicensed livery service and different fare

structure, the state’s Division Of Standards also put a halt to the application but the

governor’s office later removed all penalties (Privco.com, 2014). Taxi regulators on a

committee formed from 15 cities, (New York, Los Angeles, San Francisco, Washington,

Chicago etc) suggested laws that would directly stop Uber’s operation in the U.S (CHEN,

2014). Also taxi drivers all over the world broke up in strikes and protests opposing the

Uber service (Cbc.ca, 2014).

Facing fines, airport picks up bans and lawsuits (Refer to Appendix J), Uber started

strong lobbying efforts by hiring U.S politicians that may be involved in the regulation of

the business (Stone, 2014).

However, Uber may suffer in places like Canada where a new Bill affecting the

ridesharing industry may hinders Ubers’s operations (CP24, 2014).


44

Operational Strategies

Market Share and Approach

Due to the legal differences regards each taxi industry in which Uber operates in,

Uber’s launch has to be planned to match and convey with each of these market’s

regulations. Uber is facing various legal obstacles as the regular cab drivers in each city

fight back as Uber drives away a significant amount of their rides. According to

Kalanick, the demand for Uber’s services has been constantly increasing and this was an

enough motive for Uber to fight back as the only explanation behind this increase is that

customers are unsatisfied by the other means of transportation. Determining Uber’s

market share could be a bit tricky due to the nature of Uber’s operations. Given that Uber

operates in 50 countries, it has performed differently in each market. Further more,

Uber’s presence has not matured in all of the cities, as some services are not offered in all

of the cities due to lack of drivers.

According to an IBIS industry report, the Taxi & Limousine industry generates

revenue of $11 billion in the US, $14 Billion in the UK and $25 billion in Japan

(NovoEd, 2014). Assuming that the rest of the world would add another $50 billion,

totals up to a $100 Billion for the Taxi & Limousine market. Given that Uber is projected

to make $10 billion in revenues next year (Shontell, 2014b), Uber currently owns %10 of

the global Taxi industry (Damodaran et al., 2014b) with the potential of increasing as

their operations mature in all the cities it is operating in.

There are several factors that affect Uber’s market share. First, the efficiency of its

operations; the bigger Uber gets the more it benefits from the economies of scale till a

certain point. The second factor is the available competition in the market such as Lyft


45

and Hailo who are backed with sufficient funds. Another factor that imposes a high risk

on Uber’s market share is the impact of any legal issues they are currently facing and will

continue to face as their operations expand. It is difficult to quantify the risk imposed as

these legalities could take years in courts and that each taxi industry has different

regulations. On the positive side, since operating in 2009 Uber has not shutdown their

operations in any of the cities except for one.

Facing regulatory obstacles. Several tactics dealing with the government as a shared

economy firm can be applied to create a mutually beneficial and co-operative relationship

with the government. Suggested examples of these tactics include:

a) Proactive: Most shared economy firms are perceived as new concepts that

require plenty of explanation to regulators. A beneficial proactive move is to

provide accurate and complete explanation on how they operate. Taking Uber

as an example, the company is categorized as a communication platform

instead of a transportation firm. This has been explained given the nature of

Uber’s operations, as they own none of the vehicles running but only act as

market matchmaker for the drivers and users. So Uber is an intermediary

(Uber.com, 2014a).

b) Responsive: Various sharing economy business models face serious concerns

regards user safety, privacy and access. In regard to ridesharing firms, excessive

care should be taken to avoid any additional concerns raised by the regulators.

Taking all required precautions when dealing with providing safe and insured

rides is essential as it acts as a positive response to any regulatory concerns. Uber


46

has created a blog where it addresses any raised concerns and provides detailed

information to eliminate any misconceptions ( Refer to Appendix F).

c) Provide evidence: Presenting their case with a well-established market study, as

a proof of beneficial results is desirable in the battle against regulators. Having the

public perception of being more eco-friendly could encourage a better level of

support. Recently, Susan Shaheen, an expert from U.C. Berkeley, conducted a

study that concluded that car sharers report reducing their vehicle miles travelled

by 44%, which reduces the level of harmful emissions (Harvard Business Review,

2014). Using similar types of studies for example the study of the correlation

between the decrease in alcohol related accidents( Refer to Appendix G) and the

demand on Uber during the late hours of the weekend known as the “Uber Effect”

(Effect and Oberman, 2014) is another source that ride sharing firms could pursue

to pressure regulators to adjust current regulations in favour of newly introduced

market efficiency developments

Competitive Edge

In the current standing market and existing system, taxi drivers get a relatively

small part of their whole revenue (5-10%). On the other hand, there are a significant

amount of customers located in several underserved cities with no taxis available or

extremely long waiting times. Thus, Ubers’ service has a competitive edge in fulfilling

both of those two target groups needs providing everywhere service at cheaper rates and

good driver’s pay (Damodaran, 2014a).


47

In addition, Uber presents itself as a technology company not a transportation one

(The Globe and Mail, 2014), although this causes confrontation with regulated services

and governmental challenges but provides Uber with the freedom to provide the kind of

transportation service that is really demanded; cost, quality, efficiency and availability

wise.

Pricing Strategy

Uber’s has followed a pricing strategy to become a low price leader of the market

by the launching of its UberX service. UberX is currently the company’s fastest,

strategic, largest and most growing service offered in many cities around the world with

intentionally lowering its price as often as it can be done (already was decreased 4 times

in some cities) to maintain that status.

In addition “Surge pricing” (discussed before) is kept at levels to affect less than

10 % of Ubers rides in attempt to both provide an efficient service at peak times yet hold

with UberX as the main price focus for the service the rest of the times(Above the

Crowd, 2014).

Sales Strategy

In sales, Uber is strongly working to launch more rides in as many places as

possible regardless of profits. This strategy towards popularity rather than revenue is

common to technology companies’ start-ups, falling in the footsteps of Amazon

(Wohlsen, 2014a).

The company is also determined to keep its wheels running on the road by simply

ignoring the many cease-and-desist demands from regulators. Since this strategy was

successful in San Francisco (first cease-and-desist order) the company survived many


48

attempts to restrict its service both locally and globally (Wohlsen, 2014a).

Also Uber focuses on getting political leverage by hiring or attracting high-

powered lobbyists to assist the company’s stand up against its many law suits and battles

as well as strengthening its public convenience (pricewise) to discourage decision-makers

and politicians from pursuing their case fearing public rage (Wohlsen, 2014a).

One of Ubers’ sales strategies is to reach elimination of car ownership by offering

enough affordable services to cover enough places making car ownership unnecessary

(Wohlsen, 2014b).

Strategic Alliances Strategy

Uber significantly seeks partnership with a number of strategic partners both

globally and locally to enhance its sales growth strategy and increase its users numbers

yet in a mutual gain relationship. The following are some successful examples:

• Partnership deals with Auto manufacturers and dealers for drivers to purchase

cars at better rates. This in turn increases Uber’s workforce and revenues (Milian,

2013)

• Partnership with American Express to gain points in the membership rewards

program hence increasing clientele base (Uber, 2014).

• Partnership with Red Cross in disaster times to help save people joining other

disaster relief actions (Uber Blog, 2014e).

• Partnership with Microsoft in launching an Uber’s app for the window phone to

further serve convenience (Uber Blog, 2014h).


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Uber’s Management

Beyond all strategies, Kalanick has assembled a highly professional management

team that emphasises measuring as many data inputs and outputs collected every second

of the day. Uber uses advanced mapping technology, sophisticated algorithms, GPS, and

a whole math department to measure these metrics related to all aspects of their service to

maximise its use and improve its quality (Tc.umn.edu, 2014).

Travis Kalanick CEO & Co - Founder at Uber Technologies Inc.

• Travis Kalanick is a successful entrepreneur who founded Uber in 2009.

• Started to code in sixth grade however dropped out of college at UCLA

• Before Uber, Travis established Red Swoosh, which was an enterprise content

delivery company sold to Akamai Technologies in 2007.

• Previously founded Scour, the world's first p2p search engine where

• Today owns 13 investments in 10 companies

Ryan Graves -Head of Global Operations

• Ryan holds a B.S. in Economics from Miami University

• He led enterprise resource planning and corporate restructuring at General

Electric and CNA Insurance

• He also focused on growth and business development for Foursquare and Social

Dreamium

• A strategic problem solver that turned Uber’s operations team from a single

employee to an international workforce.


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Garrett Camp Co-Founder & Chairman

• Garrett holds a Masters in Software Engineering at the University of Calgary,

researching interfaces for collaborative systems, evolutionary algorithms and

information retrieval. In 2007 he received MIT Technology Review's TR35

award.

• Garrett founded ‘Expa’, a startup studio working with founders to launch new

products for 10 years successfully.

• Garrett co-founded Uber.com in 2009 with Travis Kalanick

Salle Yoo-General Counsel

• A graduated from Scripps College and Boston University School of Law

• Salle as partner at Davis Wright Tremaine LLP, represented leading energy,

telecommunications and technology firms

• She serves the Asian American Bar Association of the Greater Bay Area and the

Museum Council for the Asian Art Museum boards

• Salle secures Uber’s rapid expansion globally and sustain growth

Than Pham - Chief Technology officer

• He holds a B.S. in Computer Science and Engineering and an M.S. in EE/CS from

MIT

• Ex-VP of Engineering at VMWare, Westbridge and DoubleClick,

• He creatively solves any challenges that face Uber’s growth.


51

Brent Callinicos - Chief Financial Officer

• Graduate of University of North Carolina, Chapel Hill

• Ex-VP, Treasurer and Chief Accountant at Google

Jeff Holden -Chief Product Officer

• Graduate of University of Illinois, Urbana, Champaign

• Ex-Senior Vice President of Product Management of Group on since April 2011

• Ex-CEO and co-founder of Pelago

• Worked at Amazon.com, as Senior Vice President of Consumer Websites,

Worldwide (worldwide consumer website experience, personalization,

ordering/Amazon Prime, (Associates, SEM/SEO).

• Ex-VP at D. E. Shaw & Co., L.P. in New York (front office software

infrastructure)


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Key Project Assumptions

Several assumptions have been made throughout this project. These assumptions

are crucial in determining if Uber is a financially feasible venture. The following is a

brief summary of these assumptions:

Service

• Uber is registered as a firm operating in the technology industry but given the

nature of Uber’s main operations we assume that Uber competes in the Taxi &

Limousine services industry that had suffered a long time standstill leading to

unsatisfactory service giving Uber the competitive advantage.

• Uber is also exploring and trying all forms of consumer logistical services

expanding on the ones that show success even if it means fierce competition with

already established competitors.

• International expansion is unique to Uber in comparison to its other homeland

U.S competitors, always competing mainly against regulated taxis in other

countries, which even if varies from country to country still stands a high rate of

success.

Target market

• Claims by CEO Kalanick describe how Uber is generating 20% in gross revenue

and doubling revenue every six months. The accuracy of such statement is key in

the projection of future revenue figures.


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• Uber’s growth is not only fast but also vastly exceeds its competitors; its position

in the market attracts strong investors supporting its capital in its price wars

against its competitors gaining more market share and higher revenues.

• Various studies have been done to try to analyse different relevant internal and

external factors affecting Uber and its future. Their data mentioned predicts high

valuations and great potentials for the company’s success.

• Due to increase in popularity and demand for shared economy services in addition

to the fact that their service provision is done more efficiently, suggests that a

regulatory change in favour of Uber’s future operations in some countries but not

worldwide but this will add up to reach its final valuation.

Profitability

• Uber’s so far valutions are growing big and in short times ; such continuous

progress is solid and confirmed with the evidence from investment rounds

completed and proposed and leaks on the companies behalf.

Leading Management

• Uber’s leading management team are of diverse , professional expertise that

confidently lead the company and have shown so far nothing but success.


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Economic Impacts

Shared Economy

Sharing economy is a socio-economic system built around the sharing of human

and physical resources. Recently sharing economy firms have been disrupting traditional

industries across the globe. Other apps such as Airbnb, which operate in the same fashion

as Uber, have been valued at $10 billion (Lunden, 2014). Uber operating only since 2009

has managed to receive a valuation of $18.2 billion relative to car rental firms such

as Hertz at $12.5 billion and Avis at $5.2 billion (Harvard Business Review, 2014).

Firms operating in the sharing economy have been questionable regards issues

such as privacy and security of sensitive information in addition to safety when it is a

company like Uber. These concerns are similar to concerns customers faced when they

started online shopping; recently these customers are a bit more comfortable using this

service. According to a recent study the sharing economy was valued at $26 billion with a

projection of growing to $110 billion in the near future (Harvard Business Review,

2014).

The business structure of sharing economy firms utilize, where peers can offer and

purchase goods and services from each other using an online platform has witnessed a

broader application in various industries. These firms generate significant economic,

environmental, and entrepreneurial benefits including an increase in employment and a

reduction in harmful emissions (in the case of car sharing services). Jeremiah Owyang

Founder of Crowd Companies Council conducted a survey analysing the global shared

economy market, on Oct 25th, 2013(Refer to Appendix C). The survey targeted adults

under the age 35 as they are the most digitally savvy. This target group would prefer the


55

opportunity of sharing or renting rather than owing. It was found that 77% of the

participants agreed that using sharing economy is an efficient way to save money. Among

who have took advantage of shared economy services, 36% were encouraged to use it for

their overall convenience rather than financial motives ( strategist.com, 2014a).

All the previous statistics and numbers regards the future of the shared economy

and increased demand for its services are signals of potential growth of revenues that can

be captured by shared economy firms.

An obstacle that hinders these firms from taking advantage of this opportunity is

the resistance various city governments have showed. Firms are facing an increase in

subpoenas and cease-and-desist orders issued against them in addition to incurring more

fines.

According to an April 2013 study by the Center for Automotive Research, the

auto industry generated around $91.5 billion in state taxes in 2010(Auto Alliance, 2014).

Transactions of new and used cars contributed by $30 and $20 billion from vehicle

registration fees.

The U.S. Department of Transportation reports that 51.2% of new cars in 2010

were for the purpose of personal use (Primack, 2013). Assuming that ride-sharing firms

are able to sustain their current business model while minimizing the impacts of

regulatory criticism, the number of cars purchased for personal use would decrease as a

more convenient option of transportation is offered compared to current Taxi services.

This would subsequently impose a negative economic impact on the government’s annual

tax revenue.


56

In addition, Uber and other ride-sharing firms are facing significant resistance

from local Taxi companies and drivers after successfully capturing a significant market

share. Fearing future expansion plans and identifying current negative impacts on their

incomes, local taxi drivers organized strikes in several cities. The local taxi drivers called

for legal action against the ride-sharing firms claiming that the ride sharing firms are not

following the current regulations accurately.

Venture Capitalists Contribution to Shared Economy

The process of shared economy firms valuation is complicated, especially Uber

since it is a private company. Common fundamentals used such as revenue growth is

essential but harder to account for it’s full potential. The uniqueness in which these firms

operate has not been fully uncovered in addition to a highly variable regulatory

environment globally. Considering the current downsides in assigning a value to shared

economy firms, Venture capitalists have shown strong support as various shared

economy start-ups managed to obtain financing through large funding rounds. Examples

of these firms include:

1) Care.com. A public company that assists families with child care, senior care,

special needs care, pet care and housekeeping.Care.com is founded in October 1,

2006 and just went public in January 2014.It raised $109 million in total funding,

most recently a $50 million round in August (VatorNews, 2014)

2) Airbnb. A website founded in August 2008, that provides the users with ability to

rent out lodging. AirBnb has raised $326 million altogether at a $2.5 billion

valuation (VatorNews, 2014).


57

3) Lyft. Uber’s main competitor offering ride-sharing services. Lyft raised $333

million, with the majority of its funding raised last year (Weber, 2014).

4) TaskRabbit.A web and mobile platform helps users to outsourcing small jobs

and tasks to other people in their area. TaskRabbit has raised $38 million,

including $17.8 million in Series B funding in December 2011 (Siliconangle.com,

2014).

5) Uber. Raised a total of $307 million, including a recent $258 million from Google

Venture (Dickey, 2014a).

A recent survey on the future of shared/collaborative economy future was

executed by the partnership between Crowed Companies; a brand council that help large

corporation explore the collaborative economy and Vision Critical; cloud-based customer

intelligence platform that allows companies to build engaged, secure communities of

customers they can use continuously, across the enterprise, for ongoing, real-time

feedback and insight (Web-strategist.com, 2014). The survey covered 90,112 people the

US, Canada and the UK and targeted three categories of users of shared economy:

1) Re-sharers. Those who buy and/or sell pre-owned goods online, but have not yet

explored other services of the shared economy.

2) Neo-sharers. People, who use the newer generation of sharing sites and apps, like

Etsy, TaskRabbit, Uber, Airbnb and Kick-starter.

3) Non-sharers. People haven’t yet participated in the shared economy.

The results from this survey signal an overall increase in participation in shared

economy. The results provide statistics regard the current demand for the services and the


58

reasons encouraging more people to build a higher dependency on it. In addition, a

projection of the future increase in demand for shared economy services has been

forecasted (Web-strategist.com, 2014a).

Financial Plan

Uber as a five-year-old company raised fierce competition between potential

investors to be included in its exceptional growth. Uber announced on the 6th of June this

year that they have closed a round of financing comprised of major investors with a total

raise of $1.2 billion of primary capital, thus a $17billion pre-money valuation (Uber

Blog, 2014l) with $3.5 billion financial rise from last year. In total, investors put Uber at

an $18.2 billion valuation with Wellington Management & Fidelity Investments owning

most of the investments (Kovach, 2014). Investors claim that with this evaluation, Uber

set the record in the U.S technology market of start up business (Saitto, 2014). However

Uber is now seeking a new round of funding to raise up to $1.8 billion which will value

Uber at $41 billion, from its previous $18.2 billion valuation in its last funding round

(Mossberg, 2014). Uber will use this money for further growth and expansion as well as

penetrating the “on-demand package delivery” logistics’ industry (Bidnessetc.com,

2014).

Uber’s financials remain confidential with an exception of a leak made in

December 2013 was a screenshot of Uber’s dashboard but confirmed by Uber (Gannes,

2014) although not covering all of its services.


59

(Tiku, 2014)

The figures in the leaked screenshot revealed that over a period of 5 weeks

between December and November 2013 a growth of above 11% in growth revenue,

above 398,000 new signups below 80,000 every week. If this is the case year round then

the company is gaining above $1billion gross booking with revenue of $213 million per

year (Panzarino, 2014). This was in the year 2013, a definite expected increase is

anticipated in 2014. In fact, investors predict that Uber will be able to generate $10

billion in 2014-2015, keeping a 20% of this translates Uber’s net $2 billion (Shontell,

2014b). To fully comprehend, compare this with Facebook’s 2014 year’s expectancy to

reach the $10 billion mark after 10 years of fully operating (Shontell, 2014b).

Other leaked internal data for December 2013 (Shontell, 2014a) detailed city data

as regards working drivers, revenues, average fares, users etc concluded the following:

• Uber’s main revenue comes from its well-developed markets; Uber gained $11.7

million from Washington, D.C. (141 million annual run rate), $26 million from

New York City, (annual run rate of $312 million) $12.7 million in Chicago,


60

(annual run rate of $152.4 million), $17.7 million in San Francisco (a run rate of

$212.4 million)(Refer to Appendix I).

• The top five markets or cities (excluding 2014 expansions) would generate

$1billion per year ).

• Uber’s one year estimated growth rate was 369% (Shontell, 2014a).

• In the big cities over 100,000 trips were made every week (Shontell, 2014a).

• In one day (New years eve 2013) Uber ‘s revenue was$ 10.6 million across 60

operational areas around the world (Refer to Appendix I).

Key Financial Assumptions & Indicators

Although there are no official information for Uber’ operational data we may conclude

from their annul financials and leaked (verified by Uber) data some valuable assumptions

and indications:

1) Uber’s revenue growth rate was estimated to be 300% in 2013 with a provisional

estimation of another 300% in 2014 (Blodget, 2014a).

2) In 2013 through leaked information on a dashboard Uber was gaining $20 million

in revenue every week (Moss, 2013).


61

3) The number of cities the service is operational is growing (61 in 2013 to over 200

to date) subsequently the average rides /month is increasing with the expected

revenue /user. Also Uber is growing faster than its competitor Lyft with more U.S

cities (90) than Lyft (70) (Bidnessetc.com, 2014) ( see appendix fp )

4) Most of the revenues come from a number of strategic cities, which are not even

fully covered (Refer to Appendix G), further coverage expansion to other

countries will increase revenues (Blodget, 2014b).

5) Operational expenses are limited to setting the technology infrastructure, which is

once set, the operational costs usually decline.

6) Uber has a product /service business model is creating revenues with almost no

debts yet a cash cushon capital ($1.2 billion recently).

7) Uber’s pricing strategy to lead the market as the lowest significantly exhausts its

competitors in the ride sharing industry.

8) Uber is generating revenues faster than its main competitors (refer to Appendix B)

Controversial Future Revenue Projections

Controversy about Uber’s outstanding valuation has set several arguments about its

justification since it will place it same as Kraft Foods Group Inc, Delta Airlines Inc, one

and half times the capital of Twitter and no comparison with Hertz (Saitto, 2014).

Uber has stated to its investors that its gross revenue for 2014 had exceeded $4

billion and hence expected to be $10 billion in 2015(Mossberg, 2014). Ilan Mochar, Inc’s

.com magazine writer argued that is very common for Uber as many other start up

companies to flourish quickly then fail up to bankruptcy; it happened to daily deals


62

“Groupon” that was actually valued $17 billion once now $4billion and many more failed

up to bankruptcy (Oremus, 2014). However he also argued that with Uber’s rate of growth

as a good alternative in the $11 billion revenue Taxi & Limousine industry (U.S), it has

great potential to reach its valuations. Also with the idea of ending car ownership in mind

will certainly assist to reach its valuations (Oremus, 2014)..

However, two other scenarios described by Aswath Damodaren, a Finance

Professor in Stem School of Business at NYU tried to justify Uber’s current valuation of

17 billion (Damodaran, 2014a) (refer to Appendix B for more information on Uber’s

valuation) by the either following;

• The Taxi & Limousine industry total revenues must be three times his

estimate of $100 billion or,

• Uber’s market share of the industry must be double his estimate of 10% of

the total market.

Assuming that Uber’s market share is fixed at 10%, a valuation of $17 billion is still

unjustified even if the industry generates $300 billion in revenues (Damodaran, 2014a).

Conclusion

Given that the goal of the project is to determine if the venture is financially

feasible; after completing this business plan I developed my conclusion through

analysing the pros and cons of Uber’s current position as a rapid growth start-up valued

at $18.2 by several analysts. The strong financing rounds and current investor’s optimism

promotes Uber as a financially feasible venture. All data obtained about Uber’s revenue

growth suggests solid strength translated by the fact that the firm managed to generate


63

incomparably high revenues in a short period of time operating with low expenses not

just locally but globally as well. The growth rate of the more efficient shared economy

market coupled with Uber’s position, as a market leader in the ride sharing market is a

signal that Uber is yet to mature and capture a higher percentage of the market share.

Competitors are only taking a small fraction of Uber’s target market, which Uber

overcomes by continuously changing its pricing strategies proven to be successful so far.

Further potentials also reside in Uber’s possible future attempts to penetrate the

logistics industry, if pursed with calculated expenses, Uber may become a fierce

competitor in this industry and gain another great market share with more revenues

verifying its valuation.

The only significant barrier that might face Uber’s growth is governmental

opposition and regulations in some countries, but again this will not be worldwide or

absolute, on the contrary regulations under public pressure (where Uber is most

successful and resisted ) may come in Uber’s favour finally.

Finally, Uber’s technology driven success will never seize to scale in proportional

to consumers’ thirst for services or products with technological convenience. Revenues

of this century belongs to companies similar to Uber, Facebook, etc

I believe that Uber is an attractive investment opportunity. If Uber is to go public

issuing an IPO, I would recommend investors to buy in to take advantage of the projected

increase in the firm’s value


64

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