Disruptive Innovation: Uber

 

UberThe textbook case of disruptive innovation involves targeting something that could be done easier and more cheaply and creating an entire new market. This is the definition of Uber, a company made possible by the rise of mobile technology and the collaborative economy. It’s always been a bit painful to hail a Taxi and the experience was also not always a pleasant one, standing out in the cold trying to wave a Taxi down or waiting at a location not knowing when it will arrive. Every innovation has a moment when the seed is first planted in the head asking  “why can’t this be done differently?” To Travis Kalanick that came at a conference in Paris where he waited for a cab stressed out and late for a panel and decided there would have to be a better solution. Co-founder and friend Garrett Camp who had recently sold Stumble Upon to eBay took up the reigns of design for the mobile system. The initial app allowed you to split the cost between the driver but by 2009 they had set their sites on solving the entire taxi problem. On July 5th, 2010 Uber went live in San Francisco and within the next couple years it expanded at an intense rate, picking battles along the way with local governments and established Taxi companies. From 1 city in 2010 Uber is now present in 300 cities with over a million drivers.

For every new innovation that is successful there are many more that fail, so why is Uber any different? In the technology adoption cycle, there is an initial category of people who will essentially try anything: the technology enthusiasts and the visionaries, this group is followed by the vast majority of people who are pragmatists and will only try something when it has been proven to be useful to them. Between these groups is a chasm in which a product must be adapted or gain enough acceptance to be taken up by the masses.

Technology Adoption Cycle

Imagine the Segway scooter, these got a lot of excitement and you will occasionally see some tour companies in big towns have them or the isolated case of someone who loves tech own one but you don’t walk through your neighborhood and see people riding them to work. The technology was able to meet the needs of the first group but not the second. Many new products and services never quite make it out of the chasm and instead continue on with modest sales that would be unattractive to any large company but sufficient for a more moderate sized organization.

segway disruptive innovation

Uber on the other hand met the criteria for a product to cross the chasm:

  1. Saves people money.
  2. Saves people time.
  3. Can accomplish something that was previously not possible.
  4. Brings their life more pleasure.

In most cases Uber is cheaper than a Taxi (and tips are included). You save time by not having to call for a Taxi or stand out on the curb wishing one might stop for you, the average Uber wait time is just 4 minutes. The ability to rate drivers creates an accountability loop that means drivers will go out of their way to be friendly and provide a clean vehicle. You also don’t have the anxiety of having to watch the meter go up or worry about paying, that’s all done automatically. All of this in return brings customers lives more pleasure and that’s why Uber has left the chasm and is undergoing mass adoption.

As with any new technology once it has reached this point you can realize mass adoption growth levels that CEOs of commoditized markets would have a grand mal seizure. Uber expects to do 26 billion in revenue next year up 141% from 2015. Of course any new market comes at the expense of the previous market leader and data shows that any increase in Uber usage is quite proportional to a decrease in Taxi usage. A report from Certify that examined employee expenses showed Uber had already become more popular than Taxis for business travelers. In fact in their hometown of San Francisco the combined taxi market is estimated at 140 million while Uber brings in 500 million, meaning that Uber is clearly already the choice of the vast majority of people in many metropolitan cities where they’ve been established for several years.

Uber City Growth

 

As with many recent innovative services Uber falls within the sharing economy. These services are largely driven by applications whose sole existence is to facilitate a transaction between two people. In its most basic form even eBay and Craigslist were early pioneers by empowering people to deal direct with each other as opposed to actually selling any products themselves. Crowdfunding sites, AirBnb, Couchsurfing all of these also fall under peer to peer services and have experienced strong growth. These services to a large extent not only facilitate but build trust between both parties, offering guarantees and mediating if an issue should arise.

Have you tried Uber? Let’s hear your experience in the comments.


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