Uber's Impact on the Traditional Marketplace
Uber is Changing the Traditional Market Place
January 25, 2015
Melvin Christopher – Primary Article Contributor
Karli Kurzuk – Team Leader Following Uber
Keywords: Uber, economy, self-regulation, traditional companies, taxi industry, taxi lobby
Uber, founded in 2009, is a shared economy company focusing on connecting riders to drivers through their mobile applications. The application allows smartphone users to submit a trip request that is routed to an Uber driver for pick up and drop off of application user. Service currently is available in 58 countries and in 300 cities worldwide. Uber offers a cashless and convenient service to costumers where drivers pick up costumers at their precise location. The reviews amongst users and drivers has been overwhelmingly positive. Since the launch of Uber, many companies have copied its business model and increased the user-to-user service model. Companies continue to consider this new business model as Uber is now a $51 billion giant and changing the way people travel across the world.
The economic boom Uber has experienced within the last couple years has been astronomical. Uber recently completed a new round of funding that values the five-year-old ride-hailing company at close to $51 billion. Just in San Francisco, Uber is generating at $500 million a year in revenue, with growth at about 200% per year which equates to a market three times the size of the taxi market with continued growth. The days when the taxi industry had a monopoly on paid vehicle transportation are over. Uber and ride-sharing are here to stay.
Uber’s introduction into the marketplace has resulting in numerous complaints and uproar from the taxi industry. As part of the sharing economy, any individual who owns a vehicle that passes an inspection test by Uber can become an Uber driver. The reach and scope of potential drivers looking to earn some extra cash with flexible hours that fit their schedule is potentially massive. The results include more wage-earning opportunities available to more people, as well as the potential displacement of traditionally secure jobs and part-time low paying jobs. On average Uber drivers made more than $19 an hour in earnings, compared to $12.90 in average hourly wages for cab drivers. Remarkably, in larger cities such as in New York this figure jumped to an average of $30 for Uber drivers.
In theory seems like a win-win for both provider and consumer. Uber, as the provider, is providing a cheaper alternative to the consumer. However, the hit on the taxi market will continue as experts predict a 141% projected growth in revenue from 2015 to 2016 that will a jump from $10.84 billion to $26.12 billion for Uber. These numbers will certainly continue to grow unless there is substantial change within the taxi industry. Finding a cab in bad weather, during rush hour, the unreliability of phone-assigned drivers, long wait times, arguments over fares, and unreliability of hailing for cabs on the street are all huge obstacles for the taxi industry. Uber essentially eliminates the uncertainty as drivers cannot poach fares, abandon assignments, and customers are able to watch minute-by-minute progress of their driver and even call them directly with the Uber app on their smartphones.
The main reason why Uber is cheaper than taxi services is the multitude regulations that taxi drivers face. This pressure has caused in reduction of prices in some cities through regulatory changes. In Toronto, in an attempt to level the playing field between cab companies and ride-sharing services, city council voted in favour of dropping the base taxi fare rate from $4.25 to $3.25. This drop in fares is also due to the understanding that ridesharing is here to stay and will continue to grow. Regulations sought by the taxi industry on Uber are challenging. Uber does not own vehicles and it does not employ drivers or use dispatchers. Rather, it is a technology-based platform that connects riders to drivers who are willing to provide them. The economic hit on the taxi industry has perpetuated in challenges to local governments in insurance, safety, and stricter regulations for Uber. Even with potential for some these tougher regulations to be put in place, Uber is here to stay.
