The article, “Uber, Lyft and a Road Map for Reinventing the Ride,” is about the new fast-growing market space that is challenging the old long-standing world of taxicabs in Europe, as well as in major US cities such as New York, San Francisco and Los Angeles.
Uber: A quintessential Blue Ocean Strategy story
Author Neil Irwin writes, “…the economics of how people get around is on the verge of big changes, and a battle is brewing over who will be America’s chauffeur and what company will get rich along the way.” Could you find a better Blue Ocean?
Uber and its lower priced UberX, and to some extent Lyft and Sidecar, in true Blue Ocean fashion have crafted a new market space by tackling the unmet needs of urbanites for easier and cheaper ways to get around a city.
In its simplest form, these forward-thinking innovators realized that the existing business model was costly and cumbersome. Taxicabs were highly regulated, both in terms of the number of medallions that could be issued and what fees could be charged. Uber saw an opportunity to change the model by literally reversing everything, to phenomenal results.
The way Uber works
Brilliantly, Uber created an app where you can sign up and enter your credit card. When you need a ride, you simply tap a square on your phone to find a ride. Uber uses your phone’s GPS to determine your location and connects you with the nearest available driver. You can be picked up anywhere, even if you don’t know your address.
A car (driven by its owner) has been wandering around your area waiting for your call. Once you tap, the delighted driver arrives at your pick-up location and takes you to your destination. No cash needed. Tip included. Simple and easy.
You can trade up to a fancier, more expensive Uber car (black SUV, Mercedes) or watch your pennies and go with an UberX model (Prius or Chevy). Either way, the car will be driven by the owner who is making his or her living driving people around — how democratic is that.
Now Uber is the hip way to get around
As Mickey Rapkin reported in GQ’s March, 2014 issue, “Drivers in Uber’s network are circling your neighborhood, and by the magic of GPS, the closest one is arriving at your door, oh, right about…now. The fare is calculated by some algorithm of distance and time.” Actually, the fare is slightly more than a cab but the experience is so much more convenient and oh so much “cooler” than an old-fashioned taxi (think surly driver and no air conditioning). What’s significant is that Uber has created its own cultural buzz where it’s “in” to tap that app and have a car arrive almost instantaneously…perfect for today’s celebrity wanna-be’s.
And though some of the riders may be flighty, Uber is making serious money. Last year Uber’s financials were leaked to Valleywag, which estimated that the company averaged 1.1 million requested rides per week with over 430,000 average weekly riders.
From a market-creation and value innovation perspective, Uber is about as Blue Ocean as you can get
Uber saw an unmet need. They reversed everything to create an entirely new market space. There certainly were already existing options: taxis, limousines, buses and subways. (It wasn’t as if people were stuck at home or in the office unable to get somewhere.)
They took advantage of hi-tech apps and made them available on cell phones, then invited cars driven by their owners to help evolve their business model. In the process, they transformed an entire industry rather than just competed within old parameters.
So how do you create demand? A typical Blue Ocean challenge
In New York, Uber is currently offering a major price cut on its UberX rides – $5.74 (air conditioning on, credit card reader working). Its strategy is to build traffic and usage habits all summer long so that once customers enjoy an “Uber Experience,” they’ll plan their day around having quick, easy access to an inexpensive ride, even after the summer special is over.
Far more than just landing on a new way to make a buck, what’s really happening here is that Uber and its rivals Lyft and Sidecar are reinventing the way people move by engaging them in a more convenient solution – and they made this solution hip and savvy to boot.
While Uber seems to be leading the charge, the ease of entrance among the others is flooding the waters with an abundance of options. (How long before this blue ocean turns red?) Together, these trailblazers are challenging taxis and the rest to improve their service, reduce their fees and transform their experience.
Blue Ocean Strategies are all about creating new market space: reimagining, reinventing, repackaging
That is really what Uber has done, and done brilliantly. By changing the package, they opened a new blue ocean and at least for a moment, swam alone. As the market space gets more bloody red, however, they will have to continually reinvent themselves to stay one step ahead: changing their pricing, challenging their own assumptions and listening to their customers for new innovative ideas. (Maybe they should add a Starbucks to every trip and start mornings off with a bit of Dunkin’.) You never know what the magic is that will take the ordinary and transform it into a movement.
For our clients, the message is clear. You never arrive. You just keep swimming in the ocean, trying to stay ahead of the sharks and tackle the waves. If that ocean goes from blue to red, think up new ways to turn it blue again. But to stand still as your competitors bloody the waters is only an option for failure.
Need ideas? Please contact us – we love finding Blue Oceans!