Photo by Etkin Celep: https://www.pexels.com/photo/yellow-taxi-driving-under-a-concrete-bridge-12707985/
Reverse-engineering the client-centric & tech-enabled strategy that took on entrenched interests and established an entirely new way of working
The New York City pre-Uber taxi landscape
For many years, evenings out on the town in New York City always ended with an iconic yellow cab ride home.
You stood on a street corner and held out your hand, hoping a cab would see you and stop. Cabs were difficult to find, dirty, smelled bad, and I can remember more than one ride where you could clearly see the road passing through holes in the floorboard inches below your feet. Even as payments everywhere else gradually shifted to credit cards, for years the only reason I still had to go to a cash machine was to get money to pay for cab fares.
And every ride ended with an awkward and often combative conversation around the final cost and the tip.
The only exceptions were the elegant, curated experiences available riding in Lincoln Town cars, typically reserved for lavish business expense moments.
Uber enters the taxi scene
Starting in 2011, Uber began to offer their ride hailing service in New York, starting a revolution in how New Yorkers got around the city, and how drivers worked.
What did Uber do differently to succeed?
To understand how different Uber’s strategic choices were, we’ll start by reverse-engineering the legacy New York City medallion taxi industry’s strategy, in force when Uber appeared using the five questions of the “Strategy Choice Cascade.”
Reverse-engineering the legacy taxi industry strategy
Winning Aspiration:
To maintain taxi industry domination by being the single authority controlling the flow of taxis in New York City.
Where to Play:
- Offer drivers a regular job and a steady flow of customers
- Control the middle and low end of the New York City taxi business that connects drivers and riders with a limited supply of “medallions” (taxi operating licenses)
(Early medallion adopters achieved near monopoly power, which created a secondary market in medallion resales. At their peak, speculation and hoarding of taxi medallions boosted their price to up over $1 million per taxi.)
How to Win:
- Extract maximum value from drivers, by making them work as many hours as possible while paying them as little as possible
- Extract additional value from drivers by charging them to lease taxi medallions to operate their cabs (“pay to play”)
- Extract maximum value from end-user customers via a pre-established fee structure
- Put just enough into cab maintenance just to keep them running (barely)
- Run all business as pure cash operations
Must-Have Capabilities:
- A limited supply of taxi medallions
- A fleet of “operational” yellow cabs
- Maintain s constant supply of drivers available 24/7 willing to work at the lowest cost possible
- Have “gatekeeper” dispatchers available to managed where taxis flowed in the city, and when
Enabling Management Systems:
- Control medallion supply
- Design, build and maintain hardware cab meters
- Deep pockets for legal fees to use the courts to immediately remove competition
- Own and operate garages to manage and keep cabs operational
- Match cash intake with metered fares, deduct fees and extras, pay as little as possible to drivers
Uber offers a new way to get around the city
Let’s compare this to Uber’s strategy coming in.
When Uber emerged with a radically different set of strategic choices in 2011, they started by working backwards from a better set of experiences for both customers as well as drivers. Much of this had only just been made possible by the rapidly improving mapping and GPS capabilities in smartphones that had only just started to become widely available.
But much of what people do comes down to simple habit. To succeed, Uber would have to overcome its first, and biggest hurdle:
Would riders (especially jaded New Yorkers) even get into a stranger’s car that wasn’t yellow?
At its core, Uber’s strategy was focused on creating an exponentially better taxi experience to get beyond these & any other habit shifts.
This is how they did it:
Winning Aspiration:
Match drivers and riders through a frictionless, tech-enabled riding experience
Where to Play:
- Appeal to tech-savvy professionals
- Start with Uber Black to compete with Town cars at the high end
- Over time, branch into other levels of service with UberX to directly compete with yellow cab service at the mid- and lower levels
- Have drivers supply their own cars
How to Win:
- Offer a differentiated seamless cab experience hallmarked by
- No more standing on street corners to hail a cab
- No more haggling at the end of your ride
- Allow riders to rate drivers
- Allow drivers to rate riders
- Replace human taxi dispatchers with software to route cars to riders
- Offer “refer-a-friend” incentives to both riders and drivers
Must-Have Capabilities:
- Design, build, & continuously upgrade & maintain Uber Rider mobile app across Android and iOS
- Design, build, & continuously upgrade & maintain Uber Driver mobile app across Android and iOS
- Real-time mapping
- Vet drivers
- Product Management
- UX Design
- Strong engineering
Enabling Management Systems:
- Support riders with customer service to investigate and resolve rider problems, questions, issues & complaints
- Create, iterate, and continuously refine rider rating system for drivers
- Data management — understand how to optimize rider and driver matching via location & other factors to optimize available car density
- Map management — continuously refine mapping and GPS capabilities
- Support drivers with driver services to investigate and resolve problems
- Create, iterate, and continuously refine driver rating system for riders
- Legal and lobbying services to gain footholds and defend gains
Comparing and contrasting the different taxi strategies
The legacy taxi industry’s strategy focused on controlling every aspect of the driver-rider connection.
The taxi industry hoped to control the flow of cabs (and therefore dollars) indefinitely by:
- Controlling the number of yellow cabs
- Extracting maximum value from the drivers who drove them
- Using custom taxi meter hardware to get as much out of each cab fare
- Using the courts to protect their turf from upstarts
- Using taxi dispatchers to control who drove where
I would call most of what the legacy cab companies did as a classic set of internally-focused strategic choices, with both drivers and riders suffering through “barely tolerable” conditions.
The Uber strategy’s two biggest advantages
Coming in, Uber had two things going for it:
- They recognized that software had eaten the world
- They used that software to create and sustain better experiences for both end-user customers, as well as drivers
Uber took advantage of these two factors to design a set of strategic choices that was substantially better for both riders as well as drivers.
They backed this up with a broad set of both the appropriate Must-Have Capabilities, as well as the necessary Enabling Management Systems.
Strategy is also how you deliver
By putting the right skillsets and capabilities in place, Uber was able to establish itself as the software-enabled gate keeper of the two-sided driver-rider marketplace.
Starting by specifically targeting young, affluent professionals comfortable with technology, Uber was able to repeatedly enter and dominate markets by connecting drivers and riders, forcing conventional cab companies on the defensive, further expanding into additional driver services like UberEats.
But the yellow cab companies had no intention of giving up without a fight.
Yellow cabs fight back
As they had in the past, yellow cab companies sought to gain back control of the lucrative cab service industry by bending the legal system to their cause.
Never having previously faced any serious challenge, much less from a tech-savvy competitor with their own deep pockets and legal and lobbying know-how, yellow cab companies were faced with an existential threat.
For over ten years, legacy cab companies have comically based their tone-deaf court challenge of Uber by charging it with “monopolistic practices” for daring to enter and compete for riders and drivers in New York City.
Judges have consistently tossed out challenges to Uber’s operations, citing Uber’s role as offering consumers for the first time more, rather than less choice.
The New York taxi market today
While it seemed as though Uber would put all conventional taxi companies out of business, the two seem to have established more of an uneasy coexistence in New York, as well as many cities around the world.
Ultimately, both riders and drivers have ended up as winners, experiencing better service at competitive prices.
Customers have generally benefited as yellow cabs have been forced to adapt by accepting credit card payments, becoming more tech-enabled, and generally improving their service.
Drivers have benefited by being able to set their own schedules, and decide when and how they work in the new “gig economy” model.
TL;dr
Uber stripped away the surface of the conventional cab industry, exposing it as a two-sided marketplace connecting drivers and riders.By recognizing that:
- Software had eaten the world
- Both end-user customers, as well as drivers, were looking for a better way to connect
Uber ushered in the modern gig economy through a client-centric strategy that focused on removing the friction from the system by taking advantage of emerging technologies.
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