Uber’s business model goes into overdrive

Buy, grow and knock out the competition – and now share. Some markets are moving beyond growth and hypercompetition to collaborative consumption via digital platforms. What makes these new models different? Why are some succeeding? And what can they teach us? In this blog we compare the conventional taxi operator model with Uber’s pioneering new approach.

Share, share and spread it around

Holiday apartment platform Airbnb and transport network Uber are at the vanguard of the sharing economy. Basically they’re nothing new: bartering began long before the digital revolution, the practice of renting out rooms for a small consideration was common back in the Middle Ages, and noticeboards for people seeking or offering lifts have been around for decades. But it’s only with the advent of digital platforms that this has all been possible on a large scale, turning markets into mass markets.

A model with a certain extra something

Journalists have taken to labelling promising new startups taking on established markets as ‘the new Uber’. Uber is the epitome of the sharing economy. By simplifying the interface between people offering rides and those looking for them, it’s sending waves of trepidation through the world of established taxi operators. In many places – for example New York and cities in Germany – traditional players are having to resort to legal action to defend their turf, in some cases successfully. It all begs the question of what makes Uber’s approach so superior to the conventional model.

Flexible key resources

At first glance there doesn’t appear to be that much difference between Uber and traditional taxi companies. They all get passengers from A to B. But Uber takes a radical new approach to key resources and the channels used to reach customers.

Uber’s business model.

Flexible key resources

By key resources we mean all the means (which are in scarce supply) used to profitably produce or enrich an offering, for example talented staff, rare minerals, unique brand appeal, etc. Most established taxi firms have a large fleet of vehicles and taxi licences that have to be obtained from the towns and cities where they operate. The supply of licences is strictly limited to prevent the competition from getting too intense and putting too much pressure on wages. At the same time it makes it almost impossible for taxi operators to expand into other towns and cities.

Uber, by contrast, doesn’t have a fleet of its own, never mind its own drivers. Its key resource is its digital platform, the virtual marketplace where independent drivers can connect with passengers seeking a ride. Uber lays down the rules for these business relationships (type of vehicles permitted, prices, payment and ratings). To expand into new cities Uber hasn’t had to build a fleet or recruit new drivers. It’s been able to roll out its platform in new locations easily at fairly minimal personnel expense. This has enabled it to expand across the planet with almost unprecedented speed and aggression.

Connected customer channels

Customer channels are what connects offers with customers. They include all distribution and communication channels through which the customer finds out about or acquires the product or service. In the taxi business a passenger is looking for a taxi. If there’s no taxi available nearby they have to call the taxi office and wait a while. Not with Uber. You don’t have to know a whole bunch of phone numbers by heart. Once the Uber app’s installed on your smartphone you’re only a few clicks away from your ride. The app locates you automatically by GPS and connects the driver and passenger immediately. Less far for the driver to travel, less time for the passenger to wait.

In a nutshell

At the core of every business model is the utility a customer enjoys by virtue of acquiring the product or service. Both Uber and conventional taxi operators enable passengers to get from A to B. But Uber’s model differs fundamentally from the traditional set-up in terms of the way it harnesses key resources and customer channels to optimise the utility for both passengers and drivers. The app minimises the effort to order a taxi and the time passengers have to wait. And it makes it easier for drivers to get fares – so much so that even private individuals are getting on board and offering their services as paid drivers.

It is this type of disruption of existing business models that is transforming many industries, and Uber and other similar platforms are prompting many businesses to re-examine their own business models and try to ‘disrupt themselves’ from within rather than waiting to be disrupted.

 

Contact

Olivier Kofler
Experience Center Director
Office: +41 58 792 3090
Email: olivier.kofler@pwc-digital.ch

Mobility and the art of keeping people on the move

Twenty years ago already Swiss carsharing cooperative Mobility had adopted the basic idea of using rather than owning. Since then Mobility has surfed the wave of the digital revolution and new paradigms of convenience and status to capitalise on this business idea with innovative, far-sighted services. Mobility communications manager Patrick Eigenmann explains how Mobility is building on its market leadership and describes the carsharing of the future.

Mobility is a pioneer in carsharing. Where did the idea behind your business model come from?

The end of the 1980s saw the emergence of two companies with the same business idea: ATG AutoTeilet, a cooperative in Nidwalden with eight people and one red car, and ShareCom in Zurich. In 1997 they merged to form Mobility.

We’ve always been organised as a cooperative. Our approach is guided by economics, but we’re not geared to maximising profit. Any surplus goes to our customers in the form of fair prices and innovative offers.

What factors drove the emergence of the basic idea of using rather than sharing?

The average private car in Switzerland goes nowhere 23 hours a day. The founders saw enormous potential in this: why not share cars rather than having them stand around unused? In the early days this philosophy was clearly inspired by environmental concerns. That’s no longer the case. While being kind to the environment continues to be a welcome side-effect for our customers, simplicity, convenience and the chance to save money are the main motives for carsharing.

What trends are driving the business now?

First we have the share economy, which is on the rise everywhere, from apartments to tools and cars. Then there’s the increasing scarcity of urban space and growing traffic problems. Transport solutions like mobility are an obvious solution. And thirdly you have the fact that carsharing is no longer attractive only for private individuals: more and more businesses are cashing in on the benefits. For them too costs and sustainability are key issues. Instead of investing in a fleet of their own they’d rather use Mobility or fit out their company cars with our carsharing technology. We now generate a quarter of our sales with business customers.

What’s the role of digitisation in your business model?

It’s the main factor. In the early days we left the keys to Mobility cars in special key safes, and customers had to enter their trips by hand in a logbook.

Digitisation has made our business suitable for a mass audience and allowed us to grow on a broad scale. Car keys have given way to chip cards and on-board computers, and these days 94% of reservations are made online and via our app. We’ve also developed our own carsharing technology, which we’re optimising on an ongoing basis and are now selling abroad.

What does the competitive landscape look like, in Switzerland and abroad? Have new competitors from other industries muscled in on your market?

We’re the only carsharing provider operating across the board in Switzerland. Our main competition comes from private cars, which are also our benchmark for prices and the services we offer. Internationally most car manufacturers have recognised the potential and have now launched projects based on the same or similar business ideas. But so far none of them has ventured into Switzerland.

That certainly has to do with our strong position. We provide a dense network of Mobility stations throughout the country. We’re close to our customers and are able to offer innovation geared specifically to our audience, which is particularly well received in densely populated areas. Our leading position is made even stronger by a whole range of collaborations with partners in public transport.

And providers like Uber?

We don’t see them as direct competitors. So far they haven’t been able to offer anything to take the place of private cars. This is because our customers use mobility vehicles for everyday purposes such as shopping or moving. Offerings like Sharoo are still marginal. But of course we keep a very close eye on all the developments taking place in the market.

What do you offer for a young, mobile audience of 18 to 25-year-olds? How do you reach these people?

The share of young customers is growing more quickly than any other group. There are many reasons for this. First of all we get them on board with targeted offers such as carsharing for learners and students. Secondly, young people no longer see the car as a status symbol. Thirdly, collaborative consumption is something completely normal for young people. They use services on demand, and want to be able to decide for themselves what they consume when and in what form. Carsharing has always catered to this need.

What innovative forms of carsharing are there these days?

In 2014 we launched Catch a Car, a service offered in cities to cater to so-called free floating in urban centres. A customer can use Catch a Car to get from A to B and then leave the car in any blue parking zone in the area covered. We’re just finishing a two-year pilot in Basel which was supported by the ETH. The results make persuasive reading: like Mobility, Catch a Car reduces traffic and promotes public transport. One Mobility vehicle replaces ten private cars; with Catch a Car it’s around four. Now there are more than 5,000 people using Catch a Car, half of whom also use Mobility. Soon we want to roll out Catch a Car in other cities.

We’re currently testing a new form of carsharing we call Mobility One Way which will enable people to travel longer distances from one Mobility station to another. Here too they don’t have to bring the car back to the station they picked it up from. We’re currently looking into the most popular routes and seeing how price-sensitive our customers are. By the end of the year we’ll have five vehicles available for Mobility One Way.

Is carpooling interesting for you?

At the moment we’re not interested in getting actively involved in this market. But we have taken a financial interest in Sharoo. Under their model, private individuals make their cars available and set the price and available time themselves.

Could changes in the law, for example in data privacy, affect your business model?

No, I don’t think so. We don’t capture geodata, so we don’t know when and where our cars are being used. The only information we have is the time the car has been reserved for and the number of kilometres travelled, which we need to know to be able to bill usage. This data is unproblematic from a data privacy point of view.

How do you see carsharing in 10 or 20 years from now?

The market will continue to grow and become even more diversified. People will still want to save time and money in the future. The limits of individual and public transport are also working in favour of alternatives such as carsharing.

These developments are driving combined mobility forward, and in the future you’ll be able to combine different modes of transport such as carsharing, tram, rail and bike for a single journey. You’ll have apps suggesting the quickest, most direct or most environmentally friendly way of getting to your destination.

Self-driving cars are the ultimate opportunity for carsharing. In 20 years at the most they’ll be ready for use on the roads. They’ll revolutionise individual transportation and take carsharing into a new dimension. Mobility has already made the first moves to enable us to play a key role in this field.

What can the experience with your business model teach companies in other industries?

We recognise that we have to refine our products and invest in innovation on a permanent basis. We take an evolutionary approach. To be able to innovate constantly you need to be entrepreneurially far-sighted. My own experience is that Mobility is an extremely forward-looking organisation.

Cooperation is one of the main keys to our success. In the very early days it gave us the breadth we needed, and it continues to make us strong. For example we have partnerships with the Swiss railways, various regional transport networks, care hire firms and Migros. Synergies like these are extremely valuable and add a lot of value.

Another factor in our success is the fact that we’re so close to our customers, both emotionally and geographically. We take our customers seriously and offer them quick and convenient services geared to their needs. Customer satisfaction is right at the top of our list of priorities. We also actively foster the values that have marked us out for decades: friendliness, respect, openness and flexibility. The wishes and feedback of our customers help keep Mobility on course for success.

The Mobility Cooperative

Mobility is the biggest provider of carsharing services in Switzerland, with 127,300 customers using 2,900 vehicles at 1,460 Mobility stations. Thanks to cutting-edge technology, Mobility’s carsharing services are easy to use, low cost and available around the clock in self-service mode. In 2015 Mobility posted consolidated sales of CHF 74.1 million and a profit of CHF 3.7 million.

Patrick Eigenmann

Patrick Eigenmann (35) has been in charge of communications and media at Mobility for nearly four years. In this capacity he’s responsible for all communications with customers and cooperation with partners. After gaining a degree in business communications he spent several years working for the Swiss consumer goods industry association Promarca.

 

Contact

Olivier Kofler
Experience Center Director
Office: +41 58 792 3090
Email: olivier.kofler@pwc-digital.ch

Sharing economy: using is in, owning is out

From sharing economy and share economy to new new economy and collaborative consumption, there’s no shortage of names for the sharing revolution. It’s a megatrend that has already swept many industries, not just accommodation and transport. With the almost limitless flexibility it offers it’s turning conventional economic and social structures on their head, and raising some important questions.

Win-win with no solidarity

The sharing economy encompasses businesses that enable people to use their things and possessions temporarily or exchange them for something equivalent. This makes consumers themselves service providers and suppliers. Sharing is cheap, with the contributions you pay generally only a fraction of the original cost.

To get known and distribute their services, sharing economy providers use digital platforms that work across different media. Despite the name, the sharing economy doesn’t involve a great deal of solidarity. It’s driven by hard-headed economic goals. Because they operate without staff, warehouses or offices, platforms can keep their overhead very low. This also makes them an attractive proposition in markets where cash flows in the form of micropayments. In 2015, sharing economy services worldwide turned over USD 15 billion. Credit Suisse estimates the sharing economy’s current slice of Swiss GDP at between 0.25 and 1 per cent, or CHF 6 billion.

Old ideas reloaded

The principle of sharing is nothing new. People used to pin a notice on the board in the village shop or place a small ad in the local paper. The first peer-to-peer (P2P) network was eBay back in the mid-1990s. Even then private individuals were trading private property, increasingly on a semiprofessional or even professional basis. And then Facebook de-anonymised internet users.

«Now banks use share economy data to sniff out suspicious transactions»

Digitisation hots it up

With mass access to the internet the time was ripe for the share economy to grow, and thanks to smartphones with broadband access, GPS location, apps and micropayments the seed has continued to grow. Peer networks such as Facebook, Xing and LinkedIn have helped boost credibility and trust in digital communities. Encryption and technologies such as big data evaluation algorithms and Blockchain shared database technology have provided effective tools to make the new form of business a reality. Now share economy data are even used for surveillance, with banks, for example, using the technology to sniff out suspicious transactions.

Business model reloaded

The sharing economy is revolutionising conventional business models. Users can plough goods and services back into the distribution and value chain. Thanks to online and mobile use, the principle is taking on its own momentum as more and more interactions and transactions occur. Sharing platforms earn a slice of every single transaction. The economy of sharing has already spread into all aspects of our lives, from babysitting and help for pensioners with gardening and admin, renting apartments and tools, to raising funding, parking spots, taxis and bikes. Everything’s shared, even knowledge. It’s most popular for things that don’t suffer a lot of wear and tear. Intimate business is a no-no.

Availability is good, trust is better

A special quality of the sharing economy is that it evokes emotion. What people are selling (or renting out) is intangible rather than tangible: the opportunity, in return for a consideration, to experience something that you can’t afford within the framework of conventional business and society.

Standardised systems enable providers and users to be rated after every transaction. This way they can build up a digital quality label that’s recognised across the web. Peers’ trust in their peers becomes the new currency.

«Sharing has become the motto of the Millennials»

Time, the new luxury item

It’s 28 to 29-year-olds who have the greatest affinity for collaborative consumption. Sharing has become the motto of the Millennials, who in addition to exchanging more or less meaningful comments with millions of their peers also share consumer goods and services. For them the noncommittal nature of collaborative consumption outweighs the status of owning a car, hi-fi or other possessions. Possessions only weigh you down, they entail a commitment. The new luxury item is time.

One principle, many advantages

From lower costs of intermediation and maximum flexibility to new networks for additional products and services, new transaction options, and peers as the hub of opinion and evaluation – the sharing economy has numerous benefits, actual and potential. And in most cases it doesn’t just involve sharing resources, but is kind to the environment.

Two sides of the bitcoin

As with so many things, though, there are two sides to the sharing economy coin. Income tax is a crucial issue: how should the sharing of goods and services be taxed? With employees metamorphosing into occasional entrepreneurs, we’re seeing the emergence of a shadow zone between professional and private life where the state can’t levy value-added tax on income. There would have to be an automatic process for levying micro-amounts (analogous to spa or visitors’ taxes) and clear differentiation between people who rent out products and services on a private and professional basis.

«Gung-ho sharing entrepreneurs exploit legal grey zones on the basis that if it’s not banned it’s allowed»

The sharing economy also often leads to questionable working relationships and conditions. With so few working hours or such a small mini-wage in return for their efforts, freelance sharing providers can hardly live off their earnings. And they seldom have adequate social security cover. For these reasons the legal status of the sharing economy is currently the subject of hot debate. Gung-ho sharing entrepreneurs exploit legal grey zones on the basis that if it’s not banned it’s allowed. And of course the sharing economy delegates many risks to sharing providers, who have to cover damage and wear and tear themselves.

Established industries under pressure

The fact is, there’s no stopping the rise of the sharing industry. And it’s posing huge challenges for the business establishment. For example accommodation rental service Airbnb is expanding at high speed, giving the hotel chains a real wakeup call. It’s already planning additional services and operations in areas such as business travel and holiday destinations. Switzerland’s the ideal testbed for the latter.

Collaborative finance platforms like Lending Club and Transferwise have benefits it’s hard for traditional banks to offer: accessibility and simplicity. According to a study we’ve done this is the part of the sharing economy set to grow the fastest in the next ten years, at 63 per cent per year.

Many established top dogs in transport, hotels, financial services and commerce have been quick to seek cooperation with or even buy up interesting sharing economy newcomers.

The silence of the legislators

Governments are reticent when it comes to the development of the sharing economy. They find themselves divided: the new wave is creating innovation, but at the same time it’s undermining the established pillars of the economy. The European Commission is currently drafting guidelines for member states, although they’re not likely to be all that restrictive. Government regulation is problematic. What’s needed instead is mechanisms established by the platforms themselves to monitor compliance with the rules.

On to greater heights

The sharing economy can look forward to a bright future. According to Swissquote, in the next ten years the segment is set to grow 25 to 30 per cent a year, with sales revenues increasing from USD 15 billion to around USD 335 billion in 2025. The number of people earning their livelihoods with sharing platforms will rocket, with the percentage of people employed on a full-time basis declining accordingly.

The sharing economy also looks set to shake up healthcare and energy. In the future you’ll be able to book a doctor or nurse online. And once battery electricity storage solutions conquer the market, the energy business will never be the same again, as users will be able to sell the electricity they haven’t used themselves.

«Sharing Economy is transforming the affluent society into a value-added society»

In a nutshell

The sharing economy is much more than mere business hype. It’s transforming the affluent society into a value-added society where time and experiences mean more than money and growth. It will democratise lifestyles previously only available to the privileged classes. Business models revolving around collaborative consumption will add value for customers and generate revenues for companies.

This is putting existing players in the conventional economy under increasing pressure. They have to decide how to expand their offer to include elements of the sharing economy, or whether they have to completely remodel their business. The sharing economy is potentially a good business model in the context of digital transformation. The challenge and also the opportunity for existing players is whether they can successfully leverage the trust in their offline brand to also be successful online and play a major role in the share economy.

Contact

Olivier Kofler
Experience Center Director
Office: +41 58 792 3090
olivier.kofler@pwc-digital.ch