uber case study strategic management

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Uber in 2024: From Industry Disruption to Creating Value For All Stakeholders

Dara Khosrowshahi became the CEO of Uber in August 2017, following internal turbulence and serious headwinds related to the company’s governance and reputation. Five short years later, Uber was clearly back on course, building on the success of its technology platform to reach 150 million monthly active platform users—and a market cap of $125 billion by the end of 2023.

This case study traces the remarkable transformation of Uber from its early innovation as a ride-hailing pioneer in a handful of cities, to the global expansion of Uber mobility services that required close attention to local operational and regulatory practices, to solving the complex technical challenges to drive Uber’s food delivery services forward. Interviews with Uber leadership reveals the strategic approach to work on the engineering, data science, product management, and product design challenges involved in building and maintaining a customer-friendly app and create an optimized user experience—and scale this on a global basis while factoring in local conditions and practices.

Key to this success was a culture reboot within Uber, and a renewed focus on collaboration and value creation for all stakeholders. The company that had found its initial footing by disrupting and transforming the taxi industry, more than a decade earlier, now faced a future where artificial intelligence and autonomous vehicles would likely disrupt the mobility sector once again—but Uber was preparing intensively for what the future might bring.

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How Uber Disrupted An Industry With An Explosive Approach

Table of contents.

In this strategy study, we’re going to delve into a company that impacted everything from people’s everyday lives and entrepreneurial dreams to the startup world and city legislature.

Its story and strategy are fascinating, often problematic, and definitely worth exploring. So let’s embark on a different kind of Uber ride.

Despite disrupting transport around the globe, Uber defines itself as a technology company , not a transport company - hence their legal name Uber Technologies Inc. It was one of the first companies to embrace and define “the sharing economy” concept and created a two-sided digital marketplace for drivers and riders.

Uber’s mission was to make transportation as easy to access as running water and they wanted to do it in a different way - without owning its own vehicle fleet like your regular taxi company. 

That asset-light strategy is what makes Uber so incredibly scalable and it proved to be a huge draw for investors. Since Uber’s launch in 2010, the company has attracted over $25 billion in VC funding.

Their business model and immense financial backing helped Uber achieve:

• Present in 10,500+ cities across 70 countries
• 131 million monthly active platform customers
• Nearly 23 million rides per day worldwide
• Over 5 million drivers worldwide
• 118 million users in 2021
• Annual revenue of $17.4 billion in 2021
• A 68% share of the US rideshare market .

Uber’s numbers are astronomical and the company is a perfect example of a disruptive and transformative brand. However, as we dive deeper into Uber’s strategy, you’ll see that Uber faced and is still facing many challenges - the biggest one among them being its (un)profitability.

But let us start at the very beginning...

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It all began on a cold night in Paris...

It was a snowy winter night in Paris in 2008. Two friends and successful startup founders, Travis Kalanick and Garrett Camp, were attending the annual tech conference LeWeb. More importantly, they were trying to get a cab but couldn’t find one.

What if you could just request a ride from your phone?

This idea, based on a very real need at that moment, is what sparked the creation of Uber.

After the conference, the entrepreneurs went their separate ways, but when Camp returned to San Francisco, he continued to be fixated on the idea and bought the domain name UberCab.com. 

In 2009, Camp was still CEO of StumbleUpon, but he began working on a prototype of UberCab as a side project. At the time, UberCab was still an idea for a shared luxury cab service that could be ordered via an app.

Camp had managed to persuade Kalanick to join UberCab in an advisory role and on July 5, 2010, the first Uber rider requested a trip across San Francisco. Kalanick became Uber’s CEO in December 2010, while Ryan Graves, Uber’s first CEO, assumed the role of the COO and board member.

Uber’s app, enabled its users to order a ride with a tap of a button . A GPS identified the rider’s location, and the cost was automatically charged to the card on the user account. Uber’s simplicity fueled its early popularity among users as well as investors and the startup quickly became one of the hottest companies in San Francisco.

By October 2010, the company received its first major funding of $1.25 million and in 2011 its growth skyrocketed. Early in the year, the company raised $11 million and went on to expand to New York, Seattle, Boston, Chicago, Washington D.C. as well as abroad in Paris.

Yes, just a year after the first Uber ride was requested, Uber had already launched internationally in Paris, where the idea for Uber first took root.

In December at the 2011 LeWeb Conference, the very conference “responsible for Uber’s inception”, Kalanick announced that Uber raised another $32 million in Series B and that investors like Jeff Bezos and Goldman Sachs got on board.

In 2012, Uber launched its arguably most popular service UberX. UberX provided an option of ordering a more affordable car as an alternative to its original black car service. That’s when Uber became really appealing to the mass market.

Behind Uber’s explosive growth are an innovative business model and growth strategy that we must explore before diving into Uber’s global expansion.

Key takeaway #1: build solutions for real-world problems

Successful products and services identify real problems and figure out how technology can be leveraged to solve them. Uber’s founders made sure they’re going to be able to get a ride during a cold winter night by using mobile technology to transform on-demand transportation.

All about Uber’s scalable business model

When talking about Uber’s business model, we need to mention that since its launch, Uber has expanded and diversified its services. It’s no longer just a ride-hailing service - it also offers food delivery (Uber Eats) and trucking (Uber Freight).

However, for the sake of simplicity, we’ll mostly focus on Uber's core business of ridesharing and the business model revolving around it. 

The basic idea behind Uber is to connect riders that need to get somewhere with drivers that are willing to take them there. Riders create the demand while drivers provide the “supply” and Uber acts as the marketplace where both parties can seamlessly connect.

As you can see, Uber has two key users and it has to provide strong value propositions for both drivers and passengers in order to attract enough users for the platform to function as intended.

Let’s see why passengers and drivers use Uber.

Uber’s value propositions

• Convenient on-demand ride bookings
• Real-time tracking
• Cheaper rates compared to taxis
• Accurate estimated time of arrival
• Automatic credit card rides
• Lower wait time for a ride
• Upfront pricing
• Multiple ride options

For drivers

• Highly flexible source of income for people who own (or are willing to loan) a car
• Completely flexible working hours
• Good trip allocation
• Assistance in getting vehicle loans
• Weekly or even daily payments

Uber’s target market

While the appeal of Uber is quite obvious, who exactly do they target?

As evident from the value propositions, Uber has two main target segments - passengers who want a fuss-free experience ride from A to B and drivers that want flexibility and some extra income, usually on the side.

When it comes to passengers, Uber’s website’s headline for a long time was: Everyone’s private driver . That instantly lets us know that Uber’s target market is very, very wide. It’s everyone who needs a ride .

While targeting several customer segments with different cost-conscious and more luxurious service options, what’s perhaps more important is how Uber reached its audience at the very beginning as you can’t just target everyone from the get-go.

It’s all about passionate early adopters

Uber did a masterful job attracting its first users - passengers as well as drivers. When it comes to launching a marketplace the first few weeks are absolutely crucial as there needs to be enough supply and demand for service to feel worthwhile.

Uber developed a highly targeted and localized early adopter strategy in the Silicon Valley area. They knew that launching there meant that the company will be interacting regularly with the tech community who are continually looking for new tools and services that improve their quality of life. People there were ideal early adopters and Uber reached them by sponsoring tech events, providing free rides, and in general driving awareness among this audience.

San Francisco also has notoriously spotty cab service which was perfect for Uber. As early adopters, completely fed up with the taxi situation in the city, tried Uber, they took to blogs, social media and every other way possible to tell their friends about this new way to ride.

The Uber experience became a vector for growth as early adopters impressed their friends with the ability to call a black car from their phone with a couple of taps. These new riders were immediately wowed by the experience and became new users and advocates within the span of a single car ride.

Uber also knew that attendees of their sponsored events were well connected and highly likely to share their experiences with friends, tech press, and social media audiences after trying Uber.

By seeding this audience, they were able to create a growth engine that hinged not just on word of mouth, but by showcasing the service to one's friends which quickly led to a growing network of passionate customers.

Uber combined that initial campaign with its referral marketing strategy where users can give friends free rides while earning credits themselves. This “give money-get money” program gave first-timers a more concrete reason to try the service. It’s been massively successful both for Uber and for certain “superfans”, one of whom earned over $50,000 in referral credits . Drivers also get referral incentives, thereby making acquisition on both driver and rider sides faster and easier.

That’s how Uber quickly got a lot of passionate users who were actually Uber’s first target market. Of course, every company wants passionate users, but as you’ll see, Uber needed them to win against the myriad taxi regulations in major cities.

Uber’s early adopters were people that weren’t happy with the existing state of the transportation industry in their cities. They quickly became advocates for the company in various forums as Uber fought against old regulations. It was a very clever move to identify and cultivate these customers early on. By making customer convenience and service a priority, Uber took the role of “disruptor” and turned it into a part of the company’s image and brand. They joined a broader socioeconomic movement towards changing old industries in ways that benefited consumers. 

It’s safe to say that if Uber wasn’t backed by its passionate users, it wouldn’t be able to expand nearly as fast as it did. In fact, the disruptive socioeconomic movement became a key part of Uber’s early business model.

Adapting to local markets

Despite targeting everyone, Uber still takes into account local experience. As Uber expanded it segmented its audiences and precisely targeted them by region and immediate needs.

For example, in countries like India and Thailand, the average customer must deal with higher traffic congestion and reduced purchasing power than a North American city. In these regions, Uber expanded its offerings with a rickshaw and motorbike service, which are more affordable and often faster transport options.

What enables Uber to adapt its services to the local condition? It’s arguably the most important part of Uber’s business model and quick expansion...

An asset-light strategy

As we said Uber is not a transport company and therefore does not need the assets a traditional taxi company requires.

By being “just” an online platform connecting drivers with passengers via their smartphones eliminates Uber’s need to establish a brick and mortar presence in each new city to which it expands operations. This model eliminates many barriers to Uber’s growth and drastically increases its scalability. It also unlocks the potential for Uber to expand into contiguous service segments such as food delivery (Uber Eats) without drastic changes to the company’s operating model. 

The majority of Uber drivers use their own cars which means that Uber doesn’t need to invest in a fleet of company-owned vehicles or the insurance and repair costs that come with it. It also doesn’t need dispatchers or call centers as the whole process of hailing a ride takes place on their app. 

So, compared to a traditional cab company, Uber doesn’t have to deal with:

• servicing and maintaining a fleet of taxis,
• call center agents,
• administration,
• parking fees,
• recruiting and training drivers and issuing permits.

This means massive savings in fixed and variable costs as well as the agility to respond more quickly and effectively to market changes relative to its competitors.

That’s why Uber was able to expand extremely quickly and in a span of 10 years appeared all over the globe. No taxi or transport company is able to achieve that.

Their lack of assets shows how they save money and expand at relatively low costs - but how does Uber actually make money?

How does Uber make money?

You can probably guess that Uber’s ridesharing service makes money by taking a cut of each ride that happens through their platform. While this is correct, Uber’s revenue model consists of more than just trip commissions - even without taking into account its other services like Uber Eats and Uber Freight. Let’s take a look at other revenue streams their business model enables.

Trip commissions and surge pricing

Uber provides the drivers on its platform with a robust supply of ride requests to accept, fulfill, and make income. When passengers pay for the ride through the app, Uber takes their commission and transfers the rest to the driver. Uber claims that they charge their drivers a 25% fee on all fares, yet reports vary.

However, Uber’s trip rates are not always the same. Uber utilizes a surge pricing model , which is also a cornerstone of Uber’s business model.

It takes advantage of the dynamic relationship between supply and demand and willingness to pay. When there are more passengers than available drivers in a given area, the algorithm increases rates in order to equilibrate this discrepancy. The first benefit of this model is that it attracts drivers to areas offering higher rates, thus increasing their numbers in regions of high demand. Second, it narrows the initial pool of potential passengers based on how much they value a ride, allowing Uber to more accurately segment their customer base and satisfy those users who need their service the most. 

Thus the surge pricing model serves the purpose of capturing the highest possible margins for the company and its drivers while establishing a targeted base of users that value Uber rides the most. These users might also be enticed to upgrade their chosen option to a premium one the next time they use Uber, which is considerably more profitable for the company.

Leasing to drivers

Uber runs a vehicle leasing program in many of its target countries to help new drivers get onboard faster. Drivers have to pay an upfront security deposit for the vehicle and payments are automatically deducted on a weekly basis from the driver’s earnings.

Advertising

There are millions of people around the world that interact with Uber cars every day. Not just the ones who use it for rides but also the ones who see them. That’s a huge opportunity for local as well as global brands that can take advantage of Uber’s on-car advertising .

Brands can advertise on cartop video screens, car wrappings, or car stickers. All three ways display ads on the car and are a fairly traditional form of advertisement, yet Uber with their huge number of drivers can get some money out of it. Of course, drivers that are willing to use their cars as moving ads also earn some additional income.

Understanding Uber’s business model is important if we want to understand the company’s extremely fast and aggressive global expansion, which is something Uber is quite famous for.

Key takeaway #2: plan for scalability

Building a scalable business model is critical, especially if the company’s revenue depends on the quantity of its service. Uber has built its platform in such a way that it is easy for it to expand to new markets and serve millions of users at the same time without a significant increase in its operational costs.

Uber expansion strategy

Uber’s initial global expansion it’s an amazing showcase of the company’s “ask for forgiveness instead of permission” approach . As we’ll see later, Uber’s culture has completely changed since then, but its early expansion is what brought the company mercurial success as well as plenty of backlash and issues of all kinds.

Uber employed an almost warlike mentality when going into a new market and the company’s sole focus was winning. This was first visible in San Francisco even before it went global.

Uber received a cease and desist order in San Francisco soon after its launch in 2010. It ignored it and issued the following response , that might be seen a bit on the arrogant side:

“UberCab is a first to market, cutting edge transportation technology and it must be recognized that the regulations from both city and state regulatory bodies have not been written with these innovations in mind. As such, we are happy to help educate the regulatory bodies on this new generation of technology and work closely with both agencies to ensure compliance and keep our service available for our truly Uber users and their drivers.

Our commitment is to facilitate an improved transportation option that provides safe, reliable, and convenient travel. That will not change. We will continue full speed ahead with the mission of making San Francisco city a great place to live and travel.”

They were relying on their passionate supporters and on their lobbying efforts to put things in order. Not just that, while this is playing out, they're continuing to push forward and expand into other parts of the world. That’s how aggressive they were from the get-go.

Going to Paris - because they can

Uber recognized early that international expansion should be a priority if the company wanted to achieve exponential growth and made Paris its 3rd launch city and 1st city outside the US.

In fact, when they launched in Paris, they launched as sort of a prototype, just to show that they can do it without too much difficulty. 

As Mina Radhakrishnan, Uber’s first Head of Product said in a blog post :

“At Uber, we launched our first international city, Paris, in 30 days. There was a lot of manual work to continue launching in other countries and languages while we didn’t have a core set of international systems  – we had to charge everyone in US dollars for several months. In parallel, we built out the foundations and kept moving pieces onto the new infrastructure, which allowed Uber to keep momentum and still scale.”

While Paris served as an enticing showcase for new investors it also made Uber realize they need an expansion playbook.

Uber’s unusual expansion playbook

At first Uber treated each city as an individual project. They would investigate what needed to be done on a case-by-case basis, and it involved a whole lot of work manpower. 

However, there was a market that needed to be monopolized and they needed to act quickly.

Uber soon realized that looking at each city as a project was too slow. Instead, they developed a process based on the lessons learned from their initial projects and created their aggressive expansion playbook.

Here’s Uber’s plan when expanding to a new city:

• Secretly enter a new market. Recruit drivers and customers through company ambassadors who gain commission and Uber credit. Offer first-time customers free rides to create a strong customer and to exploit a legal loophole for promotion. 
• Ignore threats of legal action. Make a case that customers want Uber to be there. 
• Ignore government sting operations. When the government threatens Uber’s drivers with fines, reassure them that Uber will cover any penalties, legal costs or other repercussions using the massive sums of money invested in the company.
• Start lobbying the state government. Start pushing for regulations that legalize its operations. Create a positive public image and gain the support of influential local charities and other key community stakeholders. Involve customers in petitions.
• Monopolize the market. Hire more drivers, pour more money into promotion, and manufacture PR stunts like delivering puppies or ice cream.
• Undermine the competition. Recruit drivers from competitors by offering them high sign-up fees and often employ other tactics to disrupt their services.

This was the overarching process, and there is obviously a multitude of smaller processes within each of the six steps. The playbook was implemented by a new, local team with a separate entrepreneurial manager who was overseen by Kalanick, the CEO at the time.

While the process was extremely aggressive it’s also how Uber increased its valuation from $3.7 to $41.2 billion in just 15 months. 

The main thing Uber did with this playbook was to launch its service seemingly out of the blue which gave the authorities no time to react before it was firmly established in the city.

While this playbook is responsible for Uber’s early success the approach was often challenged and frowned upon.

War on all fronts

Unsurprisingly Uber has been heavily criticized for aggressively lobbying, following unfair labor practices, jeopardizing the security of passengers and drivers, and playing with local laws by requiring no permits. There were too many scandals and issues to cover them all.

Uber’s warlike approach worked better in countries with legal systems based on common law. In common law countries like the US, Canada, and the UK, laws and regulations are more flexible and subject to judicial interpretation. Uber was therefore afforded greater latitude when arguing the legality of its case in the courts of law. 

In the U.S., Uber used consumer enthusiasm for its service to bring pressure on local politicians to develop rules that allow it to operate. However, such an approach is difficult in civil law countries like China, France, Germany, Spain, and much of continental Europe.

This resulted in plenty of bans, penalties, and losses on various markets .

Uber has been banned from operating in parts of France, Germany, Spain, the Netherlands, and Belgium. It has been accused of willfully ignoring and breaking the law, placing both drivers and riders in peril. In the Netherlands, the company had to pay around 2.3 million euros to settle a case, after being accused of operating an illegal taxi service from 2014 to 2015. 

Uber also faced issues in countries where the relationship between Uber and its drivers meets the definition of the employer-employee relationship. This is one of the reasons why the app was temporarily banned from operating in Colombia and faced similar legal issues in Chile and Argentina.

Its presence in various countries has generated an incredible backlash – protests, riots, and clashes with angry labor unions - especially cab drivers.

Uber also completely mismanaged their launch in China and lost billions trying to establish themselves on the Chinese market. Here’s where their process completely failed them.

When Uber came to China, it didn't fully anticipate all the changes it would have to make. In China, besides having an established competitor in Didi, Google Maps didn't work, so Uber had to completely redo their location services.

Uber also relied on credit cards for payments, and in China, consumers increasingly used apps to do their payments. However, the main apps consumers used ( WeChat and Alipay), were owned by parent companies of the rival ridesharing company, so Uber had to essentially negotiate with its rivals in order to have consumers pay for their ridesharing services.

The Chinese policy regarding competition is also very different from the policy in the United States and much of Europe. The Chinese government wants to promote domestic firms and aggressive tactics are not really an option, because when push comes to shove, the government is likely to come down on the side of the domestic company.

Despite many problems and failures, Uber made impressive headway in foreign markets. But their success also made them a target. Well-funded local challengers soon replicated and improved upon Uber’s model and quickly limited Uber’s market share or pushed them out of their markets.

Tactical retreat from some markets

After Uber hired a new CEO in 2017 and started cleaning house at the end of 2017 (more on this later), it switched to a much less aggressive expansion strategy. In 2018 they decided to retreat from some markets instead of trying to “win at all costs”.

While some may see retreat as a failure, Uber’s early and aggressively sought international position actually provided an opportunity. Instead of completely giving up on markets, Uber used its leverage as an established player to acquire stakes in local competitors . Uber acquired 15.4% of Chinese Didi, 38% of Russia’s Yandex Taxi, and 23.2% of Southeast Asia’s Grab. 

Uber also vowed to do a “reset” in Germany, where it operated a very limited service in Berlin. 

Uber is still left fighting in India against rival Ola where the two have been locked in a costly battle for years over dominance in India’s ride-hailing market. The rivalry is more awkward now that both companies share a mutual large investor: SoftBank. 

Uber’s early super aggressive expansion policies reflected its combative corporate culture which soon tarnished the brand’s image.

Key takeaway #3: being ultra-aggressive is a double-edged sword

There’s no denying that without its extremely fast expansion Uber wouldn’t be the brand that we know today. But as scandals mounted and as Uber lost millions and billions of dollars in certain markets, we should ask ourselves if things could have been done differently. Ignoring local regulations, while it did work in some cases and was extremely costly in others, was never ethical. And we can probably all agree that even if a company adopts an aggressive playbook, it should do all it can to act ethically as well.

Uber’s toxic culture comes to light

Uber needed three key elements in place if it wanted to thrive as a global business.

• A set of country managers who are responsible for their individual markets.
• An understanding of how those markets differ.
• A unified executive team, which creates a centralized command center.

Under Kalanick, Uber actually had the first two. There were strong regional managers and a decentralized command structure that allowed them to enthusiastically implement Uber’s playbook.

However, Uber was lacking a unified executive team to coordinate global operations, including the activity of the individual country managers.

Not just that, back-biting, undermining, and infighting were the rule, not the exception, and executive meetings were often canceled at the last minute.

When we look at Uber’s playbook, that’s not really surprising. Uber always played to win and they did a really good job at recruiting teams of people who really wanted to win as well.

One of the downsides of this course of action is that if you exclusively focus on winning and getting around the existing regulations it quickly blurs the line of what's ethical and what's not ethical - not just when expanding, but inside the company as well.

It also brings into the company a certain kind of people - people that enjoy treating every encounter as a confrontation . Constantly fighting skirmishes outside and inside the company is not just exhausting but affects the morale at the company and the corporate culture.

Uber’s cultural guidelines weren’t helping. They ranged from the sober “Be Yourself” to full-on bro-tastic maxims like “Superpumped” and “Always be hustling”.

As the company scaled rapidly, so did its toxic culture and questionable business tactics. These led to a constant stream of nasty and very public challenges. They included political infighting, allegations of corporate espionage, and criminal investigations.

Then there were the many run-ins with regulators, taxi firms, and even Uber’s own drivers. Uber saw a backlash in some of its key markets which came to a head with the #DeleteUber campaign.

The old Uber logo didn’t help either. It emphasized the public’s perception of Uber’s hostility, imposing itself on customers with all-caps on black background, reflecting Uber’s hyper-masculine attitude.

While Kalanick did build a hugely successful business, an increasingly toxic culture had become a poison and tarnished the brand.

“The radical scale success of Uber that was unprecedented at the time, I think, led to a culture that was highly confident, a culture that was confrontational, a culture that to some extent celebrated breaking the rules . All of which made possible what Uber built, but which created a blind spot as to individual's respect, respect for diversity of different viewpoints, et cetera, that led to Susan Fowler's blog – which by the way wasn't the only difficult occurrence happening at the company,” says Dara Khosrowshahi, the current CEO of Uber.

Exposed by a blog post

The blog post Khosrowshahi mentions was published by a former Uber engineer Susan Fowler in February 2017. She described a toxic culture at the company where sexual harassment was rampant and managers cannibalized each other. 

Her post received so much attention that Uber decided to respond by having the law firm Perkins Coie do an investigation into her allegations.

The CEO and co-founder of Uber, Travis Kalanick, began facing heavy scrutiny over Uber’s company culture. Earlier in 2017 Bloomberg also posted a video of him arguing with an uber driver over falling fare rates, which certainly didn’t help his case and further tarnished Uber’s brand.

The company finally recognized a crucial if simple truth: to maintain a sustainable brand long-term, Uber had to be honest about what it stood for. It postured itself as a cutting-edge, progressive company, yet its corporate culture was the opposite of progressive. The brand teetered on the brink of outright hypocrisy.

Kalanick resigned as CEO on June 20, 2017, and there were numerous other personnel casualties of Uber’s very public self-reflection.

The need to rebrand was clear: without a complete brand overhaul, Uber risked totaling its business and Uber decided to undergo a massive effort to restore its image and set itself up for the future.

Key takeaway #4: recognize when it’s time for a cultural shift

While the “always be hustling” mantra and “win at all costs” people might be required to succeed at a startup, there’s a time when such thinking should be left behind. As Uber grew and expanded it never really took a hard look at the corporate culture it created. It wasn’t a small startup anymore, it became a huge company and should’ve therefore acted more responsibly sooner. In the end, it was forced into an overhaul, but not before its toxic culture tarnished the brand.

Uber rebrands and goes public

When Uber decided to turn things around there were two major areas they focused on - one was their corporate culture and values and the other was their brand .

Khosrowshahi, the new CEO of Uber, said that they asked their employees what should represent the culture of Uber going forward.

He recaps the conversations and answers:

“We celebrate differences. We want to be a different company but we also celebrate differences and backgrounds and where you come from and religion and sexuality, et cetera, and we believe that no matter what you bring to the table, you should be able to contribute to what we call Uber.

The simplest answer that I hear repeated over and over is: We do the right thing, period. We didn't want to define to the employee what the right thing is. You know what the right thing is. Let's do that and, period, that's what we do.”

Listening, observing, and learning became the foundations of Uber’s cultural overhaul.

Since the change, some Uber executives even go the extra mile to participate as normal Uber drivers and experience what Uber’s drivers experience. The importance of getting one’s hands dirty is a part of the refreshed culture. 

They started calling their drivers “driver-partners”.

“Now we have a fundamental connection there that is reflected in the

organization, we have a driver product team, and we now fundamentally build our

product with the driver. We talk to them, we have a dialogue with them, and we build with

them. That kind of connectivity with our driver-partners, I think, creates a win-win and it

creates mutual respect,” says Khosrowshahi.

The current CEO also recognized that executives can get out of touch with reality and said that whenever he goes from city to city he meets with drivers and asks them what they like and what they don’t like.

Uber also changed its approach to communication with governments and regulators. Before all the conversations and the dialogue was happening through lawyers, now Uber is trying to talk about their requests and find a compromise wherever they can’t agree with authorities.

While Uber is still facing challenges and there are still many dissatisfied parties, the company has changed its warlike and aggressive approach and is trying to make things work in a different, more humane way.

A new, more emphatic brand

Uber also embarked on a major rebranding intended to capture an accessible, progressive style that reflected the best of the company. 

The company understood it faced a critical mission: it had to persuade customers that its lousy reputation left the building when its former CEO was replaced.

Uber opted for a complete redesign to overhaul the brand from the ground up. 

Their new logo is the foundation of a substantial rebranding effort – one that incorporates a sense of mobility, accessibility, and friendliness not found in previous iterations. The company’s goal was to create a cohesive brand system described as “instantly recognizable, works around the world, and is efficient to execute” .

The agency Wolff-Olins summed up the project goals on their case study site :

“The brand needed to work around the world. Its highest growth areas are in regions outside of the US, such as Latin America and India, where Wolff Olins has a considerable depth of experience. Instead of pursuing a complex identity system, localized through color and pattern, we moved towards a universal ‘beyond simple global brand. Teams in diverse markets can make it relevant to their audiences with culturally specific content.”

What began as everyone’s personal driver is now all about moving forward and moving together .

The fresh logo was supplemented by creatives that included photos of people from around the world — serving two purposes. Firstly, it represents Uber’s global market, and secondly, adding this human element made the brand a whole lot more relatable. It’s no longer just a tech startup in Silicon Valley — it’s also the drivers you meet every morning, the co-riders you pool with every evening.

Arguably the best example of Uber’s new branding direction is their marketing campaign What moves you, moves us . It’s a campaign that focuses on the drivers and is built on empathy. It acknowledges and shows appreciation for their drivers' hard work and shows the customers who and what they’re supporting when they choose to ride with Uber.

More recently, Uber acknowledged the hard work of frontline healthcare workers during the Covid-19 pandemic with a #GratefulUK campaign. The company offered them free rides and free meals during the Christmas period and encouraged people to share letters, drawings, poems, or doodles thanking the workers. 

Overhauling the brand’s image and corporate culture were not the only major changes that happened after Uber’s scandalous years and Kalanick’s resignation. Another major step towards the maturity of the company happened in 2019 when Uber decided to go Public.

Going public - to boost reputation, get more money, or both?

In less than two years after the rebrand began, Uber decided to go public. Filing for IPO was likely a part of Uber’s rebranding plan. 

Why? People tend to look at public companies as more mature. Going public also provides a sense of accountability because public companies have to report on a quarterly basis and are subject to the regulatory process. It opens the company up to an entire set of investors who drive transparency. That’s exactly what Uber needed after all the previous scandals.

Of course, the public market also provides greater liquidity and more readily available money, which Uber needed as well as it was losing billions of dollars on a yearly basis.

However, Uber's IPO didn’t go as well as expected. Uber’s valuation predictions hovered around $120 billion , which would’ve made it the most valuable company to ever go public. In the end, Uber priced its stock at $45 apiece for a valuation of $82.4 billion , which was lower than many expected yet it is still one of the most valuable exits in history. Uber’s stock began falling right away, but we won’t go further into that.

What’s more important - the company has become public which means new pressure from big investors and shareholders every quarter to stem their losses. And as we’ll see later on, Uber’s eventual profitability is not nearly guaranteed.

Before we dive into the questions of profitability, we should examine how Uber defined itself as an innovative company and how it evolved in the last 10 years.

Key takeaway #5: when you need to change, show dedication

Although the jury is still out on how successful Uber’s rebranding actually is, it’s clear that they’ve undergone major steps to repair their reputation. And there’s really no other way to do it. If you want to rescue a tarnished brand, you have to show that you’re truly dedicated to making it work and aren’t just trying to save face for your own sake.

Uber innovation & diversification strategy

Although Uber is known as the main disruptor in the transport industry, the company is actually not the ridesharing pioneer, but a fast follower in the sector.

Uber’s competitor Lyft and former competitor Sidecar (which shuttered back in 2015) are the ones that pioneered ridesharing as it is known today, which entails using non-professional, non-commercially insured vehicles and drivers. 

Uber initially worked exclusively with commercially licensed, insured, and regulated entities (known as Black Cars in many areas) before transitioning to the current ridesharing model.

While Uber was a fast follower, it expanded quicker and more aggressively and offered a better user experience which led to market dominance in many regions. 

In fact, Uber followed a market entry pattern that has proven successful for business entities in the past – Myspace preceded Facebook, Yahoo preceded Google, and Blackberry preceded Apple’s iPhone. Historical patterns of transformation suggest that being first does have its advantages, but entering the market early and iterating quickly is even more vital when it comes to dominating a market. 

Uber’s expansion playbook is a prime example of how quickly they adapted their model and grabbed the opportunity of extremely fast expansion which was possible because of the significant funding the company received.

Their activation of early adopters and passionate customers to support Uber via petitions and pressure on local authorities can also be seen as an innovative approach to one of the ridesharing market’s main challenges.

A flexible pricing model

Uber’s surge pricing model is another example of a simple yet ingenious solution to a very real problem of the taxi industry - how to get a ride when you simply can’t get a cab . That can happen during peak traffic times or during bad weather.

When Uber’s demand for rides is higher than the supply the prices surge. That means users can almost always get a ride if they’re prepared to pay enough. 

Researcher Oliver Senn analyzed satellite data on weather conditions over a two-month period, and he obtained 830 million GPS records of 80 million taxi trips. The data shows that it was not the high demand for taxis that resulted in a perceived shortage on rainy days; instead, it appeared that many cabbies simply did not pick up passengers, fearing accidents on the wet roads. However, Uber entices their drivers with higher prices and therefore higher earnings when there’s a shortage of rides. 

While plenty of users don’t like the surge pricing, it proved to be a way to get more drivers in the area to take advantage of higher earnings when there’s a shortage of available rides.

Reviews ensure a better service

Another massive differentiator between Uber and traditional taxis is that Uber has rating systems for both drivers and passengers. A review system by itself is nothing new, but it hasn’t been used in the transport industry before - especially not on an individual basis.

The system is a simple solution to the question: “How will drivers and passengers behave?”

It promotes trust in Uber and better behavior on the parts of both driver and passenger as it weeds out the bad users. 

More than just a ridesharing service

Over the years Uber has become more than just a ridesharing company. It’s leveraging its underlying technology to test new services that have the potential to generate additional revenue and fuel Uber’s ambitions.

By introducing new services that add incremental value for users, Uber creates opportunities to capture a larger share of their consumer’s wallets, while also retaining and generating additional income for drivers as well.

There are two main services that stuck around: Uber Freight and Uber Eats.

Uber Freight

Uber Freight is basically Uber for trucks. Uber launched its own on-demand trucking app in 2017 with the core idea of seamlessly matching shippers with carriers. 

In August 2018, it was spun off into a separate business unit, a move that simultaneously allowed it to gain momentum and burn more cash. After spinning off of Uber, the freight company underwent an expansion. 

In 2020 an investment firm Greenbriar Equity Group has committed to invest $500 million in a Series A preferred stock financing for Uber Freight. When announcing the investment Uber said it will maintain majority ownership in Uber Freight and will use the funds to continue to scale its logistics platform, which helps truck drivers connect with shipping companies.

Uber Eats food delivery service launched in 2016 and it was a logical next step for Uber as it aligns with its ridesharing business and helps it utilize its large fleet of drivers. It launched as a separate app and grew in popularity at a rapid pace.

Uber Eats ensured that Uber’s customers used the company’s services more often than ever before. Users who used both Uber and Uber Eats booked an average of 11.5 trips per month, versus only 4.9 trips for those using only a single Uber service.

Consumers benefited from an additional convenient service, and drivers gained a new source of trips which generated a more steady stream of bookings throughout the day, which in turn increased the overall supply of drivers.

With drivers now busier and making more consistent income, they have less reason to dual-app and drive for a competing service like Lyft.

Uber Eats was also huge for Uber during the Covid-19 pandemic. While Uber’s ride-hailing segment contracted by 24%, Uber Eats increased revenues by over 200% in 2020 and prevented a much higher loss of revenue that would have occurred if Uber hadn’t diversified its services.

Uber Revenue by Segment

YearMobilityDeliveryFreightOther2018$8.9 Billion$0.7 Billion$0.3 Billion$0.1 Billion2019$10.4 Billion$1.3 Billion$0.7 Billion$1.3 Billion2020$7.9 Billion$4.8 Billion$0.9 Billion$1.3 Billion

Dreaming of self-driving cars

You may have heard of Uber’s Advanced Technologies Group(ATG) which was established in 2016 with the purpose of developing self-driving cars. Kalanick, the CEO at the time, saw it as an essential investment and there’s no doubt that fully self-driving cars would immensely benefit Uber.

However, ATG brought high costs and safety challenges . Throughout the course of a pandemic-stricken year, Uber has made efforts to stem losses in its ride-hailing business and control business costs. That’s why at the end of 2020 ATG was acquired by its start-up competitor Aurora Innovation. In fact, Uber handed its equity in ATG to Aurora and then invested $400 million into Aurora, which will give Uber a 26% stake in the company. Uber CEO Dara Khosrowshahi will also join Aurora’s board.

“With the addition of ATG, Aurora will have an incredibly strong team and technology, a clear path to several markets, and the resources to deliver,” Chris Urmson, co-founder and CEO of Aurora, said in a statement. “Simply put, Aurora will be the company best positioned to deliver the self-driving products necessary to make transportation and logistics safer, more accessible, and less expensive.”

Uber positioned itself to be right there once Aurora develops their self-driving car, which just might be the key to Uber’s profitability in the future.

Looking towards the future

While Uber’s plans for the future after the pandemic are not set in stone, Khosrowshahi says that people should think about Uber not as a service but as a transportation platform or as an Amazon of transportation. He said that people will be able to take a bus, to take a car, to take a train or to take a taxi using Uber. It would be a win for the consumer because the more choices they've got, the more pricing they've got, the better the product is.

Uber is aiming to pivot their strategy so that it is more inclusive. How they are planning to do that is yet to be seen, but we can be certain they’re going to try and offer new services and further diversify their product as that might be their only option if the company wants to become profitable.

Key takeaway #6: keep innovating and evolving

Uber doesn’t rest on its laurels of being the first prominent rideshare app. Its founders understood really well that the competition will grow over time and they can only stay ahead if they evolve and diversify. They keep adding new features and new services while constantly looking to invest in new technologies.

Will Uber ever be profitable?

Although Uber claims that it will soon become profitable, there are many sceptics that think it won’t happen - and with a good reason.

Uber has been losing billions of dollars during the last few years. Although Uber losses improved in 2020 due to Uber Eats, the company still lost $6.77 billion . Uber plans to minimize losses in 2021, yet due to the ongoing pandemic, Uber had to spend hundreds of millions of dollars in incentives to get drivers back on the streets once the Covid situation improved and the demand increased.

Hubert Horan , a transportation industry expert who has published in-depth analyses of the company's financial outlook, has this to say about Uber’s profitability:

"Not only can I not imagine any remotely plausible explanation as to how Uber could suddenly become profitable after eleven years of massive losses, but absolutely no one has attempted to lay out a financial analysis making such a case. Not the company, not Wall Street analysts, not academics — no one."

In its S-1, a document that every company must file with the SEC if it wants to go public, Uber itself acknowledged and warned that it was possible it would never become profitable .

How come such a successful company that is a magnet for investors still struggles with such heavy losses?

The thing is Uber doesn't really have an edge over its competitors. A smartphone app that matches passengers with drivers can be — and has been — replicated by countless other companies. And once there are competitors, Uber doesn’t offer a service that would be that much more efficient. 

As it often does, it all comes down to costs-leadership . The need for human drivers that have to earn a living wage seems to be a vexing problem for the ride-hailing industry. It just costs too much. 

That's why Uber once staked so much of its future on self-driving cars, which could potentially reduce the company’s per-mile cost by 80% . But as you know, Uber has already sold its self-driving research center.

The typical explanation of the Uber model is that its focus has been on growth, not profit. Huge investments allowed Uber to keep scaling up until it was everywhere and ensured that the populace relied on its service. According to Horan, its plan was to "eliminate all meaningful competition and then profit from this quasi-monopoly power" in the exact same way that Amazon has managed to do for e-commerce. Except that it hasn't worked as competition is still here and Uber’s core service is not that different from it.

Uber’s push for profitability might be the reason that as of April 2021, the cost of a ride had increased by 40% as the New York Times reported . Why? The increase might be due to the shortage of drivers at the time. Uber is notorious for not paying drivers enough (according to the drivers), but that only works until the point that a critical number of them decide that it isn't worth any of their time. 

To counter that Uber has to raise fares, but then it runs the risk of losing a big part of their market and their revenue, even with higher per-passenger fares.

What’s the solution? That’s probably the most important question in Uber’s history and one that will define its future. It’s also the reason Uber is trying to position itself as a transportation platform and not just a ridesharing service as profitability continues to be an industry-wide problem.

Key takeaway #7: have a clear plan on how to become profitable

Although Uber is one of the fastest-growing and arguably one of the most successful companies in the last decades, it’s still not profitable and it’s a fair question if it ever will be. This shows that growth is not everything and if you want to run a sustainable business you have to know how it will eventually become profitable.

Uber’s SWOT analysis

Let’s recap everything we’ve covered during this strategy study in a concise SWOT analysis.

Global brand recognition

Uber’s brand is unmistakable and has become a synonym for “ridesharing.” Uber is present in over 60 countries worldwide and is the first ridesharing brand that comes to mind when new users are looking for ridesharing apps.

A strong market position

Uber is the largest ridesharing platform in the U.S. and worldwide. Currently, Uber’s market share in the US is 68% and 32,4% worldwide. In an industry that’s all about the quantity that’s extremely important.

Knows how to diversify

One of Uber’s key success factors is its ability to adapt and innovate to encompass changing needs. This can be seen in its diversification into logistics with Uber Freight and broadening its services to offer groceries and food delivery with UberEats. Diversification plays a huge part in Uber’s total revenue.

Dynamic pricing model

Uber’s surge pricing strategy has been good for its drivers. Drivers can earn more at night, in bad weather conditions, and during the holidays. This encourages more drivers to take ride requests to meet demand surges.

Low operational costs

Uber is based on low fixed investments and minimal physical assets. It has a fleet of cars they don’t actually own and no full-time drivers which helps to keep operational costs down. 

Convenient to use

That’s the whole point of Uber. Anyone can order a ride with a few taps on their screen, learn the price of the ride and pay it through the app.

More affordable than cabs

Uber was and still is more affordable than most cabs and its competition. However, that might change with the recent price surges.

Generally good service due to the review system

Uber riders have the ability to rate their trip and the driver. As drivers are always trying to improve their ratings, riders will most likely experience good service.

Bad publicity due to scandals

Despite Uber’s rebranding, stories of former sexual harassment scandals, driver fraud, and reports of very low driver’s wages reflect poorly on the company’s image and might alienate drivers as well as riders.

Substantial losses

Uber has lost billions of dollars year after year, which is starting to affect its image and spending. Nobody really knows if the company can become profitable and when or how it might happen.

Low-profit margins

Uber has to keep its fares low and can’t increase its commission per trip leading to low-profit margins. As we’ve seen, Uber's unprofitability has already prompted it to withdraw from China, Russia, and Southeast Asia. 

Dependency on their workforce

Uber is heavily dependent on its drivers. They are essentially Uber’s brand ambassadors 24/7. However, their behavior is unpredictable and the company’s image is hurt every time a scandalous story reaches the news. Many drivers have been accused of harassment and abuse.

The main service can be easily replicated

The ridesharing industry has a relatively low barrier of entry and Uber’s main functionality can be easily replicated by potential competitors which happened in Southeast Asia.

Opportunities

Further diversification

Uber Eats exploded during the recent Covid-19 Pandemic and significantly increased Uber’s revenue in 2020. Uber Freight also grew by 64% in Q2 of 2021 and earned $348 million. Further diversification might be one of the more viable paths towards Uber’s profitability.

Self-driving cars

While not there yet, driverless technology would significantly lower Uber’s operational costs while eliminating scandalous stories caused by their drivers’ bad behavior.

New markets

There are still many untapped growth opportunities in many countries. In fact, t he acquisition of Careem by Uber with $3.1 billion has opened the door to an incredible business opportunity for the company in the Middle East.

Local laws and regulations Uber has previously ignored

Increasing pressures from local authorities require Uber to comply with certain laws, which the company skirted when setting up in different countries. Non-compliance with local laws incurs fines and results in bad publicity. At the same time, the communities of traditional taxis are pushing heavily on the enforcement of some type of regulation. 

Low driver’s wages

Uber drivers reportedly earn less than minimum wage in many locations. Drivers have become more active in various locations in advocating for their “fair share” and are pressuring Uber to increase their wages, which would make it even harder to become profitable.

Employee retention

Unsatisfied drivers may switch to rival platforms due to better incentives from competitors from the ride-hailing market or from other parts of the sharing economy.

More and more competition

As the ridesharing market becomes more saturated, it will become more difficult for Uber to retain customers as shifting to other services if they offer lower prices is very easy. This goes for services like food delivery as well.

Final thoughts and key lessons

Uber is a fascinating company with a fascinating story. It’s one of the most famous disruptors in the last decade, yet its technology is not really disruptive. But the way it uses it and combines it with its business model certainly is!

If there’s one thing that defines Uber it’s determination .

Determination to stick to their brand strategy of a technological company and an industry disruptor. Determination to quickly expand across the globe even if it means taking on regulators and local authorities. Determination to right the ship and overhaul the culture once they recognized their mistakes.

What allowed Uber to do all of the above while adapting to different challenges and markets is its lack of assets . That’s where the company really shines - they solved a big real-world problem with the fewest possible assets. 

Uber is not a shining example of a company that did everything right. 

But no one can argue that it looked for an opening, grabbed the chance, and achieved amazing things. 

It’s a walking lesson that sometimes you have to grab the opportunity before it’s too late, learn on the flight, and do your best to correct your mistakes as you go .

In the end, Uber disrupted an entire industry and achieved a multi-billion-dollar IPO. Who knows what would’ve happened if they waited to have everything figured out?

Recap: Growth by the numbers

Uber’s 2020 data is skewed by the impact of the Covid-19 pandemic, that’s why we decided to use the data from 2019 instead.

The ultimate list of strategic takeaways:

• Create a flexible business model and stick to it.

Uber always identified itself as an asset-light technology company. That allowed it to quickly expand, adapt and diversify. Uber’s potential because of its scalability and flexibility is what made it so attractive to the founders.

• Recognize what you need to do to succeed and don’t waver.

Uber knew that it needed to scale and reach new users fast if it wanted to grab its market share before the competition. Their super aggressive expansion is controversial but it did achieve its goal and positioned Uber as the rideshare leader. 

• Don’t neglect your corporate culture.

Uber’s many scandals combined with its toxic corporate culture tarnished Uber’s image and almost ended in disaster. If your early dogma is to hustle, recognize when it’s time for a cultural shift and make sure your values, brand, and culture are in sync.

• Diversify and evolve to stay ahead of the competition.

Look for new opportunities and add new features or services to capture them. Uber’s asset-light flexible service allowed it to explore other complementary industries and Uber Eats significantly limited Uber’s losses during the pandemic. If there are low barriers to entry into the industry, the company should be proactive and take steps to stay ahead of emerging competition.

Uber Crisis Management Approach and Lessons Learned

In today’s fast-paced business environment, maintaining a solid reputation is crucial for the success and longevity of any company.

One such company that has faced its fair share of reputation challenges is Uber, the renowned ride-hailing service that disrupted the transportation industry.

Uber’s journey has been filled with numerous controversies and crises that have tested its resilience and threatened its reputation.

In this blog post, we will delve into the world of Uber crisis management, exploring the steps taken by the company to navigate through turbulent times and salvage its brand image.

By examining Uber’s crisis management strategies, we can extract valuable lessons that can be applied to any organization facing similar challenges in the quest to protect and restore their reputation.

Let’s dive in and learn more

Understanding Uber’s Crisis 

Uber, once hailed as a trailblazer in the ride-hailing industry, found itself thrust into a series of crises that tested the company’s mettle and rocked its reputation.

The first major blow came in 2017 when a former engineer published a scathing blog post alleging a toxic work culture rampant with harassment and discrimination.

This triggered an avalanche of similar accounts from current and former employees, exposing deep-seated issues within the company.

As the storm raged on, Uber faced additional controversies, including a video of its CEO arguing with an Uber driver and reports of using software to evade law enforcement.

These incidents, coupled with intense competition and regulatory challenges, plunged Uber into a full-blown crisis, jeopardizing its standing as a trusted and reliable service.

The magnitude of the crisis demanded swift and strategic action to regain public trust and steer the company back on track.

Factors Contributing to the Crisis

• CEO Controversies: One significant factor that contributed to Uber’s crisis was a series of controversies involving its CEO. Travis Kalanick, the co-founder and former CEO of Uber, faced allegations of fostering a toxic leadership style and engaging in questionable behavior. A viral video captured Kalanick berating an Uber driver , sparking public outrage and further tarnishing the company’s image. The CEO’s confrontational attitude and questionable decisions became emblematic of Uber’s corporate culture and leadership challenges.
• Workplace Culture Issues: Uber’s crisis was also fueled by widespread reports of a toxic work culture. Multiple employees came forward with allegations of sexual harassment, discrimination, and a lack of accountability within the organization. The allegations suggested that Uber’s internal environment had fostered an atmosphere of misconduct and unprofessional behavior. The revelations painted a disturbing picture of a company where employees felt unsafe and undervalued, eroding public trust and damaging the company’s reputation.
• Legal and Regulatory Challenges: Alongside internal issues, Uber faced numerous legal and regulatory challenges worldwide. Resistance from traditional taxi industries, regulatory hurdles, and compliance issues plagued the company’s expansion efforts. Uber was met with opposition from established taxi associations and faced lawsuits, fines, and even temporary bans in some cities. These challenges highlighted the need for Uber to effectively navigate the complex regulatory landscape and build constructive relationships with local authorities.
• Competitive Pressure and Market Dynamics: The highly competitive nature of the ride-hailing industry added to Uber’s crisis. Competitors, both established taxi services and emerging ride-hailing platforms, sought to capitalize on Uber’s vulnerabilities by offering alternative services. This increased competition intensified the scrutiny on Uber and placed additional pressure on the company to address its internal issues swiftly and effectively.

Impact of the crisis on Uber’s reputation and business

The crisis that unfolded at Uber had a profound impact on both its reputation and business.

• Reputation Damage: The series of controversies and scandals severely damaged Uber’s reputation. The negative publicity surrounding workplace culture issues, harassment allegations, and questionable leadership practices eroded public trust in the company. Uber went from being seen as a disruptive innovator to a symbol of corporate misconduct and ethical shortcomings. The damaged reputation resulted in a loss of credibility and a tarnished brand image, making it difficult for Uber to regain public trust.
• Decline in Customer Confidence: The crisis had a direct impact on customer confidence in Uber’s services. Reports of safety concerns, driver misconduct, and a toxic work environment led many customers to question the reliability and trustworthiness of the platform. This decline in confidence translated into a loss of customers as they turned to alternative ride-hailing services or reverted to traditional transportation options. As a result, Uber experienced a decline in market share and faced challenges in retaining its customer base.
• Legal and Regulatory Challenges: The crisis also brought heightened scrutiny from regulatory authorities and legal challenges. Uber faced investigations, lawsuits, and fines from various jurisdictions, further damaging its reputation and draining financial resources. The legal battles and regulatory hurdles not only disrupted Uber’s operations but also created uncertainties around the company’s compliance with laws and regulations, making it difficult to navigate in a complex and evolving regulatory landscape.
• Financial Impact: The crisis had significant financial implications for Uber. The negative publicity and reputational damage led to a decrease in user demand and slowed revenue growth. Uber had to invest resources in crisis management, legal defense, and implementing necessary reforms, impacting its profitability and financial stability. Additionally, the damaged reputation made it more challenging for Uber to attract new investors and secure partnerships, affecting its ability to raise funds for expansion and innovation.
• Competitive Disadvantage: The crisis provided an opportunity for Uber’s competitors to gain an advantage. Rival ride-hailing services capitalized on Uber’s troubles by highlighting their own commitment to safety, ethical practices, and a positive work environment. This increased competition further intensified the challenges faced by Uber and posed a threat to its market dominance.

Steps Taken by Uber in Crisis Management 

In response to the crisis, following are the key steps taken by Uber to manage that crisis.

1. Acknowledging the crisis

Uber took the crucial step of recognizing the seriousness and extent of the crisis it was facing. This involved acknowledging the impact of the controversies, workplace culture issues, and leadership shortcomings on the company’s reputation, customer trust, and overall business operations. By understanding the gravity of the situation, Uber was able to develop a clear understanding of the challenges it needed to address.

Uber publicly acknowledged the problems and shortcomings that had led to the crisis. Through official statements, press releases, and public appearances, the company openly admitted the existence of workplace culture issues, harassment incidents, and flaws in its leadership practices. This acknowledgment demonstrated a willingness to take responsibility for the mistakes and deficiencies within the organization, signaling a commitment to transparency and a desire to rectify the situation.

By acknowledging the crisis and publicly admitting the issues and shortcomings, Uber set the foundation for a more proactive approach to crisis management. This step was vital in building trust and credibility with stakeholders, as it demonstrated a willingness to confront the problems head-on and take necessary actions to address them.

2. Leadership changes and reforms 

CEO resignation and appointment of new leadership: In response to the crisis, Uber underwent a significant leadership change. Travis Kalanick, the co-founder and former CEO, resigned from his position. This decision was made to bring about a fresh start and to address the concerns surrounding his leadership style and behavior.

Uber appointed Dara Khosrowshahi as the new CEO, bringing in a leader known for his emphasis on transparency and ethical practices. The change in leadership was aimed at instilling a new culture and vision within the company.

Uber recognized the need for fundamental changes in its culture and policies to address the issues that had contributed to the crisis. The company initiated comprehensive reforms to foster a more inclusive, respectful, and accountable work environment.

This involved implementing training programs to raise awareness about harassment and discrimination, strengthening the reporting and investigation mechanisms for employee complaints, and revising policies to ensure compliance with ethical and legal standards. The focus was on cultivating a culture that prioritized safety, diversity, and employee well-being.

3. Communication and transparency 

Uber recognized the importance of open and honest communication with its stakeholders, including employees, customers, investors, and regulatory authorities. The company engaged in proactive communication to keep stakeholders informed about the steps being taken to address the crisis and improve the situation. This included regular updates, town hall meetings, and direct communication channels to address concerns, answer questions, and provide reassurance.

Uber prioritized transparency in addressing the crisis and its aftermath. The company made efforts to provide transparent information about the actions being taken to address the issues that led to the crisis. This involved sharing progress reports, disclosing findings from internal investigations, and being transparent about the changes being implemented. Uber also committed to sharing regular updates on the progress made in terms of cultural reforms, policy changes, and safety enhancements.

4. Implementing corrective measures 

Uber took steps to enhance safety measures and ensure a more secure experience for both riders and drivers. This involved implementing stricter background checks and screening processes for potential drivers, including verifying driver identities and conducting thorough criminal background checks. The company also invested in technology to improve safety, such as in-app emergency assistance features and real-time trip monitoring. These measures aimed to enhance passenger safety and build trust in Uber’s commitment to providing a secure platform.

To address the workplace culture issues and allegations of harassment, Uber undertook efforts to foster a more inclusive and respectful work environment. The company implemented comprehensive anti-harassment policies and training programs to educate employees on appropriate behavior and reporting mechanisms. Additionally, Uber established dedicated channels for employees to report misconduct, ensuring confidentiality and a fair investigation process. By taking these steps, Uber aimed to create a culture that values and promotes diversity, respect, and professionalism.

5. Engaging with external experts and stakeholders

Uber recognized the importance of engaging with regulatory authorities and industry experts to address the crisis and improve its operations. The company actively collaborated with regulatory bodies to ensure compliance with local laws and regulations. Uber sought guidance and input from industry experts to enhance safety protocols, improve driver screening processes, and develop best practices.

By working closely with external entities, Uber aimed to demonstrate its commitment to responsible business practices and to leverage external expertise in implementing effective solutions.

Uber actively sought feedback from its stakeholders, including customers, drivers, employees, and the general public. The company encouraged open dialogue through surveys, feedback mechanisms within the app, and public forums. Uber listened to the concerns, suggestions, and criticisms voiced by stakeholders and used that feedback to drive improvements. Incorporating the suggestions and ideas of external stakeholders allowed Uber to better understand their needs and expectations, resulting in more customer-centric policies and operational changes.

Lessons Learned from Uber’s Crisis Management 

Following are some key lessons learned from Uber Crisis Management:

Importance of proactive crisis management

Uber’s crisis highlighted the significance of taking a proactive approach to crisis management. It is crucial for organizations to identify and address issues before they escalate into full-blown crises. By recognizing the gravity of the situation early on and being proactive in acknowledging the issues and shortcomings, organizations can demonstrate a commitment to transparency and swift action. Proactive crisis management allows organizations to regain control, address concerns, and implement necessary changes before irreparable damage occurs.

Value of cultural reform and workplace environment

The crisis at Uber underscored the importance of a healthy work culture and a respectful workplace environment. Organizations should prioritize fostering a culture of inclusivity, respect, and accountability. By implementing policies and training programs that promote diversity, prevent harassment, and encourage open communication, organizations can create an environment where employees feel safe, valued, and motivated. Investing in a positive workplace culture not only prevents crises but also contributes to long-term success and employee satisfaction.

Value of transparent communication and swift action

Uber’s crisis highlighted the importance of transparent communication during times of crisis. Openly acknowledging the issues and shortcomings, sharing updates on the actions being taken, and addressing concerns directly with stakeholders builds trust and credibility. Transparent communication helps to mitigate rumors, speculation, and misinformation, and demonstrates a commitment to being accountable and proactive in resolving the crisis. It allows organizations to maintain better control over the narrative and shape public perception.

Swift action and decisive decision-making

Uber’s crisis emphasized the significance of swift action and decisive decision-making. When facing a crisis, organizations need to act promptly to address the issues and implement necessary changes. Delaying action or being indecisive can further escalate the crisis and erode trust. Making difficult decisions, such as leadership changes or policy reforms, quickly and effectively can demonstrate a commitment to resolving the crisis and rebuilding the organization’s reputation. Swift action also helps to regain control of the situation and minimize the impact on the business.

How reputation impacts customer trust and loyalty

Reputation plays a crucial role in shaping customer trust and loyalty. A positive reputation can instill confidence in customers and strengthen their trust in a brand, while a negative reputation can erode trust and drive customers away. Here are some key ways in which reputation impacts customer trust and loyalty:

Reputation influences customers’ perception of risk associated with a brand. A strong reputation mitigates the perceived risks of making a purchase or engaging with a brand. Customers feel more comfortable and confident in their decision when they perceive a brand as trustworthy and reputable, reducing their hesitation and increasing their loyalty.

Final words 

Uber’s crisis serves as a reminder that proactive crisis management, cultural reform, transparent communication, and reputation management are essential components for organizations to navigate challenges, rebuild trust, and emerge stronger. By learning from Uber’s experience, organizations can develop robust crisis management strategies, foster positive work cultures, and prioritize customer trust and loyalty, positioning themselves for resilience and sustainable growth in today’s dynamic business landscape.

About The Author

Tahir Abbas

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Uber at a Crossroads (2017)

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Uber - A Strategic Analysis

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This article takes the case of Uber, a global platform specialized in transport technologies, to reappraise the claims of the sharing economy. The case presents a chronology of the struggles over the regulation of these digital markets in the US and France, using Uber´s self-description and web discourse for additional illustrative purposes. It exposes Uber´s business model, the key driving actors and their strategies as well as multi-scalar countermovements. The analysis is framed from a Hayekian and a Polanyian perspective, and the potential of the sharing economy to go beyond market fundamentalism. The Polanyian utopia of sharing as more than market relations based on self-interest is mobilized for legitimizing the platform. The Hayekian utopia of a market society which transforms social relations of friendship and community service into market activities is describing actual development. Finally, Polanyian “counter movements” are described and their potentials are discussed.

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Uber: An empire in the making?

The case study is set in early December 2014. Uber has just completed a round of funding and as a result has an eye-watering valuation of US$41 billion. The case initially explains the service Uber offered to its riders and then gives an overview of the origins and early growth of the company, as well as some insights into the influence of co-founder and CEO, Travis Kalanick, on the company culture. The following section outlines the characteristics of the traditional taxi industry, which was initially Uber’s primary competitor. Details of Uber’s disruptive business model are implicit in the case but the components are not spelled out to the reader. Rather, the intention is to draw this out in small group or plenary discussions through the assignment questions. The case goes on to review more recent growth, outlining some of the PR issues the company has faced with respect to aggressive business practices and questions around its data privacy policies. A possible softening of management’s approach is suggested in the final section.

• Participants gain insights into which components of Uber’s business model were instrumental in disrupting an established and protectionist industry globally.
• They will also see how the model was continually evolving. Although Uber initially clearly operated in one closely defined sector, its future strategic direction lay in broader, diverse activities and markets.
• Participants will consider the strategic options for companies facing a new entrant that is re-inventing the rules of engagement.

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Please note you do not have access to teaching notes, uber: aggressive management for growth.

Publication date: 3 July 2017

Teaching notes

This case uses Uber Technologies Inc. to engage students in a serious conversation about how a firm both affects its stakeholders and is affected by its stakeholders as well as the role of strategic leadership in the amount of emphasis placed on ethical practices. Uber represents a visible high-growth startup that has received considerable positive and negative attention in the media; however, few people know of the extent of its aggressive management approach. Much of the publicity about Uber is both a direct consequence of and a direct consequence for stakeholder relationships. Students are asked to analyze Uber’s approach and offer suggestions for moving forward.

Research methodology

This case was created using secondary data sources. The issues for Uber that led the authors to write this case were not very flattering to Uber, and therefore, the authors decided to use secondary sources. Since Uber and many of its direct competitors were private companies, the authors collected as much financial data as the authors could from publicly available sources. Also, due to the contentious nature of some of the managerial tactics used within Uber, the use of secondary data sources was warranted.

Relevant courses and levels

This case was crafted with senior undergraduate students in strategic management as the primary audience, but is also relevant for MBA-level strategy courses as well. This case touches upon core content in the vast majority of undergraduate strategic management courses with a special emphasis on two concepts underrepresented in most strategic management textbooks, stakeholder theory and ethical decision making.

• Stakeholder theory
• Growth strategy
• Ethical decision making
• Strategic leadership

Acknowledgements

Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision making. The author/s may have disguised names; financial and other recognizable information to protect confidentiality.

Matherne, B.P. and O’Toole, J. (2017), "Uber: aggressive management for growth", , Vol. 13 No. 4, pp. 561-586. https://doi.org/10.1108/TCJ-10-2015-0062

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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Uber: Aggressive management for growth

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The magic behind Uber’s data-driven success

Uber, the ride-hailing giant, is a household name worldwide. We all recognize it as the platform that connects riders with drivers for hassle-free transportation. But what most people don’t realize is that behind the scenes, Uber is not just a transportation service; it’s a data and analytics powerhouse. Every day, millions of riders use the Uber app, unwittingly contributing to a complex web of data-driven decisions. This blog takes you on a journey into the world of Uber’s analytics and the critical role that Presto, the open source SQL query engine, plays in driving their success.

Uber’s DNA as an analytics company

At its core, Uber’s business model is deceptively simple: connect a customer at point A to their destination at point B. With a few taps on a mobile device, riders request a ride; then, Uber’s algorithms work to match them with the nearest available driver and calculate the optimal price. But the simplicity ends there. Every transaction, every cent matters. A ten-cent difference in each transaction translates to a staggering $657 million annually. Uber’s prowess as a transportation, logistics and analytics company hinges on their ability to leverage data effectively.

The pursuit of hyperscale analytics

The scale of Uber’s analytical endeavor requires careful selection of data platforms with high regard for limitless analytical processing. Consider the magnitude of Uber’s footprint. 1 The company operates in more than 10,000 cities with more than 18 million trips per day. To maintain analytical superiority, Uber keeps 256 petabytes of data in store and processes 35 petabytes of data every day. They support 12,000 monthly active users of analytics running more than 500,000 queries every single day.

To power this mammoth analytical undertaking, Uber chose the open source Presto distributed query engine. Teams at Facebook developed Presto to handle high numbers of concurrent queries on petabytes of data and designed it to scale up to exabytes of data. Presto was able to achieve this level of scalability by completely separating analytical compute from data storage. This allowed them to focus on SQL-based query optimization to the nth degree.

What is Presto?

Presto is an open source distributed SQL query engine for data analytics and the data lakehouse, designed for running interactive analytic queries against datasets of all sizes, from gigabytes to petabytes. It excels in scalability and supports a wide range of analytical use cases. Presto’s cost-based query optimizer, dynamic filtering and extensibility through user-defined functions make it a versatile tool in Uber’s analytics arsenal. To achieve maximum scalability and support a broad range of analytical use cases, Presto separates analytical processing from data storage. When a query is constructed, it passes through a cost-based optimizer, then data is accessed through connectors, cached for performance and analyzed across a series of servers in a cluster. Because of its distributed nature, Presto scales for petabytes and exabytes of data.

The evolution of Presto at Uber

Beginning of a data analytics journey.

Uber began their analytical journey with a traditional analytical database platform at the core of their analytics. However, as their business grew, so did the amount of data they needed to process and the number of insight-driven decisions they needed to make. The cost and constraints of traditional analytics soon reached their limit, forcing Uber to look elsewhere for a solution.

Uber understood that digital superiority required the capture of all their transactional data, not just a sampling. They stood up a file-based data lake alongside their analytical database. While this side-by-side strategy enabled data capture, they quickly discovered that the data lake worked well for long-running queries, but it was not fast enough to support the near-real time engagement necessary to maintain a competitive advantage.

To address their performance needs, Uber chose Presto because of its ability, as a distributed platform, to scale in linear fashion and because of its commitment to ANSI-SQL, the lingua franca of analytical processing. They set up a couple of clusters and began processing queries at a much faster speed than anything they had experienced with Apache Hive, a distributed data warehouse system, on their data lake.

Continued high growth

As the use of Presto continued to grow, Uber joined the Presto Foundation, the neutral governing body behind the Presto open source project, as a founding member alongside Facebook. Their initial contributions were based on their need for growth and scalability. Uber focused on contributing to several key areas within Presto:

Automation: To support growing usage, the Uber team went to work on automating cluster management to make it simple to keep up and running. Automation enabled Uber to grow to their current state with more than 256 petabytes of data, 3,000 nodes and 12 clusters. They also put process automation in place to quickly set up and take down clusters.

Workload Management: Because different kinds of queries have different requirements, Uber made sure that traffic is well-isolated. This enables them to batch queries based on speed or accuracy. They have even created subcategories for a more granular approach to workload management.

Because much of the work done on their data lake is exploratory in nature, many users want to execute untested queries on petabytes of data. Large, untested workloads run the risk of hogging all the resources. In some cases, the queries run out of memory and do not complete.

To address this challenge, Uber created and maintains sample versions of datasets. If they know a certain user is doing exploratory work, they simply route them to the sampled datasets. This way, the queries run much faster. There may be inaccuracy because of sampling, but it allows users to discover new viewpoints within the data. If the exploratory work needs to move on to testing and production, they can plan appropriately.

Security: Uber adapted Presto to take users’ credentials and pass them down to the storage layer, specifying the precise data to which each user has access permissions. As Uber has done with many of its additions to Presto, they contributed their security upgrades back to the open source Presto project.

The technical value of Presto at Uber

Analyzing complex data types with presto.

As a digital native company, Uber continues to expand its use cases for Presto. For traditional analytics, they are bringing data discipline to their use of Presto. They ingest data in snapshots from operational systems. It lands as raw data in HDFS. Next, they build model data sets out of the snapshots, cleanse and deduplicate the data, and prepare it for analysis as Parquet files.

For more complex data types, Uber uses Presto’s complex SQL features and functions, especially when dealing with nested or repeated data, time-series data or data types like maps, arrays, structs and JSON. Presto also applies dynamic filtering that can significantly improve the performance of queries with selective joins by avoiding reading data that would be filtered by join conditions. For example, a parquet file can store data as BLOBS within a column. Uber users can run a Presto query that extracts a JSON file and filters out the data specified by the query. The caveat is that doing this defeats the purpose of the columnar state of a JSON file. It is a quick way to do the analysis, but it does sacrifice some performance.

Extending the analytical capabilities and use cases of Presto

To extend the analytical capabilities of Presto, Uber uses many out-of-the-box functions provided with the open source software. Presto provides a long list of functions, operators, and expressions as part of its open source offering, including standard functions, maps, arrays, mathematical, and statistical functions. In addition, Presto also makes it easy for Uber to define their own functions. For example, tied closely to their digital business, Uber has created their own geospatial functions.

Uber chose Presto for the flexibility it provides with compute separated from data storage. As a result, they continue to expand their use cases to include ETL, data science , data exploration, online analytical processing (OLAP), data lake analytics and federated queries.

Pushing the real-time boundaries of Presto

Uber also upgraded Presto to support real-time queries and to run a single query across data in motion and data at rest. To support very low latency use cases, Uber runs Presto as a microservice on their infrastructure platform and moves transaction data from Kafka into Apache Pinot, a real-time distributed OLAP data store, used to deliver scalable, real-time analytics.

According to the Apache Pinot website, “Pinot is a distributed and scalable OLAP (Online Analytical Processing) datastore, which is designed to answer OLAP queries with low latency. It can ingest data from offline batch data sources (such as Hadoop and flat files) as well as online data sources (such as Kafka). Pinot is designed to scale horizontally, so that it can handle large amounts of data. It also provides features like indexing and caching.”

This combination supports a high volume of low-latency queries. For example, Uber has created a dashboard called Restaurant Manager in which restaurant owners can look at orders in real time as they are coming into their restaurants. Uber has made the Presto query engine connect to real-time databases.

To summarize, here are some of the key differentiators of Presto that have helped Uber:

Speed and Scalability: Presto’s ability to handle massive amounts of data and process queries at lightning speed has accelerated Uber’s analytics capabilities. This speed is essential in a fast-paced industry where real-time decision-making is paramount.

Self-Service Analytics: Presto has democratized data access at Uber, allowing data scientists, analysts and business users to run their queries without relying heavily on engineering teams. This self-service analytics approach has improved agility and decision-making across the organization.

Data Exploration and Innovation: The flexibility of Presto has encouraged data exploration and experimentation at Uber. Data professionals can easily test hypotheses and gain insights from large and diverse datasets, leading to continuous innovation and service improvement.

Operational Efficiency: Presto has played a crucial role in optimizing Uber’s operations. From route optimization to driver allocation, the ability to analyze data quickly and accurately has led to cost savings and improved user experiences.

Federated Data Access: Presto’s support for federated queries has simplified data access across Uber’s various data sources, making it easier to harness insights from multiple data stores, whether on-premises or in the cloud.

Real-Time Analytics: Uber’s integration of Presto with real-time data stores like Apache Pinot has enabled the company to provide real-time analytics to users, enhancing their ability to monitor and respond to changing conditions rapidly.

Community Contribution: Uber’s active participation in the Presto open source community has not only benefited their own use cases but has also contributed to the broader development of Presto as a powerful analytical tool for organizations worldwide.

The power of Presto in Uber’s data-driven journey

Today, Uber relies on Presto to power some impressive metrics. From their latest Presto presentation in August 2023, here’s what they shared:

Uber’s success as a data-driven company is no accident. It’s the result of a deliberate strategy to leverage cutting-edge technologies like Presto to unlock the insights hidden in vast volumes of data. Presto has become an integral part of Uber’s data ecosystem, enabling the company to process petabytes of data, support diverse analytical use cases, and make informed decisions at an unprecedented scale.

Getting started with Presto

If you’re new to Presto and want to check it out, we recommend this Getting Started page where you can try it out.

Alternatively, if you’re ready to get started with Presto in production you can check out IBM watsonx.data , a Presto-based open data lakehouse. Watsonx.data is a fit-for-purpose data store, built on an open lakehouse architecture, supported by querying, governance and open data formats to access and share data.

1 Uber. EMA Technical Case Study, sponsored by Ahana. Enterprise Management Associates (EMA). 2023.

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Uber's Strategy for Global Success

Brian Kenny: The theory of disruptive innovation was first coined by Harvard Business School Professor Clayton Christensen in his 1997 book, The Innovator's Dilemma. The theory explains the phenomenon by which an innovation transforms an existing market or sector by introducing simplicity, convenience, and affordability where complication and high cost are the status quo. Think Netflix disrupting the video rental space.

Over the years, the term has been applied liberally and not always correctly to other examples, but every so often, an idea comes along that really fits the bill. Enter Uber, the ridesharing behemoth that turned the car service industry on its head. In a few short years after launching in 2010, Uber became the largest car service in the world, as measured in ride count. Last year, Uber drove 6.2 billion riders.

Today's case takes us to London in 2019, where Uber is facing the latest in a long list of challenges from regulators threatening their ability to continue operating in that important market. In this episode of Cold Call , we welcome Alexander MacKay to discuss the case entitled, Uber: Competing Globally . I'm your host, Brian Kenny, and you're listening to Cold Call on the HBR Presents network.

Alexander MacKay is in the Strategy Unit at Harvard Business School. His research focuses on matters of competition, including pricing, demand, and market structure. Alex, thanks for joining us on Cold Call today.

Alex MacKay: Thank you, Brian. Very happy to be here.

Brian Kenny: The idea of Uber seems so simple, but it was revolutionary in so many ways. And Uber has been in the headlines many times for both good and bad reasons in its decade of existence. So we're going to touch on a lot of those things today. So thanks for sharing the case with us.

Alex MacKay: Brian, I'm very happy to. It's a little funny, we've actually started to see the first few students who have never hailed a traditional taxi in our classrooms. So I think increasingly, the contrast between the two is going to be pretty difficult for people to fully understand.

Brian Kenny: Let me ask you to start by telling us what your cold call would be when you set up the class here.

Alex MacKay: The case starts off with the current legal battle going on in London. And so the first question I just ask to start the classroom is: What's the end game for Uber in London? What do they look like 10 years from now?

In the midst of this ongoing legal battle, there has been back and forth, some give and take from both sides, Transport for London, and also on the Uber side as well. And there's actually a recent court case that has allowed Uber to have a little more time to operate. They bought about 18 more months of time, but this has been also brought with additional, stricter scrutiny, and 18 months from now, they're going to be at it again trying to figure out exactly what rules Uber's allowed to operate under.

Brian Kenny: It seems like 18 months in the lifetime of Uber is like a decade. Everything seems to happen so quickly for this company. That's a long period of time. What made you decide to write this case? How does it relate to the work that you're doing in your research?

Alex MacKay: A big focus of my research is on competition policy, particularly the realms of antitrust and regulation. And here we have a company, Uber, whose relationship with regulation has been really essential to its strategy from Day One. And I think appreciating the effects of regulation and how its impact Uber's performance in different markets, is really critical for understanding strategy and global strategy broadly.

Brian Kenny: Let's just talk a little bit about Uber. I think people are familiar with it, but they may not be familiar with just how large they are in this space. And the space that they've sort of created has also blown up and expanded in many ways. So how big is Uber? Like what's the landscape of ridesharing look like and where does Uber sit in that landscape?

Alex MacKay: Uber globally is the biggest ridesharing company. In 2018, they had over $10 billion in revenue for both ridesharing and their Uber Eats platform. And you mentioned in the introduction, that they had over 6 billion rides in 2019. That's greater than 15 million rides every day that's happening on their platform. So really, just an enormous company.

Brian Kenny: So they started back in 2010. It's been kind of an amazing decade of growth for them. How do you explain that kind of rapid expansion?

Alex MacKay: They were financed early on with some angel investors. I think [co-founder Travis] Kalanick's background really helped there to get some early funding. But one of the critical things that allowed them to expand early into many markets that helped their growth was they're a relatively asset light company.

On the ground, they certainly need sales teams, they need translation work to move into different markets, but because the main asset they were providing in these different markets was software, and drivers were bringing their own cars and riders were bringing their own phones, the key pieces of hardware that you need to operate this market, they really didn't have to invest a ton of capital.

In fact, when they launched in Paris, they launched as sort of a prototype, just to show, "Hey, we can do this in Paris without too much difficulty," as their first international market. So being able to really scale it across different markets really allowed them to grow. I think by 2015, their market cap was $60 billion, five years after founding, which is just an incredible rate of growth.

Brian Kenny: So they're the biggest car service in the world, but they don't own any cars. Like what business are they really in, I guess is the question?

Alex MacKay: They're certainly in the business of matching riders to drivers. They've been able to do this in a way that doesn't require them to own cars, just through the use of technology. And so what they're doing, and this is I think pretty well understood, is that they're using existing capital, people who have cars that may be going unused, personal cars, and Uber is able to use that and deploy that to give riding services to different customers.

Whereas in the traditional taxi model, you could have taxis that you didn't necessarily own, but you leased them or you rented them, but they had the express purpose of being driven for taxi services. And so it wasn't using idle capital. You kind of had to create additional capital in order to provide the services.

Brian Kenny: So you mentioned Travis Kalanick a little bit earlier, but he was one of the co-founders of the company, and the case goes a little bit into his philosophy of what expansion into new markets should look like. Can you talk a little bit about that?

Alex MacKay: Certainly. Yes. And I think it might even be helpful to talk a bit about his background, which I think provides a little more context before Uber. He dropped out of UCLA to work on his first company, Scour, and that was a peer-to-peer file sharing service, a lot like Napster, and actually predated Napster. And where he was operating was sort of an evolving legal gray area. Eventually, Scour got sued for $250 billion by a collection of entertainment companies and had to file for bankruptcy.

Brian Kenny: Wow.

Alex MacKay: He followed that up with his next venture, Red Swoosh, and that was software aimed at allowing users to share network bandwidth. So again, it was a little bit ahead of its time, making use of recent advances in technology. Early on though, they got in trouble with the IRS. They weren't withholding taxes, and there were some other issues with his co-founder, and there was sort of a bad breakup between the two.

Despite this, he persevered and ended up selling the company for $23 million in 2007. And after that, his next big thing was Uber. So one thing I just want to point out is that at all three of these companies, he was looking to do something that leveraged new technology to change the world. And by nature, sometimes businesses like that operate in a legal gray area and you have very difficult decisions to make.

Some other decisions you have to make are clearly unethical and there's really no reason to make some of those decisions, like with the taxes and with some other things that came out later on at Uber, but certainly one of the things that any founder who's looking to change the world with a big new technology company has to deal with, is that often, the legal framework and the regulatory framework around what you're trying to do isn't well established.

Brian Kenny: Obviously drama seems to follow Travis where he goes. And his expansion strategy was pretty aggressive. It was almost like a warlike mentality in terms of going into a new market. And you could sort of sum it up as saying ask forgiveness. Is that fair?

Alex MacKay: Yes. Ask for forgiveness, not permission. I think they were really focused on winning. I think that was sort of their ultimate goal.

We describe in the case there's this policy of principle confrontation, to ignore existing regulations until you receive pushback. And then when you do receive pushback, either from local regulators or existing sort of taxi cab drivers, mobilize a response to sort of confront that. During their beta launch in 2010, they received a cease-and-desist letter from the city of San Francisco. And they essentially just ignored this letter.

They rebranded, they used to be UberCab, and they just took “Cab” out of their name, so now they're Uber. And you can see their perspective in their press release in response to this. They say, "UberCab is a first-to-market cutting-edge transportation technology, and it must be recognized that the regulations from both city and state regulatory bodies have not been written with these innovations in mind. As such, we are happy to help educate the regulatory bodies on this new generation of technology and work closely with both agencies to ensure compliance."

Brian Kenny: It's a little arrogant.

Alex MacKay: Yes, so you can see right there, they're saying, what we're operating in is sort of this new technology-based realm and the regulators don't really understand what's going on. And so instead of complying with the existing regulations, we're going to try to push regulations to fit what we're trying to do.

Brian Kenny: The case is pretty epic in terms of it sort of cuts a sweeping arc across the world, looking at the challenges that they faced with each market they entered, and none more interesting I think the New York City, which is obviously an enormous market. Can you talk a little bit about some of the challenges they faced going into New York with the cab industry being as prevalent as it was and is?

Alex MacKay: Yes, absolutely. I mean, I think it's pretty well known for people who are familiar with New York that there were restrictions on the number of medallions which allowed taxis to operate. So there was a limited number of taxis that could drive around New York City. This restriction had really driven up the value of these medallions to the taxi owners.

And if you had the experience of taking taxis in New York City prior to the advent of Uber, what you'd find is that there were some areas where the service was very, very good. Downtown, Midtown Manhattan, you could almost always find a taxi, but there are other parts of the city where it was very difficult at times to find a cab. And when you got in a cab, you weren't sure that you were always going to be given a fair ride.

And so Uber coming in and providing this technology that allowed you to pick up a ride from anywhere and sort of track the route as you're going on really disrupted this market. Consumers love them. They had a thousand apps signups before they even launched.

Kalanick mentioned this in terms of their launch strategy, we have to go here because the consumers really want us here. But immediately, they started getting pushback from the taxi cab owners who were threatened by this new mode of transportation. They argued that they should be under the same regulations that the taxis were.

And there were a lot of local government officials that were sort of mobilized against Uber as well. De Blasio, the Mayor of New York, wrote opinion articles against Uber, claiming that they were contributing to congestion. There was a lot of concern that maybe they had some safety issues, and the taxi drivers and the owners brought a lawsuit against Uber for evading these regulations. And then later on, and this was the case in many local governments, de Blasio introduced a bill to put additional restrictions on Uber that would make them look a lot more like a traditional taxi operating model, with limited number of licenses and strict requirements for reporting.

Brian Kenny: And this is the same scenario that's going to play out almost with every city that they go into because there is such an established infrastructure for the taxi industry in those places. They have lobbyists. They're tied into the political networks. In some instances, it was revealed that they've been connected with organized crime. So not for the faint of heart, right, trying to expand into some of the biggest cities in the United States.

Alex MacKay: Absolutely. And what's sort of fascinating about the United States is it's actually a place where a company can engage in this battle over regulation on the ground. And de Blasio writes his opinion article and pushes forward this bill. Uber responds by taking out an ad campaign, over $3 million, opposing these regulations and calling out de Blasio.

So again, we sort of have this fascinating example of Uber mobilizing their own lobbyists, their lawyers, but also public advertising to sort of convince the residents of New York City that de Blasio and the regulators that are trying to come down on them are in the wrong.

Brian Kenny: Yes. And at the end of the day, it's consumers that they're really making this appeal to, because I guess my question is, are these regulations stifling innovation? And if they are, who pays the ultimate price for that, Uber or the consumer?

Alex MacKay: Consumers definitely loved Uber. And I don't think any of the regulators were trying to stifle innovation. I don't think they would say that. I think their biggest concern, their primary concern was safety, and a secondary and related concern here was losing regulatory oversight over the transportation sector.

So this is a public service that had been fairly tightly regulated for a long time, and there was some concern that what happens when this just becomes almost a free-market sector. At the same time, these regulators have the lobbyists from the taxi cab industry and other interested parties in their ear trying to convince them that Uber really is like a taxi company and should be regulated, and really emphasizing the safety concerns and other concerns to try to get stricter regulations put on Uber. And part of that may be valid.

I think you certainly should be concerned about safety and there are real concerns there, but part of it is simply the strategic game that rivals are going to play between each other. And the taxi cab industry sees Uber as a threat. It's in their best interest to lobby the regulators to come down on Uber.

Brian Kenny: And what's amazing to me is that while all this is playing out, they're not turning their tails and running. They're continuing to push forward and expand into other parts of the world. So can you talk a little bit about what it was like trying to go into countries in Latin America, countries in Asia, where the regulations and the regulatory infrastructure is quite different than it is in the US?

Alex MacKay: In the case, we have anecdotes, vignettes, one for each continent. And their experience in each continent was actually pretty different. Even within a continent, you're going to have very different regulatory frameworks for each country.

So we sort of pick a few and focus on a few, just to highlight how the experience is very different in different countries. And one thing that's sort of interesting, in Latin America, we focus on Bogota in Colombia, and what's sort of interesting there is they launched secretly and they were pretty early on considered to be illegal, but they continue to operate despite the official policy of being illegal in Colombia. And they were able to do that in a way that you may not be able to do it so easily in the United States, just because of the different layers of enforcement and policy considerations that are present in Colombia and not necessarily in the United States.

Now, when I talk about the current state of Uber in different countries, this is continually evolving. So they temporarily suspended their operations early in 2020 in Columbia. Now they're back. This is a continual back and forth game that they're playing with the regulators in different markets.

Brian Kenny: And in a place like Colombia, are they not worried about violence and the potential for violence against their drivers?

Alex MacKay: Absolutely. So this is true sort of around the world. I think in certain countries, violence becomes a little bit more of a concern. And what they found in Colombia is they did have more incidents where taxi drivers decided to take things into their own hands and threaten Uber drivers and Uber riders, sometimes with weapons.

Another decision Uber had to make that was related to that was whether or not to allow riders to pay in cash. Because in the United States, they'd exclusively used credit cards, but in Latin America and some other countries like India, consumers tended to prefer to use cash to pay, and allowing that sort of opened up this additional risk that Uber didn't really have a great system in place to protect them from. Because when you go to cash, you're not able to track every rider quite as easily, and there's just a bigger chance for fraud or for robbery and that sort of thing popping up.

Brian Kenny: Going into Asia was also quite a challenge for them. Can you talk a little bit about some of the challenges they faced, particularly in China?

Alex MacKay: They had very different experiences in each country in Asia. China was a unique case that is very fascinating, because when Uber launched there, there were already existing technology-based, you might call them, rideshare companies, that were fairly prominent, DiDi and Kuaidi. And these companies later merged to be one company, DiDi, which is huge. It's on par with Uber in terms of its global presence as a ridesharing company.

When Uber launched there, they didn't fully anticipate all the changes they would have to make to going into a very different environment. In China, besides having established competitors, Google Maps didn't work, and they sort of relied on that mapping software to do their location services. So they had to completely redo their location services.

They also, again, relied on credit cards for payments, and in China, consumers increasingly used apps to do their payments. And this became a little bit of a challenge because the main app that Chinese customers used, they used WeChat and Alipay primarily, they were actually owned by parent companies of the rival ridesharing company. So Uber had to essentially negotiate with its rivals in order to have consumers pay for their ridesharing services. And so here are a few sort of localization issues that you could argue Uber didn't fully anticipate when they launched.

The other thing about competing in China that's sort of interesting is that Chinese policy regarding competition is very different from policy in the United States and much of Europe. For the most part, there's not the traditional antitrust view of protecting the consumers first and foremost. That certainly comes into play, but the Chinese government has other objectives, including promoting domestic firms. And so if you think about launching into a company where there's a large established domestic rival that certainly increases the difficulty of success, because when push comes to shove, the government is likely to come down on the side of your rival, which is the domestic company, and not the foreign entrant.

Brian Kenny: Yes, which is understandable, I guess, to some extent. This sounds exhausting, to be sort of fighting skirmishes on all these fronts in all these different places in the world. How does that affect the morale or tear at the fabric maybe of the culture at a company like Uber, where they're trying to manage this on a global scale and running into challenges every step of the way?

Alex MacKay: It certainly has an effect. I think Uber did a very good job at recruiting teams of people who really wanted to win. And so, if that's the consistent message you're sending to your teams, then these challenges may be actually considered somewhat exciting. And so I think by bringing in that sort of person, I think they actually fueled this desire to win in these markets and really kept the momentum going.

One of the downsides of this of course is that if you exclusively focus on winning and getting around the existing regulations, there does become this challenge of what's ethical and what's not ethical? And in certain business areas, there actually often is a little bit of a gray line. I mean, you can see this outside of ridesharing. It's a much broader thing to think about, but regulation of pharmaceuticals, regulation of use of new technologies such as drones, often the technology outpaces the regulation by a little bit and there's this lag in trying to figure out what actually is the right thing to do.

I think it's a fair question whether or not you can disentangle this sort of principle of confrontation that's so pervasive throughout the company culture when it comes to regulation from this principle confrontation of other ethical issues that are not necessarily business driven, and whether or not it's easy to maintain that separation. And I think that's a fair question, certainly worthy for debate. But what I think is important is you can set up a company where you are abiding by ethical issues that are very clear, but you're still going to face challenges on the legal side when you're developing a new business in an area with new technology.

Brian Kenny: That's a great insight. I mean, I found myself asking myself as I got through the case, I can't tell if Uber is the victim or the aggressor in all of this. And I guess the answer is they're a little bit of both.

Alex MacKay: Yes. I think it's fair to characterize them as an aggressor, and I think you sort of need to be if you want to succeed and if you want to change the world in a new technology area. In some sense, they're a victim in that we're all the victim as consumers and as firms of regulations that are sometimes difficult to adapt in real time to changing market conditions. And there's a good reason why they are sticky over time, but sometimes that can be very costly.

Going back to something we talked about earlier, I think there are hardly any consumers that wanted Uber kicked out of New York City. I think everyone realized this was just so much superior to any other option they had, that they were really willing to fight to keep Uber around in the limited ways they could.

Brian Kenny: So let's go back to the central issue in the case then, which is, how important is it to them, in terms of their global strategy, to have a presence in a place like London? They're still not profitable by the way, we should point that out, that despite the fact that they are the largest in the space, they haven't turned the corner to profitability yet. I would imagine London's kind of important.

Alex MacKay: Absolutely. London is a key international city, and a presence there is important for Uber's overall brand. So many people travel through London, and it's a real benefit for anyone who travels to be able to use the same service at any city you stop in.

At the same time, they're facing these increasing regulatory pressures from London, and so it's a real question whether or not, 10 years from now, they look substantially different from the established taxi industry that's there.

And you can kind of see this battle playing out across different markets. As another example, in Ghana. When they entered there, they actually entered with a framework for understanding. They helped build the regulations for ridesharing services in Ghana when they entered. But over time, that evolved to additional restrictions as the existing taxi companies pushed back on them.

So I think a key lesson here in all of this is that the regulations that you see at any given point in time aren't absolutely fixed, for anyone starting a technology-based company, there will be regulations that do get created that affect your business. Stepping outside of transportation, we can see that going on now with the big tech firms and sort of the antitrust investigations they're are under. And the policymakers in the US and Europe are really trying to evolve the set of regulations to reflect the different businesses that Apple, Facebook, Microsoft, Google are involved in.

Brian Kenny: One thing we haven't touched on, and it's not touched on in the case obviously because it just sort of started fairly recently, is the pandemic and the implications of the pandemic for the rideshare industry as fewer people find themselves in need of going anywhere. Have you given any thought to that and whether that's going to have any effect on the regulations?

Alex MacKay: It certainly could. Uber is in a somewhat fortunate position, at least if you judge by their market capitalization, with respect to the pandemic. Initially their stocks took a pretty big hit, but rebounded pretty quickly, and part of this is because the primary part of their business is the transportation through Uber X, but they do also offer the delivery services through Uber Eats, and that business has really picked up during this pandemic.

There's certainly a mix of views about the future, but I think most people do believe that at some point we'll get back to business as usual, at least for Uber services, when we come up with a vaccine. I think most people anticipate that they'll be resuming use of Uber once it becomes safe to do so. And I think, to be frank, a lot of people already have resumed using Uber, especially people who don't have cars or who see it as a valuable alternative or a safer alternative to public transit.

Brian Kenny: Yes, that's a really good point. And the Uber Eats thing is interesting as another example of how it's important for businesses to re-imagine the business that they're in because that, in many ways, may be helping them through a really tough patch here.

This has been a really interesting conversation, Alex, I want to ask you one final question, which is, as the students are packing up to leave class, what's the one thing you want them to take away from the case?

Alex MacKay: So I would hope the students take away the importance of regulation in business strategy. And I think the case of Uber really highlights that. And if you look at the conversation around Uber I'd say for the first 10 years of their existence, it was essentially around the superiority of their technology and not so much how they handled regulation. If you think back to the cease-and-desist letter that San Francisco issued in 2010, if Uber had simply stopped operations then, we wouldn't have the ridesharing world that we have today.

So their strategy of principle confrontation with respect to regulation was really essential for their future growth. Again, this does raise important ethical considerations as you're operating in a legal gray area, but it's certainly an essential part of strategy.

Brian Kenny: Alex, thanks so much for joining us on Cold Call today. It's been great talking to you.

Alex MacKay: Thank you so much, Brian.

Brian Kenny: If you enjoy Cold Call , you might like other podcasts on the HBR Presents network. Whether you're looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what's on the minds of Harvard Business School professors, the HBR Presents network has a podcast for you. Find them on Apple podcasts or wherever you listen.

I'm your host, Brian Kenny, and you've been listening to Cold Call , an official podcast of Harvard Business School on the HBR Presents network.

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How to Build a Dynamic-Pricing Strategy That Works

You can avoid the downsides of dynamic pricing with some basic guardrails, overrides, and communication tactics.

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More and more companies are turning to pricing algorithms to maximize profits. But many are unaware of a big downside.

Marco Bertini , a marketing professor at Esade Business School in Barcelona, says constant price shifts can actually hurt the perception of your brand and its products. He warns that employing AI and machine learning without considering human psychology can damage your relationship with customers.

In this episode, he outlines steps you can take to avoid these pitfalls, including some basic guardrails, overrides, and communication tactics. He also shares real-world examples of companies that are using dynamic pricing to smooth demand and provide better customer experiences.

Key episode topics include: strategy, pricing strategy, algorithms, psychology, customer experience, communication, dynamic pricing, brand, AI, machine learning, profits.

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the full HBR IdeaCast episode: Algorithms Won’t Solve All Your Pricing Problems (2021)
• Find more episodes of HBR IdeaCast
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts — hand-selected to help you unlock new ways of doing business.

Marco Bertini, a marketing professor at Esade Business School in Barcelona, says constant price shifts can actually hurt the perception of your brand and its products. He warns that employing AI and machine learning without considering human psychology can damage your relationship with customers.

In this episode, he outlines the steps you can take to avoid that – including some basic guardrails, overrides, and communication tactics. He also shares real-world examples of companies that use dynamic pricing to smooth demand and provide better customer experiences.

This episode originally aired on HBR IdeaCast in October 2021. Here it is.

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

When I was a teenager on a sports team, our team bus stopped at a McDonald’s restaurant. Waiting in line, we noticed that the board that showed the prices for the French fries and hamburgers had little wheels for the numbers. Whoever set the prices, spun the wheels to show the right number. One of us joked that they probably rolled the prices higher when they saw the bus pulling up.

And as you do, when you’re trying to be funnier than the next kid, we started imagining the prices bouncing around like stocks that if you were shopping at McDonald’s, you’d have to yell, “Buy now!”, when the price of a big Mac dropped to where you wanted to swoop in and pick one up.

What was totally laughable to us at the time is actually become the norm of pricing today. Algorithms that can change prices by the minute are commonplace. It’s not just airfares and hotel rates anymore. Check your ride sharing app a minute later, and you can get a wildly different number. Leave items in your online shopping cart, and the next day you’ll find a new price. Now there’s a clear incentive for this. Companies eke more profit out of every transaction, but what many of them fail to understand is how much this dynamic pricing is messing with the psychology and trust of their customers.

Joining us today to explain the harm that dynamic pricing causes and how to manage it is Marco Bertini. He’s a marketing professor at ESADE Business School in Barcelona and a visiting professor at Harvard Business School. With Oded Koenigsberg of London Business School, Bertini also wrote the HBR article, “The Pitfalls of Pricing Algorithms”. Marco, thanks for coming on the show.

MARCO BERTINI: Oh, it’s a great pleasure to be here.

CURT NICKISCH: Marco, I have to admit, preparing for this interview, I just hadn’t realized just how fundamental pricing has changed since you know, I was younger.

MARCO BERTINI: Well, it’s changed. It’s changed a lot. I think in great part by the way, companies start to understand and actually individuals as well, but the way companies start to understand the many of the ramifications that a price has when you transact your customers. Back in the days when you were at school, it was fundamentally an economics principle, right? A bar that you set higher and lower and more people come in and more people are left out, but there is just much more knowledge and awareness and conscientiousness of the psychology behind numbers, which makes it a lot more richer. On top of that is the issue that technology is allowing us to do many, many more things that we could do before and we’d price. It was just kind of fun.

CURT NICKISCH: Yeah. I mean, price has always changed, right? And people waited for sales or they used coupons, but it just felt much more stable and certain and simple, maybe is the way to put it. We’re used to kind of wait to try to gain the best airfare. Now you can almost do it for, for anything. It’s not just what you’re going to buy and whether the price is worth it, but, but when you are going to buy it or at what price?

MARCO BERTINI: Some would say even maybe too much, right? But I think it’s good to have a little bit of context to these, because again, if our recent history is one of fixed prices, essentially, where a product has its price and that’s it. And you see it on a price tag. And that’s literally it.

But if you wind the clock back a century or so, it was with bazaars and marketplaces, there was no such thing as a fixed price. There was haggling, right? There was bargaining and every interaction between a customer or a firm led to some sort of price, depending on how price conscious that particular customer was and how much the business wanted to sort of extract that profit. Then what happened? A scale happened in a sense that we wanted to start selling lots more stuff, to lots more people at scale.

And still we started building stores. And when you started building stores and especially department stores, it’s really hard to bargain and barter and haggle inside a department store. It just becomes very, very messy. So, to achieve that sort of scale, you start saying, oh, you know what, I’m going to put one price on this piece of item. So, the customer doesn’t need to interact with me, the salesperson, and everything will be great. There’ll be less friction in the transaction.

So, that’s kind of where we went. And that was stage two, let’s say, and then stage three is back to what I was alluding before. I can still with technology. I can still achieve that. This is where algorithms kind of come into it. I can still achieve that scale, that I so much desire, but I don’t necessarily have to stick to a price tag. And so, I can, I can actually have the benefits of both worlds. And so, in many senses, it’s kind of going back to the past, through the use of, of technology.

CURT NICKISCH: That’s amazing. I mean, there is a beauty, right, to the bazaar, price setting at a bazaar where, where the seller and the buyer haggle and basically the price is what the buyer and the seller agree it is at one moment in time. But if you take most consumers today, it seems a little exhausting or it makes, makes it feel much more adversarial somehow when you’re, when you’re trying to decide when to buy something.

MARCO BERTINI: Yeah, I would, I would definitely agree. And I think there’s a few things that are worth mentioning. One of them is it’s like a moving target a bit in the sense that social norms change all the time, right? If we wind the clock back aa sufficient amount of years, the thought of all of us paying different prices at a, at a concert, in an airplane, at a hotel was probably a foreign concept. And we would maybe take an objection to that.

But of course, that’s kind of sacred nature right now. We find that less intrusive, right? At the end of the day, commerce is a social phenomenon. I think, however, what you said is particularly true. There are situations where a company can take it too far. There are situations where it doesn’t have sort of the agency to do so, and the customer doesn’t really allow them implicitly to, to change prices so much or out of situations where customers actually look to the price for some sort of information. And when that information just keeps changing all the time, because the price keeps on changing, I’m left to fill in the blanks. And I would say, generally speaking, you do not want customers to fill in the blanks because often that leads down sort of a bad path.

CURT NICKISCH: Right, yeah. You get to that point where you think, oh, the company just noticed that I’m coming back to buy this and they railed the price.

MARCO BERTINI: Right. Exactly, exactly. But so often what I try to explain both to the students and to the companies, that I have the pleasure to work with is that when we think about these idea of customer focused, that it’s everybody knows about and everybody tries to strive for, if you’re a business, has two sides to it. It has like a front end and a back end to it.

So the front end of customer orientation is what we learn in marketing courses, which is: I’ve got a product or a service, and if I really want to do well in the marketplace, what I should be doing is understanding what the customer’s needs and wants and desires are, and then work my way backwards in terms of how to shape that product, how to communicate that product. So I’m being driven by the customer.

And so more and more, and again, especially with technology, organizations are thinking to themselves, well, how do I leverage technology to build that stronger relationship with customer and a stronger connection, which is great. In my opinion, there’s absolutely nothing wrong with that. The problem is that commerce is unique in the sense that at that moment, I then have to turn around and ask my customer for money. You know that saying, you know friends and money don’t mix everybody’s set up and everybody believes completely. In commerce, we don’t have the luxury of choosing one or the other. We kind of have to do both, right?

And so, on the one hand, on the front end, as I was saying before, you’re trying to build that trust with customers, which is again, it’s great, but then it’s becomes very delicate, right? Because I’m telling my customer who I had previously told him or her to trust me a lot to then say, okay, now I used to give me money.

So, it becomes a very, very difficult, very delicate thing to do. And if I start using algorithms to generate those prices, so prices are not only moving than they used to be, but also they’re moving in a way that may be disconnected. We had done the line psychology of that relationship. What can happen is that you’re driving a wedge between the front end of my customer orientation efforts and the back end, which is the more monetization element.

And whenever you drive that wedge going back to a comment I made before you start having the customer filling in the blanks, what’s going on? Why did they tell me these in the one hand, but then actually the pricing me that way? Are they standing behind what they’re saying? Are they truthful? Are they giving me what they promised?

CURT NICKISCH: Where does this go wrong sometimes? In your article, you gave the example of Uber at the time of a terrorist attack or the threat of a terrorist attack. Search pricing took the price of getting writers out of a certain area up five times what it normally is. There is some benefit of course, to offering, charging more money and drawing more drivers to help take people out of a certain area and at a high demand shock event like that, but what went wrong in that case, do you think?

MARCO BERTINI: So, I think if we, put yourself in the customer’s shoes. In the case of Uber, when these shocks happen, sometimes even if it is not, even if it’s not a harmful sort of situation, but more like a Christmas Eve or things, or New Year’s Eve, there is that sense, I think, from the customer perspective that it’s not as if I’ve got many options, right. I am, I’m at the mercy of the company. I am out here. I need to get out of here for whatever reason, and I literally do not have a choice.

CURT NICKISCH: So, what do you think Uber should do in a situation like that? Because it could still offer high reimbursement rates, right. To drivers to drive on New Year’s Eve, for instance, is that just one of those times when Uber should just lose money for the evening?

MARCO BERTINI: I mean that may be a solution, right? I don’t pretend to understand the fundamental economics of Uber, so I wouldn’t hesitate to sort of give them specific advice. But from where I sit, my objective would be to sit down with them. I mean, we make an example of Uber, but it could be this there’s millions of applications of algorithms. What I ideally like is for organizations to sit down and think beyond the standard economic argument of algorithms. That’s, because that, I think they’re in the best seat to judge what limits there are. If they’re made aware of those sort of side effects, or byproducts, I think they’re in the best seat to sit down and say, okay, oh, now that I know that these things could happen, and given what I know about the marketplace, where do I want to put those guardrails, for example. Or when should I expect something to potentially go wrong, and so to be weary of that? Or who should I put the decision in the hands of?

You see what I mean? It’s hard, right, to say I’m not Uber, so it’s hard for me to say, “Hey, oh, this is what he should have done.”. Yeah. Accept the loss for that day, because that’s the way you should go about it. I think I’m usually satisfied when you, in this specific case, anyway, when you get sort of an organization to think, okay, I didn’t know that when I set, when I vary my price, that releases information, beyond the fact by no buy now, buy later, wait, wait a second, by now. Beyond that sort of basic information, I wasn’t really aware that actually there is more information about that. And if we say internalize that idea, then, hey, all of a sudden you can have lots of different options. And importantly, some of those options may actually run against what you would do if you’re looking at it purely from an economic perspective, short term economics.

CURT NICKISCH: Let’s talk briefly about algorithms themselves, why they’re so powerful and so popular now, and is some of this evolution, just something that you see that can be built into algorithms going forward, that we just haven’t got there yet with how pricing is done?

MARCO BERTINI: Yeah. I really think that is the case. I mean, everything has its evolution, and the idea of using an algorithm to help me do a function that I was doing probably on a spreadsheet beforehand. It makes perfect sense back to what I was saying before. But again, the first intuition is I’m helping, I’m trying to get this algorithm to help me figure out where the brakes on the willingness to pay are, and sort of understand exactly what price fits better to what customer. That is the core, and it’s always going to be the core.

CURT NICKISCH: And that’s pretty powerful, right. I mean, that’s yeah.

MARCO BERTINI: Absolutely.

CURT NICKISCH: And just in today’s world with supply chains or maximizing the number of seats on a plane, it’s just, it’s crucial.

MARCO BERTINI: Absolutely. Right. Because either we have a fixed capacity that we would like to sort of make the most of or because, and I always tell this to my students, I want to move people around so that there’s a case just a second. There was a case of Disney in the article. And if I see myself with having seasonal demand, where very lots of people trying to come to my theme parks in the middle of summer or during the school vacations and less people going other times, I can use the algorithm, of course, to have a financial return by all means, but I’m actually using it to change the customer experience as well. Because if I can move people around and get families to come to realize there’s a trade-off between coming when you would really like to come, but maybe it’s the school vacation and another moment and accept that trade off.

Then what happens is that this is analogy so this appears a little bit, and everybody’s experience is actually much better because we didn’t have to wait so much in line. So, I guess my point I’m trying to drive is that, there is a core element to algorithms, which are just fundamental economics 101 just used with just done a bit better with, or sometimes even a lot better through technology, but then there’s this periphery of psychology and sociology that all mixes with that, that it’s typically a periphery, but in many, many cases actually can come to dominate. You got these Uber-like individual events that are, you know, so outrageous that just, you know, they just come to dominate. And they sometimes unfortunately shape the perceptions of the company, even though maybe only happened once or a few times.

CURT NICKISCH: So, what can be done to improve the machine learning that’s behind these algorithms to better incorporate, recognize human psychology? Is it, what is the answer here?

MARCO BERTINI: The answer, like many good answers tends to have multiple levels. The first thing is just, and I’m always very big on this, is just awareness of the problem, because if we don’t have awareness of that problem, that is like, there’s no reason, I’m just trying to push something down your throat that you don’t even understand why I’m pushing it down your throat.

So, the first thing is to understand, in my opinion in my experience, most organizations do not think of prices beyond the sort of the mechanics of it and the numbers of it. Right? So, there’s much more than a numbers thing. So, just like it’s more than a numbers thing when you’re setting prices yourself on an Excel and you change them every six months. It is also more than the mechanics when you’re changing it every second.

And guess what, it’s much more important when you’re changing it every second, because there’s a lot more stuff moving and lots of more inferences making. So, we have to understand that first. Once we understand that first, then I get second, you want to say, well, okay. So, there is inferences beyond the beyond, just when I should buy and how I should buy. Okay. Then what do I want to say? How do I make sure, from my perspective, I think it’s a two double, double-edged sword here or a two-way street maybe is the better analogy. The one way of the street is how do I use the algorithm to make sure that whatever my brand is, it resonates through the algorithm.

The other side of the street is understanding that the same thing happens the other way around. When I vary prices and my customers respond, that is like experiments. It’s a great experiment. Because people actually putting their money where their mouth are.

So, do I perceive, and this is a bit tricky. Do I use dynamic pricing of course, to get my products in the hands of customers, because that’s what I want primarily. But at the same time, I may actually proactively thinking about it as I, as an experiment where the variation in price is actually gives me a sense of what people are responding to in terms of their appreciation of a product.

Because if I bring something new to market and I really want to understand what they really care about, this one, a great way of learning about it is through some variation in prices, and then seeing how behaviors respond.

CURT NICKISCH: There can be a lot of benefits to dynamic pricing to the consumer. How should companies go about showing the benefits of that or making the decision making that they’re doing, in some cases on behalf of the consumer or to the consumer’s benefit, more apparent to the people they’re reaching.

MARCO BERTINI:  Right. So, that’s a great question. And it kind of strikes at a sort of a bigger, I would call it problem. Whenever a company tries to move away from one price to all of its customers, to a series of prices, to its customers. And it does that because it realizes that people just have different valuations for the things that you sell. Some people like it more, some people like it less, that’s just nature. So, whenever we start thinking about those kinds of things, I think many of us, maybe most of us, jump up and say, oh, see, that’s just very nasty, right? The company’s trying to exploit. And the fact that I have a high willingness to pay and just, it’s just not nice.

I mean, I’m biased because I’m a pricing person, but I think it gets a bit of a bad rep, right. Because what happens is that I’m basically de-averaging something. So, I’m the de-averaging the price. And yes, it’s true that some people, if I am able to, will end up paying more for something that we’re paying less for beforehand, but hold on a second, there’s actually people that are paying, are now asked to pay less for the same product or service. And maybe in beforehand, they were not able to afford accessing the part of the service, but now they do.

Think of categories where access becomes, it’s of basic importance. Maybe healthcare, maybe education, maybe insurance. I can just sort of line up a few of these, right? So, in situations where you really want to get all the market covered, because they really should have coverage. Pretty much, the only way you can do is either A, I bring the price, the one price down to zero, in which case you’ve got this dilemma that I’m actually not making any money, and therefore, as a company I might not be alive very long.

Or I flex my prices as much as I can such that there is some sort of cross subsidization going on in the marketplace. And you had the ones that are willing to pay more able to pay more. So, cox subsidize the ones that are willing or able to pay less. So, I guess what I’m getting at is that one huge advantage of flexing your prices, which can then be done dynamically through algorithms, is that it just broadened access so much more, and in some categories, that is really what you’re after.

CURT NICKISCH: Yeah. That’s interesting. And then you have to communicate that somehow.

MARCO BERTINI: Exactly. So that’s the bad rep part is that maybe what you haven’t done very well is explain it. And I’m thinking of an example here as just as I’m talking, I know these at least one business in the providing food. So I’d say as a chain of restaurants providing healthy food, and part of its mission is to make sure that even households with a lower income who may otherwise go to a fast food place and the fast food perhaps is not the best type of food to eat on a regular basis, even lower income households have access to more nutritional meals. And so they’re very open about the fact that what they’ll do is they will charge for the very same bowl, for the very same salad, for the very same main course, whatever it may be. For the very same plate, they will charge a very different price within different areas of the city, in which there might be in, trying to judge, depending on the area, the zip codes, what the purchasing power may be of that particular neighborhood, right. And so, they’re very upfront about the fact that we’re going to charge different prices because our goal is to have nutritional food available to all. And that is kind of a higher goal then there might be sort of just keeping those prices constant and maintain a certain profitability.

CURT NICKISCH: When you’re talking about this high level now, I understand those, I understand that perspective kind of as a leader in an organization how you’re trying to think about that. What are some practical things that you can do then to follow through on this?

MARCO BERTINI: Yeah, absolutely. So, that was like the step two. I think we mentioned before, I says they step three and beyond there are the more we’re slowly landing this other, the step three and more and more of the practical, the practical aspects. So, and some of those things came out in our discussion already. So, the idea of guardrails, I think it’s kind of established now and it’s an important thing to sort of stress.

But some understanding of where the variation may arrive to a point that is just it’s extreme, and, therefore, the customer will start saying, what is going on here? Remember, one of the things that I was stressing is that you don’t necessarily want your customers to fill in the blanks. So, if A, if you’ve got a narrative that you can explain why these variations are there, then by all means, but if there is no such thing as a narrative, then you want to make sure that you sort of you’ll hold yourself to certain patterns.

Related to that one is the notion that you really want your algorithm to be connected in a much stronger way than it probably is right now to the strategic decisions of the organization. And maybe even better said, the marketing of positioning value proposition ideas of the organization. And what do I mean by that?

So, generally speaking – and maybe again, maybe we’re generalizing a bit too much – but I think it’s fair. Generally what you tend to have is that these algorithms are, it’s just a software that I’ve heard from some people that I should be applying in my business. So, I do some research, of course, and then I bring it in and most likely have a data team that is managing it and helping me with that, maybe some of the pricing folks as well. And that’s great, nothing wrong, absolutely wrong with that. But that sort of structure is the one that will maximize the economic aspect of these algorithms. The more psychological slash sociological aspects that relate to inferences about the company and the products, those are not typically the expertise doesn’t lie in those particular functions of the business.

CURT NICKISCH: You know, this has been really helpful, Marco. Can you give one example, just shining example of a company that you saw do, something that you thought was really smart when it came to trying to solve this problem?

MARCO BERTINI: I always liked the way Disney at least overtly was approaching the topic, because it thinks about the topic in an even more strategic way. Of course, there is the element of like, we’ve been saying across this interview that the more I’m able to flex my prices properly, given the right kind of variables, then I can sort of really customize that price. And that is great. But then there is the customer experience angle, which we had mentioned whereby what’s actually happening is that if I provide folks with a menu of different prices that are moving dynamically, then people will make a decision when to attend.

And what I can do is I can smooth out demand, hopefully. And then what is interesting to me, maybe as I came more as an academic is I am using my prices to change the experience of the customer. That is, I’m using my prices to change the value they derive from the product itself, which is weird because it should be that way around. You have a volume, then you capture through your price, but actually the way I price actually changes the value itself in a sense. And then on top of that, there’s also a third element. So, there is experience element, there is the sort of revenue element, and then there is a cost element, right? Because if I change, again, the behavior of customers, if I’m successful at that, through my use of my algorithm, I’m also lowering my cost base.

And so I kind of have this sort of triple whammy effect and, it kind of strikes at the heart of most of the things we try to do in business in general but in particular when it comes to pricing, which is whatever dollar I invest in something think about discount or whatever dollar of discount that I invest, I want to get the biggest return possible. And so, the more things I can get out of that $1 of investment, and in this case, the more I can get out of the algorithm doing its thing, the better it is. And they’re pretty smart about it in my opinion.

CURT NICKISCH: Marco, this has been fantastic. Thanks for sharing these insights with us.

MARCO BERTINI: Thank you very much for listening to me.

HANNAH BATES: That was Marco Bertini – in conversation with Curt Nickisch on HBR IdeaCast . Bertini is a marketing professor at Esade Business School in Barcelona.

We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

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This episode was produced by Mary Dooe, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. And special thanks to Maureen Hoch, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and you – our listener.

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