[uber] – HOW A TECHNOLOGY FIRM IS changing the traditional transportation model
By Mark Boeckel, Brent Sprunger, Kevin Smith, and Emily WorkMarch 6th, 2012
Uber is an App-Powered on-demand car service provider for smart phones. Notwithstanding its very unique name, investors have begun to take note of Uber during the past year as it has stolen market share from traditional transportation companies. We will analyze the value proposition of its technology and examine the differentiation Uber creates to stay ahead of both potential competition and the various cab laws and regulations across the United States and Europe. Based upon this analysis, we will provide detail to investors about various strategic choices the company should pursue in both the short and long-term. We will address the short-term roadblocks of government regulation as well as what future benchmarks the company should pursue to maintain its position as the leading car service app. The goal of this analysis is to provide current and potential investors with the necessary tools to assess an investment strategy in this startup.
What is Uber?
über [ü-bər]- being a superlative example of its kind or class Imagine you are a MBA student at work in downtown Chicago who just got off an endless two hour conference call at 5:30pm and realize that you are most likely going to be late for a midterm which starts at 6:00pm unless you can get a cab. However, you know the chance of getting a cab will be next to impossible at rush hour, so you pull out your iPhone and order an Uber, which promises to arrive in 10 minutes or less. It arrives; the driver welcomes you by name, and provides a peaceful ride to Kellogg for the midterm. This is an Uber experience and it’s all for about 1.5 times the cost of a cab. The visionary behind the on-demand app car service is Travis Kalanick, an entrepreneur, with a computer science and math background who has spent nearly 15 years working with various start-ups since dropping out of UCLA. Uber is a software company and does not own any of the cars which transport Uber customers. Instead, Uber has negotiated contracts with drivers and takes 25 percent of the fare. The initial launch city was San Francisco in 2010 and Kalanick has been busy raising capital ever since. Kalanick and co-founder Garrett Camp invested $200,000 as seed money, followed by $1.25 million in angel capital by First Round Capital, an $11 million Series A round led by Benchmark Capital, Founder Collective and First Round Capital, and finally $32 million Series B with Menlo Ventures, Jeff Bezos, Goldman Sachs and Benchmark in December 2011. As of March 2012, Uber service was available in Chicago, New York, Boston, San Francisco, Paris, Seattle and Washington D.C. The firm was also conducting test services in Los Angeles and Toronto. Upon a launch, Uber benefits from various means of social media such as Twitter and Facebook, as users share their experiences. As a result, the firm has experienced rapid user proliferation of 30-40% per month.
Pricing & Experience
Uber has three main pricing structures; fixed airport rates, standard fees which include a per mile/minute charge, and dynamic pricing. For example, the fixed airport fee from downtown Chicago to Midway is $65 and $75 to O’Hare, slightly less than two times that of cabs. This pricing structure does not differ much from other car services but the convenience factor provides it with a competitive edge. The standard Chicago fee is a base fare of $7.00 plus $3.50/mile when over 11mph and $0.85 when under 11 mph, all calculated using GPS. Customers who travel short distances are subject to the firm’s $15 minimum fare as well. The pricing structure is about twice the price of cabs in the city but Uber does not charge extra for additional occupants and the pricing structure is still reasonable enough to achieve scale among traditional...
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