University of Utah Uber Case Study

The Political Quarterly, Vol. 88, No. 3, July?September 2017
The Rise of Uber and Regulating the Disruptive
Innovator
GEOFFREY DUDLEY, DAVID BANISTER AND TIM SCHWANEN
Abstract
The ride-hailing company Uber has achieved extremely rapid global expansion by means of
outmanoeuvring governments, regulators and competitors. The rise of the company has been
based on a deliberate strategy of acting as a market disruptive innovator through a user
friendly technology and making use of the ?sharing economy?. These attributes are not
unique, but are distinctively augmented by a relentless expansionary ambition and an ability
to maintain the capacity to innovate. Uber has generated great political controversy, but the
challenge for governments and regulators is to embrace the bene?ts of the disruptive innovator, while adopting an approach that takes into account the full range of impacts. For Uber,
the challenge is to maintain its expansionary style as a disruptive innovator, while also
rede?ning on its terms the political and public debate. The case study of London provides
important insights into the dynamics of these processes.
Keywords: Uber, taxi, technology, disruptive, innovator, London
The ?Uberisation? phenomenon
IN 2009, UBER was founded in San Francisco,
initially with the intention of challenging
what was generally considered to be the
city?s inef?cient and inadequate taxi service.
Since then, its strategy of relentless and
audacious growth has enabled it rapidly to
spread its services worldwide, so that by
2017 it operates in more than seventy countries, with around $16 billion invested in the
company since its inception. The size of its
expansion is illustrated by the estimated valuation given it of $70 billion, making it the
world?s most valuable privately held technology company. The rise of the company
has wide implications that cover not only
transport, but also changing models of business and employment, urban planning
issues, and patterns of mobility in the twenty
?rst century. A remarkable feature of the rise
of Uber, however, is how it has been based
on a deliberate strategy of acting as a market
?disruptive innovator?.1 It therefore provides
a case study in how to exploit weaknesses
in competitors, and in regulatory systems
that have been compelled to behave not
only in a reactionary manner, but also with
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frameworks that were never designed to
deal with the types of technological and
operational challenges presented by Uber.
The challenge for Uber is to maintain its
expansion as a disruptive innovator through
proactively rede?ning the political and
public debate.
The successful expansion of Uber has been
based on a deceptively simple use of modern
technology, in which the initial bookings, the
route to be taken, the calculation of fares
and, ?nally, payment, are all made by means
of a smart phone app. In operational terms,
this technological base is combined with the
economic concept of the ?sharing economy,?
which aims to bring suppliers and consumers together by making use of spare
capacity. In the case of Uber, this means
that, given that a motor vehicle is typically
idle for over ninety per cent of the time, the
driver of a private car can download the
Uber app and be put in touch with customers who are using their own Uber smart
phone app. Technology, combined with the
?sharing economy?, should mean a more ef?cient matching of supply and demand than
for traditional taxi services. In addition, Uber
employs variable pricing that can be applied
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to deal with periods of peak demand, while
both driver and customer provide score ratings for each other. The ability of Uber to
challenge and often undercut the incumbent
taxi operators has inevitably caused ?erce
opposition to its services in many countries.
Particularly for regulatory purposes, Uber
seeks to differentiate itself from its rivals by
describing itself as a technology platform
rather than a taxi company, while it classi?es
its drivers not as employees, but as ?registered partners?.
It must be stressed, however, that the type
of service provided by Uber is far from
unique and, indeed, in San Francisco itself,
rival companies Lyft and Sidecar already
provided app based services similar to those
introduced by Uber in 2010. Lyft remains a
major competitor in the United States, while
Uber has faced major regional competition
from such companies as Grab in South-East
Asia, Gett in Israel, and Ola in India. In
China, competition has been particularly
?erce. Uber poured huge resources into this
market, but in 2016 was compelled to merge
with its chief rival, Didi Chuxing. Despite
the size of its operations, the losses incurred
in China and other countries have thrown
doubt on Uber?s long-term ability to make a
pro?t. Uber has been most successful in
large urban areas, but it is now building alliances with the public sector, particularly in
the United States, so that it can expand into
suburban and smaller urban areas.
In many cities and countries, Uber has
adopted an invasive approach which has
sought to bypass regulatory regimes. This
has been particularly evident in Europe,
where Uber has fought ?erce battles with
governments, regulators and established taxi
operators in France, Germany, Belgium, and
Italy, while in Hungary in 2016, Uber was
effectively declared illegal and thrown out of
the country by its regulators. The serious
political dilemma for governments and regulators is that, while Uber provides an ef?cient and relatively cheap service that is
popular with consumers, it can also threaten
the status and existence of established operators, and make regulatory regimes appear
ineffective. Similarly, by tapping into unused
capacity, Uber can act as an important creator of jobs. At the same time, its refusal to
treat drivers as employees can cause tensions
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in terms of hours worked, the payment of
bene?ts, and wider social security.
The extent to which Uber has embedded
itself in public consciousness is indicated in
how the word ?uberisation? has come to be
applied to any sector that apparently adopts
the distinctive mix of modern technology
with the principles of the ?sharing economy.?
For Uber itself, however, its expansion illustrates the complexities of how governments
and their regulatory regimes come to terms
with innovative operators that do not ?t
standard templates and challenge established
perceptions of organisation, employment,
and patterns of life. Uber has now spread its
services to most UK cities, but London provides a notable case study: unlike in many
other European cities, from the outset its services were of?cially licensed. This meant that
the regulator, Transport for London (TfL),
has sought to ?nd an accommodation with
Uber, while at the same time facing ?erce
opposition from the long established and iconic black cab operators. Nevertheless, Uber
has retained the style of a disruptive market
innovator, and while this has created an
ambivalent relationship with the regulator, it
has allowed the company to continue its
growth in the city and to consolidate its
operational position.
Uber in London and success as a
disruptive innovator
Uber commenced operations in London in
2012?relatively early in its lifetime?and
unlike in many other European cities, its
standard UberX service was of?cially registered by TfL from the outset. (Uber also
runs a number of higher grade services.) In
2012, London staged the Olympic Games
and TfL feared that there might be insuf?cient transport capacity to meet the expected
demand. Uber, therefore, might have been
seen as a temporary expedient, but within
two years the company?s rapid growth in
the capital was causing great unrest on the
part of the established operators?particularly in the case of the plying for hire black
cabs. Plying for hire vehicles are those that
can be hailed on the street by customers
and also picked up from cab ranks, while
private hire vehicles (the category that
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includes Uber) must be pre booked. Private
hire vehicles?often referred to as minicabs
?had been an established, if controversial,
part of the London transport system since
the 1960s and tended to create an adversarial relationship with the plying for hire system. What initially distinguished the Uber
service was the novelty of its app and its
ability to undercut the fares of its rivals by
employing the principles of the ?sharing
economy?, where the drivers supplied their
own vehicles and had ?exibility in terms of
the hours they worked. However, Uber
could not copyright its service model so
that, for example, over time, many of the
black cabs themselves have adopted their
own apps. (In 2016 Uber offered its own
app to the black cab drivers, but this offer
was refused.)
Uber, therefore, required something more
to ensure its success and continued growth,
and in this respect it has exploited its brand
as a perpetual innovator that is challenging
the status quo. It has skilfully outmanoeuvred both TfL and the established operators,
thereby ?rmly embedding its name and
image in the public consciousness. Consequently, being a market disruptive innovator
provides the political opportunity to exploit
rules that were framed in another age, and
to bypass established forums by making
direct appeals for public support. For a
regulator such as TfL, there is a delicate
balance to be struck between wishing to
encourage innovation and services that
apparently have wide public support, with
sensitivity to the interests of established
operators, and to the provision of rules that
provide fair competition.
Signi?cantly, the black cab drivers and
their representative body, the Licensed Taxi
Drivers Association (LTDA), have aimed
their protests chie?y at TfL rather than Uber
itself, on the grounds that it is the job of the
regulator to ensure that innovative services
remain within the bounds of what they
judge to be fair competition. The dispute
?rst ?ared into public view in June 2014,
when an estimated 5,000 black cabs blocked
the streets of central London for several
hours. The protest was speci?cally aimed at
TfL, which was deemed to be ?afraid of
Uber?s money?, and London Mayor Boris
Johnson, whom the LTDA accused of being
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too friendly and accommodating towards
Uber. In reply, TfL said that it had subjected
Uber to its largest ever compliance investigation, and found that its drivers held the
relevant licences and insurance. It was
notable that the London protest was co-ordinated with similar demonstrations in Paris,
Madrid, Barcelona, Berlin, Milan, and Rome,
indicating the degree to which Uber had
already become a major disruptive force
across Europe. However, the dif?culties for
TfL and the black cab operators, and Uber?s
?air for self-publicity, was evidenced by the
company?s claim that the protests had made
the public more aware of their distinctive
brand and style of operation. Furthermore,
while the demonstrations had been going
on, demand for their services had risen by
850 per cent.2
The demonstrations had no effect on the
growth of Uber, and by 2015, it was estimated that the number of private hire vehicles in London had increased by nearly a
?fth in the previous year to more than
78,000. Much of this rise was accounted for
by Uber, which had 14,000 drivers in the
capital, making it the largest provider of private hire vehicles in the city.3 Further black
cab protests took place during 2015 and
2016, and in September 2015, the London
Mayor?s question time (where London
assembly members periodically hold the
Mayor to account) was disrupted when scuf?es broke out with black cab drivers protesting about the legality of Uber. Mayor Boris
Johnson referred to the protestors as ?Luddites,? but was clearly increasingly concerned
at the protests, and called on the government
to exercise its powers to restrict the number
of private hire vehicles on the streets of
London. For its part, the government was
aware of the rising popularity of Uber and
persistently refused to take any action. A
consistent advantage for Uber is that
having achieved a certain critical mass in
terms of cars and drivers on the streets,
restricting their growth becomes politically
sensitive as it may be seen to be frustrating
public demand.
Apart from its public popularity, a further
fundamental dif?culty for both regulators
and established operators posed by a technological innovator such as Uber is the challenge it presents to long established working
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? The Authors 2017. The Political Quarterly ? The Political Quarterly Publishing Co. Ltd. 2017
practices and regulatory frameworks. In the
case of the black cabs, a bedrock and rite of
passage to entry for drivers is ?the Knowledge,? whereby candidates spend up to four
years learning their way around London?s
25,000 streets, and then must pass a ?nal
examination. Critics claim that modern satellite navigation systems, such as those
employed by the Uber app, make ?the
Knowledge? redundant. Defenders of the
established system claim that no satellite
navigation system can match the detailed
insights and expertise required for ?the
Knowledge,? but as a rite of passage it
clearly is an anachronism. Signi?cantly, in
2015, one of the principal training schools,
the Knowledge Point College, announced its
imminent closure, blaming competition from
Uber and London?s high property prices. In
the event, the College was saved by ?nancial
support from cab manufacturer the London
Taxi Company, but its threatened demise
indicated the fundamental challenges Uber
offers to the distinctive identity of the established operators.
Similarly, in terms of regulation, the rise
of Uber indicated the vulnerability of
regimes framed in an age long before modern technological innovations. The London
taxi regulations, therefore, continued to rest
on foundations originally laid in the nineteenth century, and TfL discovered that it
was dif?cult to ?t Uber technology to these
rules. In making their case about the illegality of Uber, the black cab drivers had
claimed that the company contravened section eleven of the 1998 Private Hire Vehicles
(London) Act, which stipulates that no private hire vehicle should be equipped with a
taximeter, and that the Uber app constituted
a taximeter. In terms of the Act, only a plying for hire cab is legally entitled to carry a
taximeter, which gives a running price for
the ride based on time and distance.
By 2015, TfL had clearly become politically
sensitive to the challenges facing the black
cabs, and so the regulator brought a high
court case against Uber and other similar
private hire operators, claiming that the app
constituted an illegal taximeter. However,
the High Court ruled that the app was legal
and could not be classed as a taximeter.
Uber was, therefore, able to use its position
as a technological disruptive innovator to its
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great advantage, while at the same time giving the taxi regulatory regime an image of
being out of date and unable to cope with
modern technologies. Politically, this was a
major blow for both TfL and the black cab
operators, as it publicly demonstrated both
the rising strength of Uber, and the dif?culties in restricting its continued growth.
Having been frustrated in the legal arena,
TfL then attempted to clamp down on Uber
by introducing a series of proposals, including a requirement that private hire vehicles
would have to wait ?ve minutes after a
booking before picking up a customer. This
would have handicapped Uber in the use of
its app, while other proposals included preventing operators from showing vehicles that
were available for immediate hire by means
of an app, and controls that threatened
Uber?s plans to introduce ride sharing services for its cars. Perhaps in response to
Uber?s attacks on the credibility of ?the
Knowledge,? TfL also sought to make the
topographical test taken by private hire drivers more dif?cult. TfL began a consultation
process, but Uber responded by launching
an intense lobbying campaign to win public
and political support for its services. Most
notably, this included a public petition that
eventually was signed by 200,000 people,
while a number of business organisations,
including the Institute of Directors, came out
in support of Uber. As TfL had expanded its
case against Uber to the High Court, so Uber
itself sought new arenas to counter these
challenges. By widening the debate to new
issues and arenas, each side battled to out?ank the other politically.
Perhaps of most signi?cance in terms of
political weight, however, was an intervention by the chief executive of the UK regulatory body, the Competition and Markets
Authority. He warned that the TfL proposals
for private hire vehicles would arti?cially
restrict competition, and so stood to curb
developments that bene?ted the paying passenger.4 For the ?rst time, the disruptive
innovator Uber was winning public backing
from a prominent member of the regulatory
?establishment?, and in a manner that portrayed TfL as reactionary and threatening to
curb an innovative and publicly popular
service. The political and public image of
Uber was, therefore, shifting from being an
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invasive threat to established services to
being an ef?cient innovator that was offering
a new and distinctive service.
In January 2016, TfL abandoned its plans
to tighten regulations on private hire vehicles. This represented a major victory for
Uber, which had demonstrated that it could
outmanoeuvre politically both TfL and the
black cab operators. To add to this, TfL
remained frustrated at the government?s
refusal to cap the numbers of private hire
vehicles in central London. London Mayor
Boris Johnson claimed that the number of
private hire vehicles in the central London
congestion charging zone had increased by
more than 50 per cent in the previous two
years. He argued that this was causing serious congestion, and so defeating the object
of the congestion charge. Consequently, he
asked TfL to investigate the impact and feasibility of removing the congestion charging
exemption for private hire vehicles.5 Once
more, however, this proposal confronted
Johnson and TfL with the accusation of placing unfair competitive burdens on operators
such as Uber. The public and of?cial support
the company was winning had already
demonstrated its skill in resisting restrictions
on its operations.
The limits to disruptive
innovation in London
As 2016 progressed, however, Uber faced
fresh challenges to its operations from both
TfL and also its own employees in London?
and this time found it more dif?cult to
prevail. It could be said that Uber was
beginning to experience some of the penalties of success in that, as its growth continued, of?cial concern increased about what
would be the long-term impacts of the operations themselves, as well as on employment
patterns. Ironically, the very success of the
disruptive innovator strategy created political and legal limits in the degree to which it
could be allowed to continue unchecked. In
operational terms, the rise of Uber is graphically illustrated in that by August 2016, there
were over 110,000 cars in London licensed to
operate as private hire vehicles. Of these,
around 30,000 were Uber vehicles. Meanwhile, the number of black cabs?at
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around 22,500?remained about the same
as in 2011, the year before the introduction
of Uber.6
TfL was compelled to accept the success of
Uber and other private hire operators, but,
at the same time, there were now real fears
about the future identity and existence of the
black cabs, which were widely considered to
be an indispensable and iconic element of
London?s identity. These concerns made it
more dif?cult for Uber to de?ne the direction of the political debate. In practical
terms, there was also the politically sensitive
issue of the employment prospects for the
black cab drivers. In May 2016, the Conservative Boris Johnson was replaced as London Mayor by the Labour party?s Sadiq
Khan, who wasted little time in producing a
Taxi and Private Hire Action Plan.7 This Plan
was broadly sympathetic to the black cabs,
and its recommendations included giving
the black cabs access to twenty more bus
lanes and quadrupling the number of of?cials enforcing private hire regulations. In
addition, restrictions on private hire vehicles
included the requirement that operators must
have a London-based, twenty-four hour call
centre. Such a requirement would be a handicap to Uber with its app based operations.
Operators would also be required to have
permanent commercial insurance, while there
would be a written English test for all
drivers.
The black cab operators had fought
against Uber since the latter?s introduction in
2012, but with little success in stemming the
tide of its advance, so that in four years,
Uber had risen from nothing to having considerably more vehicles on the road than the
black cabs. The new Mayor?s proposals,
however, gave them hope that some degree
of help was at hand. As with the 2015 proposals, Uber made a public appeal for support and, in addition, took its case to the
High Court. On this occasion, the court
endorsed TfL?s case for the English language
tests, but found in Uber?s favour in the case
of permanent commercial insurance and
maintaining a call centre. At least in the case
of the English test, therefore, the needs of
the black cabs were given precedence. The
image of Uber was also affected around this
time by accusations concerning its alleged
failure to pay taxes in the UK. Nevertheless,
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there was no suggestion that the new measures would have a signi?cant impact on the
continued advance of Uber and, signi?cantly, a 2016 Report by Nick Ferrari for the
centre-right think tank Policy Exchange, Saving the Black Cab,8 criticised the black cab
operators for attempting to conquer Uber by
means of seeking to protect their own interests. Instead, it advised the black cabs to
come to terms with the fact that the market
had changed and that they could only survive by competing more effectively in their
own right on price and convenience in the
new world. As the disruptive innovator,
Uber had set the operational and political
agenda, and the black cabs and TfL had
been compelled to respond.
For its part, Uber needed to develop and
promote its distinctive style and image as an
innovator, and this required being continually on the move as regards the range and
types of services it provided. In terms of
geographical scale, in 2016 it more than doubled the scope of its operations in London.
Previously, it had been restricted to the city
centre, but had now expanded to more of
the outer areas, including Heathrow Airport.
In this case, Uber was hoping to attract more
commuters to its services, but it could also
be said that it was again keeping one step
ahead of the regulator in terms of threatened
restrictions on its operations in the central
congestion charging zone. One of the consistent selling points of Uber has been that the
spread of its services could lead to a reduction in car ownership, although in relation to
congestion, this could be countered by the
greater number of private hire vehicles on
the road. To help counter this charge, Uber
introduced its ride sharing service UberPool
to London in 2015. This allowed the app
technology to match passengers going in the
same direction, so that by sharing a ride, a
signi?cant saving could be made compared
with the established UberX service (although
UberPool could also be seen as a threat to
bus services). Uber also extended its range
by entering the food delivery market by
means of bike and scooter through UberEats.
Ironically, Uber?s greatest point of vulnerability in London has occurred with the treatment and status of its own drivers. The
fundamental ?sharing economy? element of
the Uber operation is that the drivers use
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their own vehicles and download the Uber
app. As we noted earlier, Uber chooses to
treat its own drivers as ?registered partners?
rather than company employees, but this has
led to persistent tensions with its drivers,
who seek to be of?cial company employees
with the associated bene?ts. In addition,
Uber typically takes a twenty-?ve per cent
commission on each ride, and this has led to
complaints from drivers about their incomes
being squeezed, resulting in protests and
legal cases in several European countries and
United States cities. London has been no
exception to these trends and, in 2015, a protest was held?supported by the GMB union
?concerning falling incomes for the drivers,
partly the result of Uber increasing its commission rates and what were claimed to be
falling fares.
A 2016 survey suggested that more than
half of Uber?s London drivers made money
through other jobs, and that Uber was not
the biggest source of pay for one in ?ve drivers.9 This type of multiple employment has
become commonly known as the ?gig economy?, with increasing numbers of people less
reliant on a single job and employer. Anxieties about the conditions of employment
have become widespread, particularly in the
courier and urban freight sectors. Although
the ?gig economy? might open up new
employment opportunities, there is increasing political concern about its consequences
in terms of pay and conditions.
Uber found itself at the forefront of this
debate in 2016, when two of its drivers?
again backed by the GMB union?took their
case to the Central London Employment Tribunal, claiming that they should be treated
as employees of Uber and given associated
bene?ts such as sickness and holiday pay.
The Tribunal ruled in favour of the drivers
and in its judgment, stated that the notion
that Uber in London was a mosaic of 30,000
small businesses, linked by a common ?platform,? was, to their minds, faintly ridiculous.
For its part, Uber decided to appeal against
the ruling, asserting that tens of thousands
of people in London drove with Uber precisely because they wanted to be selfemployed and their own boss. The Uber case
attracted widespread attention and signi?cantly, around this time, Prime Minister
Theresa May asked Matthew Taylor, the
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then policy chief of former Prime Minister
Tony Blair, to examine how to extend workers? rights in the ?gig economy? and so maintain ?exibility, while also supporting security
and workforce rights. The business models
to be examined included Uber. The scale and
character of its operations now ?rmly occupied the attention of people in the highest
places, but the employment tribunal judgment was an indicator to Uber that there
could be limitations to its strategy and style.
Maintaining momentum as a
disruptive innovator?
Uber has rapidly achieved huge growth,
while generally retaining a status as a market disruptive innovator. The technology it
has adopted has been innovative?although
not unique?but its success has been derived
from a global strategy, backed up by large
capital injections, that maintains a relentless
pursuit of market growth through overriding, or even bypassing, established interests
and regulatory systems. The guiding motto
of chief executive Travis Kalanick that ?it is
easier to ask for forgiveness than permission?
has served it well, but as it becomes one of
the world?s corporate giants?with ambitions
to match?can it maintain its expansionary
momentum as a disruptive innovator?
In London, Uber was able to launch a
politically sophisticated campaign in winning public and business support when it
was threatened with tighter regulation. Its
fares might be extensively subsidised, but
its success was based on an operation
undoubtedly popular with the public, and
with modern ?techno-optimism? at its heart.
Nevertheless, on a wider scale, the company
appears to have accepted that it needs political allies if it is to continue its rate of
growth. Most notably, in 2016, Uber
appointed an eight person advisory board
that contained a former EU commissioner, a
former United States transport secretary, a
former campaign manager for former US
president Barack Obama, a former prime
minister of Peru, and a Saudi Arabian princess.10 However, in 2017 Uber?s image was
damaged by revelations concerning its secret
Greyball programme, whereby the company
would identify users who might be rivals or
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enforcement of?cials, and show them a fake
version of its app whenever they tried to
order a car, thereby frustrating any of?cial
action. In response, Uber announced that it
was reviewing the programme and banning
employees from using Greyball to target regulators. Around this time, Uber was also
subject to sexual harassment claims by a former employee, and a recorded altercation
between Travis Kalanick and an Uber driver
with regard to employment conditions. All
these revelations damaged Uber?s image as
an innovator, and cast it in a more reactionary light.
At the same time, Uber?s ambitions show
no signs of slackening. Its long-term aims
are re?ected in Kalanick?s stated mission for
Uber to ?provide transportation as reliable as
running water, everywhere for everyone.?
The scale of these ambitions goes beyond the
transport sector and includes major impacts
on society as a whole. For example, in the
United States, Uber has established partnerships with a range of municipalities to offer
privately run services to replace former public sector operations. These include such
statutory functions as transport for the disabled. As part of these partnerships, local
authorities offer discounts to citizens who
use Uber.11 In taking on these partnerships,
companies such as Uber can blur the distinction between the public and private sectors,
while making themselves indispensable to
local authorities and communities.
Perhaps the most ambitious element in
Uber?s strategy, however, is its drive to
develop autonomous vehicles. In 2015, Uber
opened a driverless car research centre in
Pittsburgh in the United States and in
September 2016, launched a self-driving taxi
?eet in the city (although retaining a ?driver?
for legal and safety purposes). In doing so,
Uber placed itself ahead of intense competition for developing driverless vehicles from
companies such as Alphabet (the parent of
Google), Tesla, Ford, and General Motors. In
association with developments such as
autonomous vehicles, Uber is also developing its own global mapping system.
In December 2016?and in spite of Alphabet preparing to sue it on the grounds of
trade secret theft (linked to its autonomous
vehicle programme)?Uber introduced selfdriving taxis in its home city of San
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Francisco. On this occasion it reverted to its
disruptive innovator strategy by putting the
vehicles on the streets without the re