Will Australians ever give up Uber?

27 June 2017
Rough roads may lie ahead for Uber's future in Australia

Dr Rohan Miller and Dr David Oliver from the University of Sydney Business School explain Uber's growing problems and the possibility of Australians discontinuing their use of the popular ride-sharing service.   

Uber app open on smart phone.

From the start, the ride-sharing service Uber offered app-based convenience and positioned itself as a saviour to beleaguered taxi customers. But the company, led by one-time chief executive Travis Kalanick, has now found that the line between confidence and disastrous overconfidence can be thin.

After headline after headline about alleged workplace sexismintellectual property lawsuits, and other revelations of bad corporate behaviour, Kalanick has now resigned under pressure from shareholders. He will remain on Uber’s board of directors, according to the New York Times.

The company now finds itself without a large swathe of its executive leadership, and board members are also said to be jumping ship. Will Australians follow suit and quit the app?

Few alternatives and barriers to entry

Even if Australians did want to avoid Uber, they have few options for similar app-based transportation.

Locally owned competitor GoCatch launched its taxi hailing service in 2011, before expanding into ride-sharing in 2016. It could theoretically have benefited from local knowledge and first-mover market advantage. But it seems to have fallen into Uber’s shadow while dealing with management turmoil, including the departure of its chief executive David Holmes and prominent board members.

The taxi industry’s recently launched app iHail allows consumers to hail the nearest possible cab, although the jury is still out on whether this collaboration will generate more name recognition than GoCatch with its five-year head start.

Bigger-name competitors such as Lyft haven’t yet entered Australia, despite making gains in the United States on the back of Uber’s PR crises.

The truth is that Uber remains a globally recognised brand. The network effects of Uber’s installed base is a major advantage, both in attracting a critical mass of drivers and customers into what is still a new industry.

It also has a large and growing market share, not to mention a reported net revenue of US$6.5 billion in 2016. On the other hand, its adjusted net losses were US$2.8 billion in the same period, so it remains to be seen whether Uber is in a position to fight the costly PR battle ahead.

Australian consumer pragmatism

It is unlikely that Australian consumers will immediately ditch Uber for its bad reputation alone. We have a long history of putting convenience over principle.

The 7-Eleven franchise network, for example, has been caught underpaying workers, and has been repaying claims to the tune of almost A$115 million, yet consumers keep shopping there.

Uber driver holding out car keys.

Others are still working with products from building materials company James Hardie, now known as Amaca Pty Ltd, even as its deadly asbestos issues stay in the news. The company is trading well.

Based on Petya Puncheva’s stakeholder decision making process that suggests customers evaluate their decision to consume or not based on a sense of pragmatism, among other factors, Australians are unlikely to stop using Uber – especially now the company is taking proactive action to clean up its act.

To consumers, Uber’s app feels safe due to its rating system, which provides a version of quality assurance. Journeys can be mapped on the app, there are high levels of satisfaction, the costs are pre-estimated, and no cash is needed.

Drivers may be Uber’s weak link

Uber is an app-based brokering businesses, matching driver availability with consumer needs. But to do this it needs to keep drivers happy. This may be the weakest link in its value chain.

Owner-drivers must jump through several costly hoops such as new registrations, insurance and various criminal checks to become accredited for Uber. Once qualified, they may discover that Uber’s consumer pricing model seems pegged to the marginal cost of running an automobile, with some incentives via dynamic pricing.

Although often considered part of the “sharing economy”, there’s not a lot of profit sharing with drivers. Uber has been fined in the US for exaggerating driver wages, although it recently agreed to permit drivers there to accept tips.

Just as many taxi drivers apparently struggle to make a living, so do Uber drivers, based on reports and estimates of their earnings. The customer’s interest has driven market penetration, but this often conflicts with the interests of drivers.

Can Uber make a U-turn?

Uber’s rise proves new technology can rapidly change markets, so it is unlikely that Uber itself will last forever.

Arianna Huffington’s role on Uber’s board may portend a change in organisational culture — perhaps similar to how COO Sheryl Sandberg was treated by the press as a friendly solution to Mark Zuckerberg’s visionary yet rough edges at Facebook. Still, studies show that major institutional changes are necessary to prevent similar meltdowns in the future.

For now, Uber has considerable Australian market share, as well as a reputation for convenience and cost-effectiveness. Now that it’s making changes at the corporate leadership level, as long as Uber remains financially viable for drivers, it’s far from doomed in the short term.

Dr Rohan Miller and Dr David Oliver are senior lecturers at the University of Sydney Business School

This article was originally published on The Conversation

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