Monday, March 30, 2015

The Competitive Environment of Ridesharing

This weeks articles and focus on competitive analysis made me think of ways I could apply these concepts to companies I see competing everyday. One industry that immediately popped in my head was the current ride sharing services. More specifically, Uber and Lyft. Both companies seem to dominate the ride sharing market and have taken a major share of the taxi industry market.

To apply Porter's Five Forces Model that shape strategy I examined the competitive environment of the ride sharing industry:

  • Rivalry among existing competitors: Though Uber and Lyft are well known in Pittsburgh and commonly used, they are even more established and offer more features in major cities like San Francisco and New York City. The last time I went home to San Francisco, I watched both companies in the midst of an extremely low price war. Both were offering "Line" or "Pool"options (similar to carpooling) that were cheaper and close to $3 - 5 a ride. To give you an idea of how low, I spent a total of $10 to make 3 trips at the opposite end of the city. Had I taken a cab, these rides would have cost close to $50 in total. It makes me wonder how sustainable this industry will be with prices clearly lower than costs. 
  • The threat of new entrants: This does not seem to be a threat to Uber and Lyft who keep their prices so low that it is difficult for new companies to enter. Other companies like SideCar and Flywheel have tried to compete, but quite unsuccessfully. I predict that eventually Uber and Lyft will need to raise their prices to offset costs, making it easier for other entrants. The low prices make the industry less competitive and much more monopolized. 
  • Bargaining power of buyers: The power of the riders plays a major role in the industry. Uber and Lyft are keeping their prices so low because of the power of the riders. If one of these companies were to raise their prices, customers would immediately shift to another company. Because the companies are almost like substitutes, riders are indifferent to the company they choose.
  • Threat of substitutes: This could be another force to the competitive environment. I assume that riders are indifferent to company they choose as long as they have a low cost. Before the ride sharing service took off, riders depended on Taxis which were then replaced by ride sharing. If cities improved or added public transit options, riders may choose to move towards that option instead
  • Bargaining power of suppliers: Uber has already undergone a struggle with its drivers who have demanded higher wages. Drivers can have an influence on the environment as well as the price of gas, or car maintenance. Another factor that is similar to a supplier is government regulations. Ride sharing companies in major cities are facing lawsuits from the taxi industry. There may be regulations forming to protect riders, drivers, and to ensure fair competing strategies. 
A takeaway from applying the Porter article to the ridesharing industry is that it is difficult for the environment to be competitive when only 2 companies dominate the market. Both companies operate similar to monopolies making it difficult for new participants to enter the industry. Because this industry is still fairly new, it will be interesting to watch how it will develop and how the forces will play a role in shaping competition. 

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