Wednesday, April 13, 2016

Uber as a Blue Ocean Strategy Application

As I read through “Blue Ocean Strategy,” I found myself thinking of Uber as one of the best (relatively) recent applications I can think of where a company ventured into a previously unknown market space, successfully inventing and capturing new demand. Ridesharing was already present in the industry and in this way, the market space was created from within the red ocean of the existing taxicab industry. That said, technology played a key role here, as the company was truly able to take off with the rise of the sharing economy (and apps) that revolutionized several service industries. Uber applied the steps outlined in blue ocean strategy, “making the competition irrelevant by creating a leap in value […] for customers.” (Kim and Mauborgne 1)
As a very occasional taxicab passenger, it was obvious even to me that this was an industry that was ripe for a blue ocean disruption/opportunity. The quality and service of taxis were universally abysmal across major cities in the US and the competition was indistinguishable from one another, leaving passengers with limited latitude in options. With such little effort at developing their custom value proposition, it seems surprising that taxi companies were able to dominate the markets in high-traffic cities for so long. By taking advantage of the regulatory conditions and high cost of licensing, these companies were able to skate by offering a subpar service to their customers. The industry was overcrowded with slim prospects for new entrants to profit and grow.
The introduction of the Smartphone facilitated several key elements to Uber’s CVP, as the company used the advanced mobile operating system to tap into the sharing economy and directly link drivers to customers. Uber sidestepped the transit regulations taxicab companies contend with by operating on the electronic market and using everyday people as drivers, offering customers the two-way review system, the convenience of electronic payments, and location tracking. The way Uber splits its revenue likewise makes it a higher paying option for drivers than sticking with traditional ad companies, which facilitated some driver poaching as well. While there have certainly been hurdles and crackdowns on Uber from some city regulators, it is difficult to regulate this technology because the transactions are occurring digitally. This disruption hurt quite a few businesses (not to mention medallion owners) but most people are resigned to the fact that Uber phenomenon is here to stay and will only continue to rapidly proliferate, domestically and now internationally.
As the “Blue Ocean Strategy” case study highlights, the most important unit of measure is the set of managerial actions and decisions involved in making a major market-creating business offering. The Uber example demonstrates how, from the outset, its strategy has emphasized differentiation and low cost simultaneously, rather than making the trade-off between value and cost like other incumbents in the taxicab industry. As shown by the preceding analysis, the company creates buyer value by raising and creating elements that the taxicab industry has never offered before while mitigating costs through its rapidly increasing high sales volume.
I believe that one of the defining hallmarks of blue ocean strategy businesses is that retrospectively, the company’s success should seem obvious or almost like a natural progression within the industry that it is in. Using the Uber example, the company has only been around for about seven years but to most people, it has become a brand synonymous with transit convenience, speed, and easy payment terms. We can apply the same principle to other major market disruptors who utilized blue ocean strategy, like eBay and Amazon. What these companies did so well was introduce relatively simple concepts that dramatically improved an established, but clunky (or maybe just not running as well as it could be) kind of system.

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