Uber is no disruptive innovation

The American ride-hailing company Uber Technologies, Inc. has been hailed a disruptor of traditional transportation. One of the great technology companies of the future, as one of the many praises reads. A paragon of operational innovation. And indeed, this giant of the collaborative economy can look back on years marked by incredible success. From humble beginnings in the San Francisco Bay Area, the company has experienced massive growth in its 11-year existence and is now valued at roughly $55 billion (market cap). But with a decade of insane growth behind it and its immortalization in many a business article (or even textbook) as a prime example of disruptive innovation, the time might now be ripe for a healthy dose of rational reflection and constructive criticism.

For starters, there is an ongoing debate whether Uber even qualifies as a disruptive innovation. Taking the work and word of Clayton M. Christensen (the godfather of the term disruptive innovation) as an argumentative basis, the company neither originated from the low-end foothold where customers in an existing market would now be served an affordable product that is “just good enough”, nor did it start off by creating a market where previously none had existed (new-market foothold). As such, Uber may be innovative, but not disruptive.

As for Uber’s standing as a beacon of innovation, there have likewise been dissenting voices. It has been noted that Uber’s business model, while innovative in its design and execution (connecting riders and drivers through a two-sided marketplace, with no own vehicles and no directly employed drivers), is ultimately based on the rather old principle of using technology to drive down the cost of labor.

But the most damning criticism directed at the ride-hailing giant is the following: It cannot produce sustainable profits. From the way things look, there is no hope that Uber will ever be able to generate the positive cash flow needed to repay the massive investor subsidies it received. In fact, as Hubert Horan notes in his superb article ‘Uber’s Path to Destruction’ (published in American Affairs), Uber’s high valuation has no basis in economic reality whatsoever. The policy of “growth at all costs” not only had detrimental effects on corporate culture, it also didn’t result in the intended goal of achieving true platform power. Why? Because while Uber has grown like crazy and managed to exercise some platform power in the way drivers and riders are paid/treated/incentivized, its business model has not solved any of the structural problems in the industry and has not allowed Uber to achieve the kind of dominance and immunity from competitive threats as the likes of Facebook or Amazon have. And as for Uber being a disruptive innovation, Horan somewhat cynically remarks that Uber acts as a disruptor in the sense that it disrupts the general understanding that competitive markets would maximize overall welfare by rewarding businesses operating with a high degree of efficiency.

But let us stop here with the negativity. While facing bad profitability prospects and clearly not being the titan of disruptive innovation that it would have us believe, Uber is still a great idea. Along with other ventures like Airbnb, it has transformed idle assets into economic value. It has given the concept of the sharing economy a boost. The company is diversifying its services (think of UberEats) and strives to build up at least some financial safety cushions. Uber has (at least has had so far) a self-driving car business unit. And through its business, it even seems to support the development of social and cultural capital.

And seriously, how many companies can say that they contributed to the English vocabulary?

Featured post image: Photo by Dan Gold on Unsplash

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