Uber and Urban Mobility

Uber’s history is the best example of how network effects are the cornerstone for digital platforms. As graphically described by early investors, the scope was to “put a network on top” of physical assets. This was the business model Travis Kalanick had mastered in his previous business ventures. Furthermore, Uber explicitly views itself as a network: “Our massive, efficient, and intelligent network consists of tens of millions of drivers, consumers, restaurants, shippers, carriers, and dockless (also called free-floating) e-bikes and e-scooters, as well as underlying data, technology, and shared infrastructure. Our network becomes smarter with every trip.”1

Uber is also an illustrative example of the regulatory challenges posed by digital platforms. At an early stage, Uber was challenged by the San Francisco and California Authorities as the service did not fit the rigid template of transport regulation. It was not obvious how to classify the service provided by Uber: was it a digital service, an intermediation service, a taxi service? The same questions would eventually emerge in all the jurisdictions where Uber started operating.

Finally, Uber is a leading example of how disruptive platforms can be. Within just a few years, even months, the value of taxi medallions in the leading world cities simply collapsed, taxi companies went bankrupt, and a new transport mode emerged out of nowhere. Uber did not intermediate taxi services, but transport services provided by limos first, and then by non-professional drivers. Uber substituted taxi companies as an alternative underlying service was used at the supply side of the multi-sided market.

A Wild Ride

In late 1997, a group of friends studying in UCLA developed the idea of a software that would allow the exchange of music files among peers. It would “crawl” the computers of the participants looking for multimedia files, particularly music files, displaying the list of available files. Once identified and following a request from the interested participant in the platform, the other party would transfer the file. It was a hit among the UCLA students. Travis Kalanick was one of the students behind the platform, which would be named Scour. Scour did not allow the automatic downloading of the file from any of its participants. That was the value that Napster added in its winning proposition in June 1999. Scour adopted the Napster solution and it grew to a relevant size (more than 7 million downloads), attracting millions of dollars in investment, but in July 2000 itreceived a copyright infringement lawsuit. The company declared Chapter 11 protection and by the end of 2000 its assets had been liquidated.

However, Kalanick had identified a powerful business model: a digital platform connecting third parties to share their idle assets. He would build a new business around the same concept, but the second enterprise would be a law-abiding platform. In 2000, he developed software that enabled internet companies to store their content close to their users, so it would be downloaded faster and cheaper, under the name Red Swoosh. It was not a new idea. Content delivery networks (CDNs) were already a multimillion business with market leaders such as Akamai. Kalanick’s proposition was different, building on the platform concept: “Red Swoosh solution is not dependent on massive investments in thousands of servers or dozens of data centers deployed close to the edge throughout the world. Instead, Red Swoosh leverages the massive unused capacity of the desktop to share and deliver inexpensively, effectively, and legally.”2 Red Swoosh was sold to Akamai for $18.7 million in 2007.

In the summer of 2008, Garrett Camp, a native of Calgary (Canada) living in the San Francisco Area, had the idea of an app that would request a ride in a limousine - a service he was often using himself after selling his own start-up to eBay for $75 million. He even reserved the domain name ubercab.com on August 8, 2008. The first code was developed by Camp’s Mexican friends back from college in Calgary. Camp bought some limos and even leased a garage to store them. At this point, Kalanick stepped in. Building on his past experience, he proposed building the company as a platform, allowing existing limo drivers and passengers to interact through the app. In this way, the company could grow without large investments in vehicles. Scour had grown without producing music. Red Swoosh had grown without investing in its own data centers. Uber would grow without owning vehicles.

In May 2010, Uber launched on a small scale in San Francisco. Around that period, the seed round to finance the start-up was completed. The first-round investors, Lower Case Capital and some angel investors, including Napster’s founder Shawn Fanning, provided $1.3 million, evaluating the start up at $5.3 million.’ The main seed investors, as well as the founders, would become billionaires.

Kalanick joined Uber as CEO in November 2010, just after the first cease-and-desist order was received. It was the beginning of a fast but rough drive.

 
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