Case Submission Format

1 Identify the key players and provide a brief introduction to the context of the case
The Uber vs. Didi case highlights a wide range of tactical problems that a company can deal with when
developing a completely new company design, producing extraordinary value for consumers, testing
conventional organizations and regulatory frameworks, and expanding to an emerging market to face
regional competitors. It analyses the design of the organization based on the Uber platform, the
worthwhile development, the difficulty of federal government guidelines and the design of price
increases, as well as related ethical concerns. The second part explains Didi's introduction to China
and how it tested Uber when it entered the Chinese passenger car market. With China's web giants
registering as tactical investors: Baidu (Uber support), Alibaba and Tencent (both supporting Didi) and
Silicon Valley-Apple (Didi support), the race between Uber and Didi has significant ramifications.
2 Identify the key issues (challenges/ Opportunities) faced by the protagonist
Opportunities: Uber rides in China have reached 1 million per day, which accounts for 50% of Uber’s
ride worldwide. This indicates that Chinese market is huge, even though it represents only 11.5%
market share in Chinese markets. Taxi passengers trend shows a CAGR of over 4% between 2010 to
2014 this indicates that China is a market Uber cannot afford to miss.

Challenges:
1)Uber has been facing strong competition from local competitor Didi which claims to have a better
understanding of Chinese customer and is backed by Tencent and Alibaba.
2)Uncertainty regarding licensing private cars for ride hailing market in China.
3)Losing over 1 billion dollars in China owing to subsidies provided to both riders to drivers.
3 Provide your analysis of each of the issues
Strong competition from Didi: Didi in 2015 started targeting larger group of private cars as it
launched “Didi KuaiChe”, peculiar thing about this expansion is that it was modelled similar to Uber
X and was 40% cheaper. This instance indicates that the war similar to “red packets” (Didi and
Kuadi) might break out. This will lead to similar money burning on both sides.

As far as uncertainty regarding licensing private cars is concerned the danger is somewhat subdued
owing to Uber’s alliance with Baidu. This strategic alliance will not help with hedging risks related to
licensing but will help Uber in getting insights of local customers as Baidu is based in China.
Additionally, Baidu’s map application will also be leveraged.

On the face of it, losing a billion dollar seems like a daunting issue, however Uber had similar model
in the USA, did lose a huge chunk in the growth phase but was profitable in the following phase.
However, one difference between the USA and China is that the US did not have an established
player offering a similar model.
4 Answer the assignment questions shared by the instructor supported by your analysis

1) How attractive was the taxi industry (before Uber and other ride-hailing players entered the
market)?
The annualized return on investment was about 19.5% as compared to 3.9% in the S&P for the same
period, this indicates that the taxi medallion was one of the best investments in the USA. However,
it had an entry barrier as the number of licenses sanctioned each year were a function of demand
and supply. The increase in the price of independent medallion by 260% between 2004 and 2014
clearly shows the attractiveness of taxi industry.
It is evident from the case that demand for taxis outruns the supply. China’s fast pace of
urbanization (2.82% per year) and rising disposable income lead to a boost in the commuting
industry. For taxi drivers, it was not an attractive job due to high franchising fees, long working
hours and low income. Public transport used to get crowded and service during peak hours was
poor in cities like Beijing, Shanghai and Guangzhou.

2) What is Uber’s value innovation? How did it create a blue ocean?

Uber users are increasing steadily as an outcome of their satisfaction from the brief pick up time,
the augmented convenience & the lesser rates, thus, there is a resultant rise in demand for drivers.
Hence, there has been a fall in the price of the rides as a result of an increase in the number of
drivers. This networking effect with reinforcing loop has created value for drivers as well as riders.
There is further value addition in terms of quality control through a rating system for both drivers
and passengers. With this Uber created an offering that not only appealed to existing taxi seekers
but also to non-customers. The strategy used by Uber is a mix of cost leadership and technology-
based innovation.
We have analyzed the value innovation lead to the creation of a blue ocean using the ERRC
framework.
Eliminate: Uber has eliminated various transactional costs (reservation and search costs) and also
the uncertainty of getting a taxi, tipping issues, arguments & denial of services
Raise: Uber has raised the chances of getting a taxi; Quality of ride service and assurance with
location tracking; productivity of assets and employment rates. Hence, raised the customer service
levels and comfort levels.
Reduce: It helped in reducing the pick-up time for customers and idle time for drivers. Also, reduced
the hassles of paying the fares in cash with online payment services.
Create: Uber has created a platform connecting customers and drivers and an opportunity for
drivers to earn extra revenue; convenience and ease of use
Uber created a new market which in the initial stages was uncontested market space.

3) How does creating and maintaining competitive advantages in a platform business like Uber’s
differ from a vertical chain business like a taxi company?
Unlike other traditional taxi services, Uber takes a very small commission ranging between 5 to 20%.
It does not hire full-time riders or rides but uses the networking effect to grow its number of drivers.
Anyone who owns a vehicle and can drive can become a driver for Uber and make money working
part-time. So, this allows cost-cutting on infrastructure and maintenance. In turn, this benefit can be
passed to both drivers and rider which allows Uber to charge lower prices that too without incurring
any loss. The drivers are earning extra money and the riders are getting to pay less and have extra
convenience. This is how the cost leadership advantage is working in the favour of Uber and has
made it’s popular, particularly in the metropolitan areas. It makes sense to retain the popularity of
Uber’s services high because everyone wants to save money. Moreover, by adding convenience to
the services, the brand has been able to generate a higher level of popularity and a better brand
image.
Technology-based differentiation is also a primary source of competitive advantage for Uber.
Technology plays a major role in its business model. It is the Uber app that connects the riders with
the taxi drivers, enables them to pay for services received and rate their ride and experience. Before
Uber, booking a taxi ride involved waiting time and higher chargers. But with Uber, a ride is available
within minutes after booking. Customer convenience became a point of differentiation for the
brand. Since the level of convenience is higher, it adds quality to the service and hence becomes a
source of competitive advantage for the business.

4) What should Uber do regarding its surge pricing model? Would you keep the surge pricing
model? Why/why not?
The goal of the surge pricing is to find the equilibrium price at which driver supply matches rider
demand and riders’ wait time is minimized. It helps Uber attract a greater number of drivers on its
platform. There is a major image problem with the surge pricing and concerns about surge pricing
stem from the way in which it is structured and how it is explained to consumers. Uber can take the
following actions to solve the major problems associated with surge pricing:
1. Putting a cap on the surge multiplier: From the case, it can be seen that surge price went as high
9.9X the normal fare. It created outrage among the consumer and lead to negative word of mouth.
Uber should choose a reasonable cap on the surge multiplier which could be 5X.
2. One of the Washington Post’s articles indicated that the surge pricing fluctuated every 3-5
minutes and consumers found this highly inconvenient. Reducing the frequency of price fluctuations
should be considered.
3. Surge pricing could be remarketed as “reliable rides with shorter wait times during higher
demand”. By doing so customers will perceive higher prices as a result of better services. As of now,
consumers perceive higher prices as a penalty inflicted for higher demand.
Surge pricing in essence is a very efficient concept. Rather than randomly allocating rides to users
when cars are limited, it makes sure that cars only go to the riders who are in urgent need and are
willing to pay a premium for it. Consumers who are do not urgently need the rides could wait or
choose other means of transport. At the same time, it is also benefiting the Uber drivers. Keeping
the surge pricing model is a must, however remarketing it is also very much needed.

5) What is Didi’s competitive advantage in China?

Didi got the first mover advantage in China and still reaping its benefits. Didi was backed by China’s
internet giants Tencent and Alibaba. Didi accumulated far larger user base before Uber, has almost
as deep pocket as Uber, and are more familiar with the China-specific issues, such as customer
service, reimbursement, and entrance.
According to analysis, as of the end of 2015, Didi’s market share reached 79%, while Uber had 8.7%.
The vehicle for hire industry is a typical two-sided market. One side is the drivers, and the other side
is the consumers. The two groups provide each other with network benefits: members of one group
exhibit a preference regarding the number of users in the other group. The more drivers, the easier
to find a cab. Thus, the app will attract more users, vice versa.
1. Didi cultivated huge user base before Uber even entered China
Counter-intuitively, Didi was not much younger than Uber. It started service in September, 2012, as
a taxi-hailing app. In just one year, it became the most popular taxi-hailing app in China, with more
than 59% market share. As of March 2014, the app has accumulated more than 100 million
registered users, generated 5.21 million daily transactions. When it launched the vehicle for hire
function within the same app, it can easily share the huge user base between the two functions.
In one sentence, when Uber entered China, it faced an incumbent with 100 million users.
As a feature of the two-sided market, members of one group exhibit a preference regarding the
number of users in the other group. The huge user base of Didi magnetized drivers quickly, driving
the app into a virtuous cycle. Until the end of 2015, Uber expanded into about 20 cities, while Didi
can be found in more than 199 cities.
2. Didi mastered the price war which Uber used to knock out other competitors
Didi has extensive experience at a price war. Soon after the initial launch, it was involved in fierce
competition with another domestic company, Kuaidi. Backed by two internet giants, Alibaba and
Tencent respectively, the two firms invested $360 million to subsidize drivers and customers from
Jan to June in 2014 alone.
The two competitors merged in August 2014, named still as Didi. The valuation of the new Didi
reached $7 billion. Although relatively smaller than the $41 billion valuation of Uber at that time,
Didi only concentrated in China, while Uber was available in 38 countries. Hence when Uber
launched its service in China, it faced a touch compeition that is both geographically and financially
strong.
The two companies soon started a new round of price war. Two companies poured millions of
dollars in the first few months. At the end of 2015, Uber had 20% of the China market, while Didi
grabbed 70%. The valuation of Didi raised to $16.5 billion, doubled that of Uber China ($8.2 billion).
3. Customer services, reimbursement and entrance
This topic may be a little China-centric, but it puts an important weight on the competition.
The only way to solve an issue with Uber is to send an email, and expect it will reply promptly. A
customer can always call the customer service centre of Didi, and get a real-time reply.
In order to reimburse the cost for car-hailing, users need to get an official invoice (or Fapiao in
Chinese). Didi can issue the official invoice, while Uber cannot. For business users, if they use Uber,
they need to bear all the cost by themselves.
The parent companies of Didi is Alibaba and Tencent, the two most prominent internet companies
in China. Their apps exist in every smartphone in China, embedded with the links to Didi. The
connection can bring numerous users to Didi with basically no cost.
Uber only has a connection with Baidu in China.

6) How did Uber balance global standardization and local adaptation? What do you think about the
initiatives/products Uber developed in China?
For larger markets, Uber establishes a local team charged with going to market in that city. They
execute a pretty standardized playbook, fine-tuned after many launches, that typically comes down
to incentivizing early adopters and building referrals.

For early adopters, Uber will often roll out discounts or incentives until they’ve reached a minimum
threshold. For drivers, these often look like guaranteed hourly wages or sign-on bonuses. For riders,
these look like free credit or discounted rides.

The next wave of growth comes more organically, from word-of-mouth. For this, they’ll rely heavily
on incentivized referrals, encouraging users to invite friends. For each friend a user invites, both the
user and the friend will get credit toward their next rides.

5 Wrap up with a conclusion - providing overall recommendations for the protagonist

Although Uber is the first platform to offer ride-hailing taxi services and has globally recognized brand
value, it failed to gain market share in China. Chinese market has a huge potential of customers
looking for taxi services, yet Uber failed to cater to them owing to fierce local competition, low
regional coverage and strategy inconsistent with target segments requirements.

Uber’s value proposition in China was to provide luxury car service unlike in other geographies which
was to provide “luxury user experience”. Over a period of time, although it tried to provide services
in other service classes (carpool, economy etc) its competitive advantage remained only with Uber
black. But the users of these luxury service can afford multiple services which is dominated by local
competition. Below are the two recommendations for Uber:

1. Shift the position from “luxury ride” to its original “luxury user experience”: Uber should
continue its services for all economy classes. However, the idea of making the user experience
luxury is to be implemented by giving users exceptional convenience at the current prices.
For eg: allowing user to book in advance is one option that could be very convenient to all
business travellers who are in turn the maximum users of taxis.
2. Expand to other locations in China: Didi’s services cover large majority of cities while Uber
operate in a few. Uber can focus on this to boost its revenues and therefore gain market share
6 Any other Observation(s)