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Uber: A Lesson On How A Platform Company Disrupts Established Markets

May 28, 2015

 

Uber is testing their platform model by focusing on product market fit in the taxi industry. However, Uber’s ultimate market disruption, the need for capital, and the valuation that they command, is because they are focused on a multitude of markets – all utilizing common technology and infrastructure. Uber can provide the consumer with a 360 degree view and access to services, transportation, shopping, and information all from a single device and application. The target consumer is the quintessential millennial searching for what’s most convenient, who is technology savvy, values the importance of their time, and has access to disposable income. 

 

For example, think back to the day that Amazon started and how they quickly became the disruptor to the book-selling model. Then their utilization of technology and logistics allowed them to quickly expand to other market segments. Amazon started selling online books, but their main focus became the overall customer experience. They removed all friction from the consumer’s transaction, which improved access to books, and made the one click purchase, even easier than going to the store.

 

Amazon tested their model, by partnering with Ingram Books. As their business evolved and customers validated their model, Amazon began to build their warehouses so they could gain better control, maximize logistic prowess, increase their product mix, and expand their market through utilizing a common infrastructure that was shared throughout multiple revenue sources.

 

 Amazon grew by using the web and big data, lowering their costs, learning from their customers, and by customizing the experience at an individual level for the consumer. All of the above resulted in Amazon being able to undercut major bookstores, book distributors, and retailers while becoming the go to purchasing site for consumers.

Uber is following in Amazon’s footsteps by leveraging mobile technologies, and understanding the power of location in order to achieve similar results, and disrupt Amazon at their own platform game.

 

Uber is enhancing the customer experience by making it much more location aware, and providing real time feedback to their customers. Additionally, Uber has one key advantage, which is not building their own infrastructure of warehouses and logistics, but instead utilizing technology and algorithms to bring providers and consumers together. Uber’s ecosystem is reducing interaction friction, creating a trusting relationship between Uber and it’s users, and facilitates transactions that can deliver any product to the consumer in a timely manner.

 

By leveraging a local distribution network, that they do not own nor have the expense to maintain, Uber is able to focus on enhancing the customer experience and drive additional profits through increased and larger transactions with their consumers. Their providers gain access to a larger base of customers, and their consumers gain access to ever growing variety of services conveniently delivered to them with the same efficiency that Uber has consistently provided with their transportation app. This is exactly the value that the network effect has for a platform company.

 

There will come a day when the same way you call an Uber car you may also purchase from Uber anything else you may need. Uber will be responsible for coordinating and using their network to identify, locate, aggregate and deliver to the consumer all of the items purchased from multiple local stores.

 

It is my opinion that the platform and network I have described above is the focus of Uber. Suddenly, it makes sense for Uber to have achieved such valuation numbers, when the taxi industry is validating their product market fit. Now that they have secured the last mile delivery issue, it is time for them to start opening up their platform to include additional products and services. Uber is able to control the same infrastructure across multiple revenue lines, at a much lower cost than Amazon, Walmart, Target or any other major retailer, and they have proven that they can successfully execute this platform.

 

That is the exponential power of the platform, with great execution and focus. To me, it is not a question of if, but when and what markets Uber chooses to enter. Uber has the customers, they have validated their model, technology and need, and now it is just a question of how quickly they can execute their platform. So, while Google and Amazon are looking for faster deliveries to their customers via drones, local drop off locations, and other partnerships; Uber already has resolved that issue. Uber has an army of cars that can deliver to all major markets in less time than it takes a drone to become airborne.

 

Moreover, unlike a drone or the other solutions being explored, Uber does not have any weight or size constraints, ultimately making it significantly easier for a consumer to purchase an item and have it delivered to their door – all under the Uber brand.

Through their successful execution, Uber has shown that dramatic growth speed can be achieved with the right focus, technology, and approach. We can all learn from Uber’s success and become the next challenger.

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