Uber is a company that has been disrupting the taxi industry. They are using technology to make it easier for people who need rides to find transportation quickly and efficiently. In this post, we will explore porter’s five forces model of Uber and see how each factor affects its success or failure in the market.
Uprising of Uber
Uber was founded in 2009 by Travis Kalanick and Garrett Camp. It is a company based on the idea of a “sharing economy.” This means that Uber drivers are not employees but instead entrepreneurs who use their vehicles to drive for themselves. The app tracks available cars, estimate the cost of each ride and sends out an unmetered bill.
Uber’s services are primarily in urban areas. They try to operate as efficiently as possible by using technology that helps them reduce time wasted on logistics, like GPS tracking of drivers and cars. They also allow people to order a car with their smartphones, reducing the need for physical cash payments when requesting rides. The company has been very successful in many cities worldwide because it offers an affordable service not available from traditional taxis or public transportation while reducing congestion.
Importance of Porter’s Five Forces Model
To understand any company’s success in the market, it is important to identify and analyze all of the company’s external factors. Porter’s Five Forces Model, developed by Michael E. Porter in 1980, can be used for this purpose.
Porter described five forces that characterize competitive markets on a macro level: supplier power, customer bargaining power, or buyer power depending on who has more leverage between suppliers and customers; the threat of new entrants into an existing industry; rivalry among competitors within an industry (or competition); substitute products available; and finally barriers to entry which are non-competitive threats such as economies of scale advantages.”
Porter’s Five Forces Model of Uber
Threats of New Entry
An example of a threat to new entrants would be Uber’s biggest competitor, Lyft. Lyft is also an app-based service that uses drivers with their cars to offer rides, but they are more focused on carpooling than Uber and have only been in business since 2012. As long as there is no significant barrier to entry into the market, it will continue to grow because companies have incentives to enter if they believe it can provide them with enough return on investment or increased revenue (Porter, 2008).
Threats from Substitutes
In this case, the substitutes include traditional taxis and public transportation, which could be better options for people who need to travel over short distances while paying less money per mile (Miller, 2015). Customers most likely choose these options because they are not aware of the price comparison between Uber and traditional taxis, or if they do know, it is too difficult to find a car with the app.
Bargaining Power of Customers
The customer bargaining power in this market seems high because customers can choose any other option for transportation that suits their needs instead of only choosing Uber. If more substitutes become available, this will also make the customer’s bargaining power go up even higher, threatening their business model (Porter, 2008).
Bargaining Power of Suppliers
The supplier power within this industry is low since drivers own their cars and set their prices, which could be as competitive as possible without compromising quality. Suppliers with strong economies of scale advantages such as maintenance and insurance can also have a high supplier power (Porter, 2008).
The bargaining power for suppliers is low because drivers set their rates and control how many hours they put into the company. This makes it difficult for Uber to regulate prices since they do not employ their drivers or own any cars themselves.
Industry rivalry within the market is intense because customers are constantly looking for better deals. Traditional taxi companies and Uber have different pricing models, which means they compete on prices, quality of service, and level of convenience (Miller, 2015).
The industry rivalry, in this case, seems to be fairly high as many competitors are entering the marketplace at a rapid rate. This causes many price wars between all providers who want to attract more riders while also preventing any company from becoming too dominant by setting higher rates or imposing stricter regulations that would make it harder for their competition to thrive.
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