Uber Porter’s Five Forces analytical framework analyses five individual forces that shape an overall extent of competition in the industry. These forces are illustrated in figure below:
Uber Porter’s Five Forces
Threat of new entrants into internet-based ride-hailing sector is significant. The following factors play role in the formation and extent of the threat of new entrants into mobility platform sector:
1. Simplicity of the business model. Nothing about Uber business model or its app is secret. In other words, Uber business model and its app can be replicated by any other company without massive amounts of capital requirements. Thanks to internet-based nature of the business model, new entrants to the market will not have issue to access distribution channels. Furthermore, due to low entry barriers into the ride-hailing industry, the numbers of local and global competitors for Uber have been consistently increasing during the past few years.
2. Scaling issues. While addressing technical aspects of the business such as developing ride-haling app and website may not be difficult, achieving necessary scale in operations is challenging for new entrants. In other words, mobility platform has to attract substantial amount of drivers in order to be successful and this requires time and massive capital investments.
3. Expected retaliation from existing market players. Current market leaders such as Uber, Lyft and Curb defend their territories fiercely and they are expected to retaliate against new entrants to the market.
The bargaining power of buyers in taxi industry is great. Buyer bargaining power depends on the following:
1. Abundance of offers. Buyer bargaining power is mainly fuelled by the abundance of competition in the industry. Uber customers are highly price sensitive. If the ride-hailing giant decides to increase costs in its attempts to become profitable, considerable numbers of customers may stop using Uber services.
Taking into account increasing numbers and ranges of scandals Uber has been involved during the past few years, buyers may choose to exercise their bargaining power with negative implications for the company. Specifically, customers may choose alternative ride-haling providers such as Lyft or Curb, or they can even switch back to use traditional taxi.
2. Low or no switching costs. It doesn’t cost anything for riders to start using a mobility platform alternative to Uber. The absence of switching cost increases buyer bargaining power to a considerable extent. However, Uber can try for the switching cost to emerge via strengthening its ecosystem of products and services in long-term perspective.
3. Service differentiation. Differentiation also affects buyer bargaining power in a way that the more differentiated is a service of a particular company appealing to the needs and wants of customers, the lesser the customer bargaining power. At the beginning of their operations, service differentiation by Uber compared to traditional taxi companies was great, because the concept of ordering taxi online and knowing the fare in advance was unique. However, competitors such as Lyft and Curb also emerged, offering the same level of service differentiation, thus increasing buyer bargaining power in relation to Uber.
Uber Technologies Inc. Report contains a full analysis of Uber Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Uber. Moreover, the report contains analyses of Uber leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Uber marketing strategy, ecosystem and addresses issues of corporate social responsibility.
Source: Uber Annual Report 2020