Disruptive car service Uber has made quite a few headlines lately – not many of them good. It’s been accused of being cavalier (which is describing it kindly) with users’ privacy, seeing no issue with tracking key people through its ‘God View’ access to their Uber car requests and suggesting a frankly sinister dirt-digging campaign against a particular journalist. It has also allegedly employed some pretty shoddy tactics when it comes to crippling the competition, including making over 5,000 bogus car requests with rival company Lyft. And not all its drivers are happy, with talk of unexpected fare changes with little communication or notice. The company is now being asked some tough questions by US Senator Al Franken.
But hey – they’re making money, right? Users love Uber, they’re expanding rapidly into markets like India – who cares about a few haters?
What Uber seems to be forgetting is that sustainable competitive advantage, that elusive magic factor that all companies are chasing, has to be based on something. If you want to build a business that has long-term survival prospects, you need something that prevents your competition from doing what you’re doing. You might have a technology that no-one else can use; or the world’s experts in a certain industry working for you. Whatever it is, if your competition can copy it, then you’re in trouble.
And herein lies the problem. With Uber, almost any car owner can be a driver, and there are billions of people out there with cars. In a similar way, on Airbnb anyone can rent out holiday rooms or flats (well – as long as you have a social media profile or two). There’s a huge supply of people with cars, or spare rooms, so neither Uber nor Airbnb need to take much responsibility for the quality of what you get – they seem to see themselves simply as brokers, charging a fee for connecting people with spare capacity with those who need it. The review system will filter out the bad ones, goes the thinking.
But this means that the entire premise of these companies is easy to copy – they might have got to market first, but what’s to prevent others from building exactly the same system, while learning from the mistakes made by these first movers? Uber drivers have no contract or loyalty to the company – they’ll go where the best money is. The users have no loyalty either – if someone comes along who does it better, cheaper, faster – or if they lose faith in the company – they’ll drop the Uber app in a heartbeat. Airbnb customers probably also have the Laterooms and Booking.com websites open at the same time, shopping around for a better deal.
It has been suggested that in this modern age, the only sustainable competitive advantage is the ability to learn faster than the competition. These democratising and democratised technologies certainly seem to bear that out – but I don’t entirely agree. For all these companies, the brand – and trust in it – is the key. When I get in a black London taxi, I know that the person behind the wheel has invested an enormous amount of time, money and effort to get where they are today. They’re heavily invested in providing this service – and that means it’s in their interest to do it well, and makes me feel relatively safe in their hands. I can’t say the same for an Uber driver – and there have been times when an Uber ride has apparently gone badly wrong.
If companies such as Uber can build a brand that users trust, where their expectations are met each and every time, where you’re not taking a gamble every time you get in a car or turn the key in the lock of a rented room, then they might survive in the long term.
The thing is, that probably involves all the things Uber doesn’t seem very keen on doing. Respecting your customers’ privacy so they trust you and your service. Treating your drivers well so they’d rather drive for you than for the competition. Taking responsibility for the quality of your offering, rather than stepping back and trusting the review system to do its work. Airbnb has taken some steps towards this, providing more ways of checking that your host is genuine person with social connections. Without investing this kind of time and effort into their brands, promoting genuine loyalty and trust among all their stakeholders, companies such as these face a painful race to the bottom on price, increasingly aggressive competitive tactics, and a distinctly uncertain future.
P.S. Shortly after I posted this, I saw this piece come through, which illustrates the point quite well, I think.