HANNAH BATES: Welcome to HBR On Technique, case research and conversations with the world’s high enterprise and administration specialists, hand-selected that can assist you unlock new methods of doing enterprise. In an period outlined by world companies, how can we greatest account for native laws and aggressive situations in our development methods? Right now, we deliver you a dialog with Harvard Enterprise Faculty assistant professor Alexander MacKay. With the intention to perceive the problem of scaling world companies that may maintain over time, he appeared on the profitable and unsuccessful methods of Uber, because it entered new areas world wide. This episode breaks down Uber’s distinctive methods for getting into 6 particular markets: New York, Bogota, Delhi, Shanghai, Accra, and London. You’ll additionally find out how the corporate adjusted these methods to satisfy the particular challenges posed by rivals and regulators in every metropolis.  This episode initially aired on Chilly Name in December 2020. Right here it’s.

BRIAN KENNY: The idea of disruptive innovation was first coined by Harvard Enterprise Faculty professor Clayton Christensen in his 1997 guide, The Innovator’s Dilemma. The idea explains the phenomenon by which an innovation transforms an current market or sector by introducing simplicity, comfort, and affordability the place complication and excessive price are the established order. Assume Netflix disrupting the video rental house. Over time, the time period has been utilized liberally and never all the time appropriately to different examples, however from time to time, an thought comes alongside that basically matches the invoice. Enter Uber, the ridesharing behemoth that turned the automobile service trade on its head. In a couple of brief years after launching in 2010, Uber turned the most important automobile service on the earth, as measured in journey depend. Final 12 months, Uber drove 6.2 billion riders. Right now’s case takes us to London in 2019, the place Uber is going through the newest in an extended listing of challenges from regulators threatening their means to proceed working in that necessary market. On this episode of Chilly Name, we welcome Alexander MacKay to debate the case entitled, “Uber: Competing Globally.” I’m your host, Brian Kenny, and also you’re listening to Chilly Name on the HBR Presents community.

Alexander MacKay is within the technique unit at Harvard Enterprise Faculty. His analysis focuses on issues of competitors, together with pricing, demand, and market construction. Alex, thanks for becoming a member of us on Chilly Name at this time.

ALEX MACKAY: Thanks, Brian. Very joyful to be right here.

BRIAN KENNY: The thought of Uber appears so easy, however it was revolutionary in so some ways. And Uber has been within the headlines many occasions for each good and dangerous causes in its decade of existence. So, we’re going to the touch on lots of these issues at this time. So, thanks for sharing the case with us.

ALEX MACKAY: Brian, I’m very joyful to. It’s slightly humorous, we’ve really began to see the primary few college students who’ve by no means hailed a standard taxi in our lecture rooms. So, I believe more and more, the distinction between the 2 goes to be fairly troublesome for folks to completely perceive.

BRIAN KENNY: Let me ask you to begin by telling us what your chilly name can be if you arrange the category right here.

ALEX MACKAY: The case begins off with the present authorized battle happening in London. And so, the primary query I simply ask to begin the classroom is: What’s the tip recreation for Uber in London? What do they appear like 10 years from now? Within the midst of this ongoing authorized battle, there was backwards and forwards, some give and take from each side, Transportation for London, and likewise on the Uber facet as properly. And there’s really a latest court docket case that has allowed Uber to have slightly extra time to function. They purchased about 18 extra months of time, however this has been additionally introduced with further, stricter scrutiny, and 18 months from now, they’re going to be at it once more attempting to determine precisely what guidelines Uber’s allowed to function beneath.

BRIAN KENNY: It looks as if 18 months within the lifetime of Uber is sort of a decade. Every part appears to occur so shortly for this firm. That’s an extended time period. What made you resolve to put in writing this case? How does it relate to the work that you just’re doing in your analysis?

ALEX MACKAY: A giant focus of my analysis is on competitors coverage, notably the realms of antitrust and regulation. And right here we now have an organization, Uber, whose relationship with regulation has been actually important to its technique from day one. And I believe appreciating the consequences of regulation and the way its impression Uber’s efficiency in several markets, is actually vital for understanding technique and world technique broadly.

BRIAN KENNY:  Let’s simply discuss slightly bit about Uber. I believe individuals are conversant in it, however they might not be conversant in simply how giant they’re on this house. And the house that they’ve type of created has additionally blown up and expanded in some ways. So how massive is Uber? Like what’s the panorama of ridesharing appear like and the place does Uber sit in that panorama?

ALEX MACKAY: Uber globally is the largest ridesharing firm. In 2018, they’d over $10 billion in income for each ridesharing and their Uber Eats platform. And also you talked about within the introduction, that they’d over 6 billion rides in 2019. That’s better than 15 million rides day by day that’s occurring on their platform. So actually, simply an infinite firm.

BRIAN KENNY: So that they began again in 2010. It’s been form of an incredible decade of development for them. How do you clarify that form of speedy enlargement?

ALEX MACKAY: They had been financed early on with some angel buyers. I believe Kalanick’s background actually helped there to get some early funding. However one of many vital issues that allowed them to increase early into many markets that helped their development was they’re a comparatively asset gentle firm. On the bottom, they actually want gross sales groups, they want translation work to maneuver into completely different markets, however as a result of the principle asset they had been offering in these completely different markets was software program, and drivers had been bringing their very own automobiles and riders had been bringing their very own telephones, the important thing items of {hardware} that that you must function this market, they actually didn’t have to speculate a ton of capital. In truth, after they launched in Paris, they launched as type of a prototype, simply to indicate, “Hey, we are able to do that in Paris with out an excessive amount of issue,” as their first worldwide market. So having the ability to actually scale it throughout completely different markets actually allowed them to develop. I believe by 2015, their market cap was $60 billion, 5 years after founding, which is simply an unimaginable charge of development.

BRIAN KENNY: So that they’re the largest automobile service on the earth, however they don’t personal any automobiles. Like what enterprise are they actually in, I assume is the query?

ALEX MACKAY: They’re actually within the enterprise of matching riders to drivers. They’ve been in a position to do that in a means that doesn’t require them to personal automobiles, simply by way of the usage of expertise. And so, what they’re doing, and that is I believe fairly properly understood, is that they’re utilizing current capital, individuals who have automobiles which may be going unused, private automobiles, and Uber is ready to use that and deploy that to present using companies to completely different prospects. Whereas within the conventional taxi mannequin, you can have taxis that you just didn’t essentially personal, however you leased them otherwise you rented them, however they’d the specific goal of being pushed for taxi companies. And so, it wasn’t utilizing idle capital. You form of needed to create further capital in an effort to present the companies.

BRIAN KENNY: So that you talked about Travis Kalanick slightly bit earlier, however he was one of many co-founders of the corporate, and the case goes slightly bit into his philosophy of what enlargement into new markets ought to appear like. Are you able to discuss slightly bit about that?

ALEX MACKAY: Definitely. Yeah. And I believe it’d even be useful to speak a bit about his background, which I believe offers slightly extra context earlier than Uber. He dropped out of UCLA to work on his first firm, Scour, and that was a peer-to-peer file sharing service, quite a bit like Napster, and really predated Napster. And the place he was working was type of an evolving authorized grey space. Finally, Scour acquired sued for $250 billion by a group of leisure corporations and needed to file for chapter.

BRIAN KENNY: Wow.

ALEX MACKAY: He adopted that up together with his subsequent enterprise, Purple Swoosh, and that was software program aimed toward permitting customers to share community bandwidth. So once more, it was slightly bit forward of its time, making use of latest advances in expertise. Early on although, they acquired in bother with the IRS. They weren’t withholding taxes, and there have been another points together with his co-founder, and there was type of a nasty breakup between the 2. Regardless of this, he persevered and ended up promoting the corporate for $23 million in 2007. And after that, his subsequent massive factor was Uber. So, one factor I simply wish to level out is that in any respect three of those corporations, he was seeking to do one thing that leveraged new expertise to vary the world. And by nature, generally companies like that function in a authorized grey space and you’ve got very troublesome choices to make. Another choices you need to make are clearly unethical and there’s actually no purpose to make a few of these choices, like with the taxes and with another issues that got here out in a while at Uber, however actually one of many issues that any founder who’s seeking to change the world with a giant new expertise firm has to take care of, is that usually, the authorized framework and the regulatory framework round what you’re attempting to do isn’t properly established.

BRIAN KENNY: Clearly drama appears to comply with Travis the place he goes. And his enlargement technique was fairly aggressive. It was virtually like a warlike mentality by way of going into a brand new market. And you can type of sum it up as saying ask forgiveness. Is that truthful?

ALEX MACKAY: Yeah. Yeah. Make an apology, not permission. I believe they had been actually centered on successful. I believe that was type of their final purpose. We describe within the case there’s this coverage of precept confrontation, to disregard current laws till you obtain pushback. After which if you do obtain pushback, both from native regulators or current type of taxicab drivers, mobilize a response to type of confront that. Throughout their beta launch in 2010, they acquired a cease-and-desist letter from the town of San Francisco. They usually primarily simply ignored this letter. They rebranded, they was UberCab, and so they simply took “Cab” out of their title, so now they’re Uber. And you’ll see their perspective of their press launch in response to this. They are saying, “UberCab is a primary to market leading edge transportation expertise, and it have to be acknowledged that the laws from each metropolis and state regulatory our bodies haven’t been written with these improvements in thoughts. As such, we’re joyful to assist educate the regulatory our bodies on this new technology of expertise and work carefully with each companies to make sure compliance.”

BRIAN KENNY: It’s slightly smug.

ALEX MACKAY: Yeah, so you may see proper there, they’re saying, what we’re working in is type of this new technology-based realm and the regulators don’t actually perceive what’s happening. And so as a substitute of complying with the present laws, we’re going to attempt to push laws to suit what we’re attempting to do.

BRIAN KENNY: The case is fairly epic by way of it type of cuts a sweeping arc the world over, wanting on the challenges that they confronted with every market they entered, and none extra fascinating I believe the New York Metropolis, which is clearly an infinite market. Are you able to discuss slightly bit about a few of the challenges they confronted going into New York with the cab trade being as prevalent because it was and is?

ALEX MACKAY: Yeah, completely. I imply, I believe it’s fairly well-known for people who find themselves conversant in New York that there have been restrictions on the variety of medallions which allowed taxis to function. So there was a restricted variety of taxis that would drive round New York Metropolis. This restriction had actually pushed up the worth of those medallions to the taxi homeowners. And in the event you had the expertise of taking taxis in New York Metropolis previous to the appearance of Uber, what you’d discover is that there have been some areas the place the service was very, superb. Downtown, Midtown Manhattan, you can virtually all the time discover a taxi, however there are different elements of the town the place it was very troublesome at occasions to discover a cab. And if you acquired in a cab, you weren’t certain that you just had been all the time going to be given a good journey. And so Uber coming in and offering this expertise that allowed you to choose up a journey from anyplace and type of monitor the route as you’re happening actually disrupted this market. Shoppers love them. That they had a thousand apps signups earlier than they even launched. Kalanick talked about this by way of their launch technique, we now have to go right here as a result of the shoppers actually need us right here. However instantly, they began getting pushback from the taxicab homeowners who had been threatened by this new mode of transportation. They argued that they need to be beneath the identical laws that the taxis had been. And there have been lots of native authorities officers that had been type of mobilized towards Uber as properly. De Blasio, the Mayor of New York, wrote opinion articles towards Uber, claiming that they had been contributing to congestion. There was lots of concern that perhaps they’d some issues of safety, and the taxi drivers and the homeowners introduced a lawsuit towards Uber for evading these laws. After which in a while, and this was the case in lots of native governments, de Blasio launched a invoice to place further restrictions on Uber that will make them look much more like a standard taxi working mannequin, with restricted variety of licenses and strict necessities for reporting.

BRIAN KENNY: And this is identical state of affairs that’s going to play out virtually with each metropolis that they go into as a result of there’s such a longtime infrastructure for the taxi trade in these locations. They’ve lobbyists. They’re tied into the political networks. In some cases, it was revealed that they’ve been related with organized crime. So not for the faint of coronary heart, proper, attempting to increase into a few of the greatest cities in america.

ALEX MACKAY: Completely. Completely. And what’s type of fascinating about america is it’s really a spot the place an organization can have interaction on this battle over regulation on the bottom. And de Blasio writes his opinion article and pushes ahead this invoice. Uber responds by taking out an advert marketing campaign, over $3 million, opposing these laws and calling out de Blasio. So once more, we type of have this fascinating instance of Uber mobilizing their very own lobbyists, their attorneys, but additionally public promoting to type of persuade the residents of New York Metropolis that de Blasio and the regulators which can be attempting to come back down on them are within the incorrect.

BRIAN KENNY: Yeah. And on the finish of the day, it’s shoppers that they’re actually making this attraction to, as a result of I assume my query is, are these laws stifling innovation? And if they’re, who pays the last word value for that, Uber or the patron?

ALEX MACKAY: Shoppers positively cherished Uber. And I don’t suppose any of the regulators had been attempting to stifle innovation. I don’t suppose they might say that. I believe their greatest concern, their major concern was security, and a secondary and associated concern right here was dropping regulatory oversight over the transportation sector. So this can be a public service that had been pretty tightly regulated for a very long time, and there was some concern that what occurs when this simply turns into virtually a free market sector. On the identical time, these regulators have the lobbyists from the taxicab trade and different events of their ear attempting to persuade them that Uber actually is sort of a taxi firm and needs to be regulated, and actually emphasizing the protection issues and different issues to attempt to get stricter laws placed on Uber. And a part of which may be legitimate. I believe you actually needs to be involved about security and there are actual issues there, however a part of it’s merely the strategic recreation that rivals are going to play between one another. And the taxicab trade sees Uber as a menace. It’s of their greatest curiosity to foyer the regulators to come back down on Uber.

BRIAN KENNY: And what’s wonderful to me is that whereas all that is taking part in out, they’re not turning their tails and working. They’re persevering with to push ahead and increase into different elements of the world. So are you able to discuss slightly bit about what it was like attempting to enter nations in Latin America, nations in Asia, the place the laws and the regulatory infrastructure is kind of completely different than it’s within the US?

ALEX MACKAY: Within the case, we now have anecdotes, vignettes, one for every continent. And their expertise in every continent was really fairly completely different. Even inside a continent, you’re going to have very completely different regulatory frameworks for every nation. So we type of choose a couple of and give attention to a couple of, simply to spotlight how the expertise could be very completely different in several nations. And one factor that’s type of fascinating, in Latin America, we give attention to Bogota in Colombia, and what’s type of fascinating there’s they launched secretly and so they had been fairly early on thought-about to be unlawful, however they proceed to function regardless of the official coverage of being unlawful in Colombia. They usually had been in a position to try this in a means that you could be not have the ability to do it so simply in america, simply due to the completely different layers of enforcement and coverage concerns which can be current in Colombia and never essentially in america. Now, after I discuss in regards to the present state of Uber in several nations, that is frequently evolving. So that they briefly suspended their operations early in 2020 in Columbia. Now they’re again. This can be a continuous backwards and forwards recreation that they’re taking part in with the regulators in several markets.

BRIAN KENNY: And in a spot like Colombia, are they not fearful about violence and the potential for violence towards their drivers?

ALEX MACKAY: Completely. So that is true type of world wide. I believe in sure nations, violence turns into slightly bit extra of a priority. And what they present in Colombia is that they did have extra incidents the place taxi drivers determined to take issues into their very own fingers and threaten Uber drivers and Uber riders, generally with weapons. One other resolution Uber needed to make that was associated to that was whether or not or to not permit riders to pay in money. As a result of in america, they’d completely used bank cards, however in Latin America and another nations like India, shoppers tended to favor to make use of money to pay, and permitting that type of opened up this extra threat that Uber didn’t actually have a terrific system in place to guard them from. As a result of if you go to money, you’re not capable of monitor each rider fairly as simply, and there’s only a greater probability for fraud or for theft and that type of factor popping up.

BRIAN KENNY: Going into Asia was additionally fairly a problem for them. Are you able to discuss slightly bit about a few of the challenges they confronted, notably in China?

ALEX MACKAY: That they had very completely different experiences in every nation in Asia. China was a singular case that could be very fascinating, as a result of when Uber launched there, there have been already current technology-based, you would possibly name them, rideshare corporations, that had been pretty outstanding, Didi and Kuaidi, And these corporations later merged to be one firm, DiDi, which is big. It’s on par with Uber by way of its world presence as a ridesharing firm. When Uber launched there, they didn’t totally anticipate all of the modifications they must make to going into a really completely different setting. In China, moreover having established rivals, Google Maps didn’t work, and so they type of relied on that mapping software program to do their location companies. So that they needed to fully redo their location companies. In addition they, once more, relied on bank cards for funds, and in China, shoppers more and more used apps to do their funds. And this turned slightly little bit of a problem as a result of the principle app that Chinese language prospects used, they used WeChat and Alipay primarily, they had been really owned by father or mother corporations of the rival ridesharing firm. So Uber needed to primarily negotiate with its rivals in an effort to have shoppers pay for his or her ridesharing companies. And so listed here are a couple of type of localization points that you can argue Uber didn’t totally anticipate after they launched. The opposite factor about competing in China that’s type of fascinating is that Chinese language coverage concerning competitors could be very completely different from coverage in america and far of Europe. For probably the most half, there’s not the standard antitrust view of defending the shoppers in the beginning. That actually comes into play, however the Chinese language authorities has different aims, together with selling home corporations. And so if you consider launching into an organization the place there’s a big established home rival that actually will increase the issue of success, as a result of when push involves shove, the federal government is prone to come down on the facet of your rival, which is the home firm, and never the international entrant.

BRIAN KENNY: Yeah, which is comprehensible, I assume, to some extent. This sounds exhausting, to be type of preventing skirmishes on all these fronts in all these completely different locations on the earth. How does that have an effect on the morale or tear on the material perhaps of the tradition at an organization like Uber, the place they’re attempting to handle this on a worldwide scale and working into challenges each step of the best way?

ALEX MACKAY: It actually has an impact. I believe Uber did an excellent job at recruiting groups of people that actually wished to win. And so, if that’s the constant message you’re sending to your groups, then these challenges could also be really thought-about considerably thrilling. And so I believe by bringing in that type of individual, I believe they really fueled this need to win in these markets and actually saved the momentum going. One of many downsides of this in fact is that in the event you completely give attention to successful and getting across the current laws, there does grow to be this problem of what’s moral and what’s not moral? And in sure enterprise areas, there really typically is slightly little bit of a grey line. I imply, you may see this exterior of ridesharing. It’s a much wider factor to consider, however regulation of prescribed drugs, regulation of use of latest applied sciences comparable to drones, typically the expertise outpaces the regulation by slightly bit and there’s this lag in attempting to determine what really is the precise factor to do. I believe it’s a good query whether or not or not you may disentangle this type of precept of confrontation that’s so pervasive all through the corporate tradition in the case of regulation from this precept confrontation of different moral points that aren’t essentially enterprise pushed, and whether or not or not it’s straightforward to take care of that separation. And I believe that’s a good query, actually worthy for debate. However what I believe is necessary is you may arrange an organization the place you’re abiding by moral points which can be very clear, however you’re nonetheless going to face challenges on the authorized facet if you’re creating a brand new enterprise in an space with new expertise.

BRIAN KENNY: That’s a terrific perception. I imply, I discovered myself asking myself as I acquired by way of the case, I can’t inform if Uber is the sufferer or the aggressor in all of this. And I assume the reply is that they’re slightly little bit of each.

ALEX MACKAY: Yeah. I believe it’s truthful to characterize them as an aggressor, and I believe you type of must be if you wish to succeed and if you wish to change the world in a brand new expertise space. In some sense, they’re a sufferer in that we’re all of the sufferer as shoppers and as corporations of laws which can be generally troublesome to adapt in actual time to altering market situations. And there’s a very good purpose why they’re sticky over time, however generally that may be very pricey. Going again to one thing we talked about earlier, I believe there are hardly any shoppers that wished Uber kicked out of New York Metropolis. I believe everybody realized this was simply a lot superior to some other possibility they’d, that they had been actually keen to battle to maintain Uber round within the restricted methods they may.

BRIAN KENNY: So let’s return to the central situation within the case then, which is, how necessary is it to them, by way of their world technique, to have a presence in a spot like London? They’re nonetheless not worthwhile by the best way, we must always level that out, that even though they’re the most important within the house, they haven’t turned the nook to profitability but. I might think about London’s form of necessary.

ALEX MACKAY: Completely. London is a key worldwide metropolis, and a presence there’s necessary for Uber’s total model. So many individuals journey by way of London, and it’s an actual profit for anybody who travels to have the ability to use the identical service at any metropolis you cease in. On the identical time, they’re going through these rising regulatory pressures from London, and so it’s an actual query whether or not or not, 10 years from now, they give the impression of being considerably completely different from the established taxi trade that’s there. And you’ll form of see this battle taking part in out throughout completely different markets. As one other instance, in Ghana. After they entered there, they really entered with a framework for understanding. They helped construct the laws for ridesharing companies in Ghana after they entered. However over time, that developed to further restrictions as the present taxi corporations pushed again on them. So I believe a key lesson right here in all of that is that the laws that you just see at any given time limit aren’t completely fastened, for anybody beginning a technology-based firm, there will likely be laws that do get created that have an effect on what you are promoting. Stepping exterior of transportation, we are able to see that happening now with the large tech corporations and type of the antitrust investigations they’re are beneath. And the policymakers within the US and Europe are actually attempting to evolve the set of laws to replicate the completely different companies that Apple, Fb, Microsoft, Google are concerned in.

BRIAN KENNY: One factor we haven’t touched on, and it’s not touched on within the case clearly as a result of it simply type of began pretty lately, is the pandemic and the implications of the pandemic for the rideshare trade as fewer folks discover themselves in want of going anyplace. Have you ever given any thought to that and whether or not that’s going to have any impact on the laws?

ALEX MACKAY: It actually may. Uber is in a considerably lucky place, not less than in the event you decide by their market capitalization, with respect to the pandemic. Initially their shares took a reasonably large hit, however rebounded fairly shortly, and a part of it’s because the first a part of their enterprise is the transportation by way of Uber X, however they do additionally supply the supply companies by way of Uber Eats, and that enterprise has actually picked up throughout this pandemic. There’s actually a mixture of views in regards to the future, however I believe most individuals do imagine that sooner or later we’ll get again to enterprise as traditional, not less than for Uber companies, once we give you a vaccine. I believe most individuals anticipate that they’ll be resuming use of Uber as soon as it turns into secure to take action. And I believe, to be frank, lots of people have already got resumed utilizing Uber, particularly individuals who don’t have automobiles or who see it as a invaluable various or a safer various to public transit.

BRIAN KENNY: Yeah, that’s a very good level. And the Uber Eats factor is fascinating as one other instance of the way it’s necessary for companies to re-imagine the enterprise that they’re in as a result of that, in some ways, could also be serving to them by way of a very robust patch right here. This has been a very fascinating dialog, Alex, I wish to ask you one last query, which is, as the scholars are packing as much as depart class, what’s the one factor you need them to remove from the case?

ALEX MACKAY: So I might hope the scholars take away the significance of regulation in enterprise technique. And I believe the case of Uber actually highlights that. And in the event you have a look at the dialog round Uber I’d say for the primary 10 years of their existence, it was primarily across the superiority of their expertise and never a lot how they dealt with regulation. In case you suppose again to the cease-and-desist letter that San Francisco issued in 2010, if Uber had merely stopped operations then, we wouldn’t have the ridesharing world that we now have at this time. So, their technique of precept confrontation with respect to regulation was actually important for his or her future development. Once more, this does elevate necessary moral concerns as you’re working in a authorized grey space, however it’s actually a vital a part of technique.

BRIAN KENNY: Alex, thanks a lot for becoming a member of us on Chilly Name at this time. It’s been nice speaking to you.

ALEX MACKAY: Thanks a lot, Brian.

HANNAH BATES: That was Harvard Enterprise Faculty professor Alexander MacKay – in dialog with Brian Kenny on Chilly Name. In case you preferred this episode and wish to hear extra of Harvard Enterprise Faculty’s legendary case research in podcast kind – seek for Chilly Name wherever you get your podcasts. We’ll be again subsequent Wednesday with one other hand-picked dialog about enterprise technique from the Harvard Enterprise Overview. In case you discovered this episode useful, share it with your pals and colleagues, and comply with our present on Apple Podcasts, Spotify, or wherever you get your podcasts. Whilst you’re there, you should definitely depart us a overview. We’re a manufacturing of the Harvard Enterprise Overview – if you’d like extra articles, case research, books, and movies like this, you should definitely subscribe to HBR at HBR.org. This episode was produced by Anne Saini, Ian Fox, and me, Hannah Bates. Particular because of Maureen Hoch, Adi Ignatius, Karen Participant, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and also you – our listener. See you subsequent week.