For the exclusive use of M. Esmaeili, 2022.

THE QUEST FOR LEGITIMACY IN DIGITAL DISRUPTION: HBSP No.: NTU111

THE CASE OF UBER (A) Ref No.: ABCC-2017-008
Date: 22 May 2017
Gigi Teo and Sia Siew Kien

INTRODUCTION

Founded in 2009, Uber has quickly risen to being one of the most high-profile unicorn tech startups. As a
poster child for the sharing economy, Uber embodies the adage often attributed to disruptive technology
companies – “move fast and break things”.1 Uber has disrupted the heavily protected taxi industry with its
smartphone-enabled app, connecting a distributed network of passengers and drivers at a click of a button.

Since the launch of its first smartphone app, UberCab, the startup has attracted $18 billion in equity and
debt. Uber, with a valuation of $62.5 billion in June 2016, is at the time of writing more valuable than most
companies listed on the Fortune 500. Its deep-pocketed funders include big names such as Google
Ventures, Morgan Stanley, Goldman Sachs, Microsoft, Saudi Arabia's Public Investment Fund, and Tata
Opportunities Fund. As of July 2016, Uber operates in 527 cities within 77 countries, 2 supported by a
network of over a million drivers and an estimated 40 million monthly riders worldwide. 3 By the end of 2015,
Uber had completed 1 billion rides, and just 6 months later, in July 2016, the ride-sharing company
announced it had completed 2 billion rides worldwide. Uber’s accomplishment of completing another billion
rides in half a year, compared to its previous six years, stands as a testament to the company’s legitimacy
and market acceptance in the highly protected taxi industry.

1 Moon, Y. (2015, November 1). Uber: Changing the way the world moves. Harvard Business School.
2 Uber Cities. Uber Estimates. Retrieved on November 1, 2016, from http://uberestimator.com/cities
3 Lynley, M. (2016, October 19). Travis Kalanick says Uber has 40 million monthly active riders. TechCrunch.
Retrieved on November 5, 2016, from https://techcrunch.com/2016/10/19/travis-kalanick-says-uber-has-40-million-
monthly-active-riders/

Research Associate Gigi Teo and Associate Professor Sia Siew Kien prepared this case based on published sources.
This case is intended for class discussion and learning, and not intended as source of research material or as illustration
of effective or ineffective management.
COPYRIGHT © 2017 Nanyang Technological University, Singapore. All rights reserved. No part of this publication may
be copied, stored, transmitted, altered, reproduced or distributed in any form or medium whatsoever without the written
consent of Nanyang Technological University.
The Asian Business Case Centre, Nanyang Business School, Nanyang Technological University, Nanyang Avenue,
Singapore 639798. Phone: +65-6790-4864/6552, E-mail: [email protected]

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ORIGIN OF UBER

Uber was conceived in 2008 by serial entrepreneurs Travis Kalanick and Garett Camp, after they were
struck by the difficulties of finding a taxi in the snow while in Paris. They bought the domain Ubercab.com
and officially launched UberBlack in 2010 as a private car service to address the city’s severe taxi shortage
problem, catering mainly to executives in San Francisco and Silicon Valley.

Many US cities use a medallion system 4 to regulate the taxi industry. Although this system effectively
restricted the number of taxis allowed in the cities, the number of medallions issued was often not
commensurate with population growth. For example, in New York City, 13,566 medallions were sold for
$10 each at the start of 1973.5 However, the supply of medallions did not increase proportionately with the
population – only increasing from 13,566 to 13,587 over 44 years from 1973 to 2017 – resulting in increasing
customer dissatisfaction due to the lack of cabs on the streets.

The introduction of Uber sent the price of a medallion plummeting from $1.32 million in 2013 to $650,000
in 2015.6 The convenience, efficiency, and promptness offered by Uber was a welcome relief to many
customers who were frustrated with their city’s expensive and unreliable taxi system. UberX, the company’s
basic private car service was, in particular, a game changer; it enabled non-professional drivers utilising
the app to find and pick customers up with their personal cars. As Uber’s cheapest service, customers could
expect to save at least 10% using UberX as opposed to hiring a regular cab. UberX’s affordability thus
rapidly made Kalanick’s vision of providing “transportation as reliable as running water and accessible to
everyone” a reality.

HOW UBER WORKS

Uber should feel magical to the customer. They just push the button and the car comes. But
there’s a lot going on under the hood to make it happen.

Travis Kalanick, CEO, Uber7

To access Uber, customers need only download the app, create an account, and enter their credit card
information. Once an account is created and the customer’s current location is detected via GPS or entered
manually, he or she selects the type of Uber service desired, and the app reveals the available Uber drivers
nearby. Once the customer agrees to the estimated fare, an Uber driver is connected within a few seconds.
The customer can track the location of his or her designated driver as he or she approaches. The customer
can also view the rating of the designated driver (on a scale of 1 to 5 stars) and choose to reject the ride if
the driver has a low rating. The customer may also contact the driver via phone or text message (with the
driver’s number encrypted). The app’s built-in GPS is activated once the customer boards the car, and the
driver may then use it to navigate to the destination. When the ride is completed, the driver presses a button
to indicate the end of the ride; at this point, the fare is automatically deducted from the customer’s account
or paid in cash by the customer prior to alighting. An email receipt is then sent to the customer, and the
customer is prompted to rate his or her driver. Prior to June 2016, surge pricing 8 would be activated when
demand for Uber cars was high in a particular area. In such situations, the customer would first be prompted

4 Licenses needed for taxis to operate.

5 Furfaro, D. (2016, July 5). Taxi medallion owners find their dreams dashed by Uber, Lyft. New York Post. Retrieved
on October 12, 2016, from http://nypost.com/2016/07/05/city-lets-uber-and-lyft-cannibalize-the-american-dream/
6 Stenovec, T. (2016, January 6). More proof that Uber is killing the taxi industry. Business Insider. Retrieved on
October 12, 2016, from http://www.techinsider.io/more-proof-that-uber-is-killing-the-taxi-industry-2016-1
7 Wohlsen, M. (2014, January 3). What Uber will do with all that money from Google. Wired. Retrieved on October 12,
2016, from https://www.wired.com/2014/01/uber-travis-kalanick/
8 A percentage premium is charged on top of the total fare during periods of high demand.

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to key in the specific surge fare multiplier stated by Uber to acknowledge the increased fare (typically from
1.2 times the standard trip fare) before requesting a car for pickup at his or her location.

From the driver’s perspective, when a customer requests a car, drivers contacted via the app have the
option to accept or reject the request based on the average rating of that customer as well as the customer’s
destination. Once the request has been accepted, drivers may contact customers via phone or text
messages (with both parties’ numbers encrypted). Other app features for drivers include “heat maps”
showing areas with high user demand, a trip history section that displays a driver’s completed trips and
earnings as well as his or her take-home pay, and a feedback icon that displays customers’ ratings and
comments on their service.

Uber uses a bidirectional rating system to regulate the market and flush out bad drivers – drivers who dip
below a certain rating threshold or commit certain violations are warned, penalised, or even automatically
“deactivated” and banned from driving Uber. This feature ensures quality control by giving Uber the flexibility
to “fire” unsatisfactory drivers and control the service level. Customers with low ratings may have their
requests ignored by Uber drivers. This rating system incentivises both drivers and customers to act
appropriately or risk being banned from the app, thereby making the matching service more efficient and
reliable.9 Uber presents several advantages to drivers: reducing idle time, maximising the use of cars, and
allowing drivers some discretion to avoid low-rated customers; it also eliminates kickbacks to human
dispatchers and guarantees payment to drivers as Uber has a hold on customers’ credit card information.

At Uber’s headquarters in San Francisco, managers can see a real-time display of all Uber vehicles on the
move (represented by small cars on the map), as well as potential customers looking at the Uber app
(represented by tiny eyeballs on the map). To determine the best locations for drivers to pick up customers,
Uber uses sophisticated data analysis supported by its team of data scientists with PhDs in fields ranging
from nuclear physics to computational biology to ensure that Uber’s algorithms are calibrated for maximum
efficiency.

UBER’S APPEAL

“Everyone's private driver”

Uber’s popularity can be attributed to its convenient, spontaneous and seamless experience. A study by
the University of California, Berkeley revealed that the top five motivations for using ridesharing companies
like Uber all focused on the simplified process of getting transport: from speed of initiation of a transaction
to payment at the end of a ride, customers were more impressed with ridesharing companies than with
other forms of transportation. The researchers found that during evening rush hours, 92% of rideshare cars
arrived in under 10 minutes, while only 16% of taxis did so; and while 37% of taxis took longer than 20
minutes, only one percent of rideshares took that long.10

9 Isaac, E. (2014). Disruptive innovation: Risk-shifting and precarity in the age of Uber (Working Paper). Berkeley
Roundtable on the International Economy, BRIE Working Paper 2014-7. Retrieved on May 14, 2017, from
http://www.brie.berkeley.edu/wp-content/uploads/2015/01/Disruptive-Innovation.pdf
10 Rayle, L., Shaheen, S., Chan, N., Dai, D., and Cervero, R. (2014, November). App-based, on-demand ride
services: Comparing taxi and ridesourcing trips and user characteristics in San Francisco (Working Paper).
Retrieved on May 14, 2017, from
http://tsrc.berkeley.edu/sites/default/files/RidesourcingWhitePaper_Nov2014Update.pdf

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However, critics claimed that Uber’s prices were unfairly designed to kill off competition. Kalanick, who is
not known for being diplomatic, responded by calling the taxi industry a “protectionist scheme” that “prefers
not to compete at all and likes things the way they are.” 11 In a blog post, he expounded on this in writing,
“Our opponent – the Big Taxi cartel – has used decades of political contributions and influence to restrict
competition, reduce choice for consumers, and put a stranglehold on economic opportunity for drivers.” 12
A customer who was a reporter justified why he switched from taxis to Uber: “I’ve lived in New York City’s
outer boroughs for a decade, first in Brooklyn and now in Queens, and I can tell you that Uber has made
life dramatically easier on those who can’t afford a Manhattan apartment or to live especially close to a
subway stop. Back in the old days, if you wanted to take a taxi home… the city’s iconic yellow cabs generally
flat-out refused to take you to a borough. If you managed to get in a cab, they might simply drive around in
circles, with the meter running, until you got out, miles away from your destination. And, they also routinely
racially profiled passengers and refused to take anyone to neighbourhoods like Harlem that are
predominantly African American.”13 Another Business Insider journalist went so far as to headline his article:
“Uber has changed my life and as God is my witness I will never take a taxi again.” 14

Beyond passengers, Uber also had amongst their defenders former taxi drivers who switched to driving for
Uber. Speaking to Bloomberg, a former taxi driver had little sympathy for yellow cab operators who were
against Uber, as he bitterly recalled, “I had to wait for hours in the garages of a local car company before
Uber entered the scene, as dispatchers decided whether they had a spare car to give me. It’s their fault.
They made it so hard.” 15 According to David S. Yassky, Chairman of the NYC Taxi and Limousine
Commission at the time of writing, “Like a lot of the economy, the taxi industry has become a winner-takes-
all industry where the profits at the top are very large and the wages at the bottom are grindingly low.” 16 A
typical full-time driver in the US makes around $130 per shift, amounting to a median annual range of
$27,000 to $41,000, with a rough median of about $33,000. 17 As such, it is not surprising that taxi drivers
defected to Uber in the hopes of higher wages. In 2013, San Francisco Cab Drivers Association reported
that one-third of the 8,500 or so taxi drivers in San Francisco left their job driving for a registered cab
company, opting instead to drive for a private transportation startup like Uber.18 A BusinessWeek article
described one San Francisco taxi driver who made the switch, weary of paying $400 a week to lease his
cab. After an hour of orientation, Uber had handed him an iPhone with its driver app and sent him out on
the road. “No one under the age of 40 with a smartphone is going out and getting a cab anymore,” the driver

11 Stone, B. (2014, February 20). Invasion of the taxi snatchers: Uber leads an industry’s disruption. Bloomberg
Business. Retrieved on October 11, 2016, from http://www.bloomberg.com/news/articles/2014-02-20/uber-leads-
taxi-industry-disruption-amid-fight-for-riders-drivers
12 Chafkin, M. (2015, October 8). Admit it, you love Uber. Fast Company. Retrieved on September 29, 2016, from
https://www.fastcompany.com/3050250/what-makes-uber-run
13 ibid.
14 Edwards, J. (2014, January 22). Uber has changed my life and as God is my witness I will never take a taxi again.
Business Insider. Retrieved on October 11, 2016, from http://www.businessinsider.sg/uber-has-changed-my-life-
and-as-god-is-my-witness-i-will-never-take-a-taxi-again-where-available-2014-1/#MRYxkGxKJiWcA7up.97
15
Stone, B. (2014, February 20). Invasion of the taxi snatchers: Uber leads an industry’s disruption. Bloomberg
Business. Retrieved on October 11, 2016, from http://www.bloomberg.com/news/articles/2014-02-20/uber-leads-
taxi-industry-disruption-amid-fight-for-riders-drivers
16 Flegenheimer, M. (2013, November 14). $1 million medallions stifling the dreams of cabdrivers. New York Times.
Retrieved on October 11, 2016, from http://www.nytimes.com/2013/11/15/nyregion/1-million-medallions-stifling-the-
dreams-of-cabdrivers.html
17 Salary.com. (2017). Salary.com Salary Wizard – Do you know what you’re worth?. Retrieved on May 14, 2017, from
http://swz.salary.com/SalaryWizard/Taxi-Driver-Salary-Details.aspx
18 MacMillan, D. (2014, March 21). Is Seattle’s rideshare crackdown actually a win for taxi drivers? Working In These
Times. Retrieved October 11, 2016, from http://inthesetimes.com/working/entry/16473/is_seattles_
rideshare_crackdown_actually_a_win_for_taxi_drivers

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was quoted as saying. “I say if you can’t beat ‘em, join ‘em.”19 In fact, many taxi drivers received a stream
of offers from Uber enticing them with discounts on new cars and other perks unavailable at taxi companies.

THE INCUMBENTS: REGULATORY PRESSURES AND ANGRY PROTESTS

Uber’s ridesharing operating model is asset-light; Uber does not own a fleet of cars nor does the company
employ permanent drivers. Rather, it serves as a dispatch system for drivers who possess their own cars,
taking a commission for each completed ride and generating operating margins through a high volume of
transactions. However, such an operating model, characterised by personal cars and non-professional
drivers, has been frowned upon by the authorities, incumbent operators, and taxi drivers who “charged that
they were playing fast and loose with the legal system”.20

Within months of Uber’s launch, regulators, politicians, and the taxi industry began protesting Uber’s
entrance. Typical claims of regulatory contraventions included concerns over background checks, vehicle
inspections, driver training programs, and insurance policies. 21 Taxi unions argued that “services [like Uber]
have an unfair advantage because, in most cases, they are allowed to operate free of the rules, regulations
and licensing requirements of traditional taxis.”22

I think of them as robber barons. They started off by operating illegally, without following any of
the regulations and unfairly competing. And that’s how they became big – they had enough money
to ignore all the rules.

Barry Korengold, President, San Francisco Cab Drivers Association 23

Some lawmakers responded to the cries of the incumbents. For example, in October 2010, Uber received
a cease-and-desist order from California Public Utilities Commission and the San Francisco Municipal
Transportation Agency demanding the cessation of all of Uber’s operations on the grounds of operating
without a taxi licence. Kalanick subsequently responded by arguing that UberCab was merely a software
platform connecting private town car drivers to customers and was not a taxi business. He then dropped
“cab” from the company’s name and resumed operations. 24 Tough action was taken against Uber in other
parts of the US. In January 2012 in Washington D.C., an Uber driver’s car was impounded by the D.C.
taxicab commission on the count that Uber was operating an unlicensed taxi service in the city.

19 Stone, B. (2014, February 20). Invasion of the taxi snatchers: Uber leads an industry’s disruption. Bloomberg
Business. Retrieved on October 11, 2016, from http://www.bloomberg.com/news/articles/2014-02-20/uber-leads-
taxi-industry-disruption-amid-fight-for-riders-drivers
20
Moon, Y. (2015, November 1). Uber: Changing the way the world moves. Harvard Business School.
21 MacMillan, D. (2015, January 29). Uber laws: A primer on ridesharing regulations. Wall Street Journal. Retrieved on
May 14, 2017, from https://blogs.wsj.com/digits/2015/01/29/uber-laws-a-primer-on-ridesharing-regulations/
22 Lazo, L. (2014, August 10). Cab companies unite against Uber and other ride-share services. Washington Post.
Retrieved on May 14, 2017, from https://www.washingtonpost.com/local/trafficandcommuting/cab-companies-unite-
against-uber-and-other-ride-share-services/2014/08/10/11b23d52-1e3f-11e4-82f9-
2cd6fa8da5c4_story.html?utm_term=.faaac7c68dbd
23 Swisher, K. (2014, December). Man and Uber man. Vanity Fair. Retrieved on October 11, 2016, from
http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy
24 Hoyt, D., and Callander, S. (2012). Uber: 21st century technology confronts 20th century regulation. Stanford
Graduate School of Business.

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Uber opposed these actions on the grounds of antitrust violation, arguing that taxi commissions were
unreasonably restraining competition.25 Rick Wartzman of Drucker Institute commented on the regulator
challenge, stating that “As Peter Drucker would have seen it, both taxi operators and their local government
overseers are focused on the wrong thing; trying to sweep Uber into yesterday’s reality, rather than moving
the entire system toward tomorrow’s.” 26

Supporters of Uber argued that Uber’s success and popularity should inspire regulators to scrutinise
wasteful, confusing and obsolete taxi regulations, calling upon them to bear in mind that levelling the playing
field should not be an excuse for implementing inefficient regulations.

Although taxi regulations purportedly serve to protect consumers, they now block access to faster,
more reliable service. Some geeks in Silicon Valley have designed a far more efficient system.
Those medallions, licenses, and meters are obsolete. Admit it, and act accordingly. We may find
comfort in the familiarity of… industries today, but the cost of stifling innovation with outdated
regulation is measured in billions.
John Sununu, Journalist, Boston Globe27

ISSUES IN UBER’S BUSINESS MODEL

Operating License and the Lack of a Proper Regulatory Framework

Uber is known for pushing into new markets before regulations are in place and working out rules later
when authorities come clamping down.28 However, after Uber’s launch in a few cities, regulators in other
areas had caught on to its market entry strategy and showed resistance to its entry in their turf. To illustrate,
when Uber attempted to enter Washington D.C. in 2012, its relationship with D.C. regulators was
immediately contentious,29 resulting in Uber drivers being targeted by city officials and having their cars
impounded.30 In response, Uber reached out to its users on Twitter, Facebook, YouTube, and its website
for support. The result was 50,000 personal emails and 37,000 tweets with the hashtag #UberDCLove
being sent to City Council member Mary Cheh, who had initially opposed Uber’s entry into the DC market. 31
Overpowered by constituents’ demands, Cheh subsequently dropped her opposition and later sponsored
a bill pushing for a legal framework for "digital dispatchers" in the district. The latter was passed in late 2012.
In the same vein, when regulators in California attempted to ban UberX services in 2014, Uber reached out
to its customers through emails, asking them to show that #CALovesUber by signing a petition. These
emails also included politicians’ contact numbers, so that customers could personally call them to express

25 Lazo, L. (2014, August 10). Cab companies unite against Uber and other ride-share services. Washington Post.
Retrieved on May 14, 2017, from https://www.washingtonpost.com/local/trafficandcommuting/cab-companies-unite-
against-uber-and-other-ride-share-services/2014/08/10/11b23d52-1e3f-11e4-82f9-
2cd6fa8da5c4_story.html?utm_term=.faaac7c68dbd
26 Wartzman, R. (2013, July 3). The Uber challenge. TIME. Retrieved on October 11, 2016, from
http://business.time.com/2013/07/03/the-uber-challenge/
27
Sununu, J. E. (2014, June 23). Uber isn’t the problem; taxi regulations are. Boston Globe. Retrieved on October
11, 2016, from https://www.bostonglobe.com/opinion/2014/06/22/uber-isn-problem-taxi-regulations-are/
5tBvAe8rcnGFcDYDT0jx3N/story.html
28 The Economist (2016, September 3). Uber: From zero to seventy (billion). Retrieved on September 15, 2016, from
http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy
29 Hoyt, D., and Callander, S. (2012). Uber: 21st century technology confronts 20th century regulation. Stanford
Graduate School of Business.
30 ibid.
31 Lagorio-Chafkin, C. (2013, July/Aug). Resistance is futile. Inc. Retrieved on September 15, 2016, from
http://www.inc.com/magazine/201307/christine-lagorio/uber-the-car-service-explosive-growth.html

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their support for Uber (see Exhibit 1).32 In mid-2013, Uber ran afoul of Miami-Dade County’s commissioner,
who refused to approve legislation that would allow Uber to operate in its jurisdiction. Uber continued to
operate without adhering to warnings and was later faced with litigation in areas that required Uber to
fingerprint its driver-partners. By 2016, Uber had won its battle over fingerprinting in several jurisdictions –
especially in markets where Uber had threatened to pull out and the proceeding citizen backlash was
intense.33

In a long string of legal attacks against Uber, two lawsuits that took place in December 2014 – one in
California and another in Oregon – stood out. The California suit alleged that Uber misled its customers
about its business and safety practices; the Oregon suit accused Uber of not complying with local licensing
rules.34 Further, its lack of a proper taxi business licence prohibited Uber drivers from picking customers up
at almost all major airports in the US. Yet, Uber drivers continued to meet up with their customers at less
conspicuous airport locations to avoid penalties, and encouraged customers to sit in the front seat and load
their own baggage to purport customers as family members or friends. Customers cooperated with drivers
in adopting these tactics.35 In all these scenarios, a pattern emerged: it was apparent that in most cities,
Uber bypassed regulations, fought against entrenched traditional taxi operators, and aggressively fought
competition. In the words of Seth Fiegermann, a senior business reporter with Mashable, Uber “didn’t play
nice, but played to win, and that strategy appeared to be working.” 36 It was thus hardly a surprise when
Uber was called the “most ethically-challenged company in Silicon Valley” by Peter Thiel, billionaire investor
and co-founder of PayPal.

At the time of writing, some regulators have imposed several measures on ridesharing services. For
example, in Chicago, Rahm Emanuel, the city’s mayor, introduced a law that sought to redefine ride-hailing
companies and protect the entrenched taxi business: a seven-point plan was outlined, in which these
companies were restricted from owning or financing vehicles, UberX was to be eliminated, advertisements
on vehicles and airport drop-offs were prohibited, and a series of reporting requirements was mandated. 37
The ordinance outraged populist organisations, who felt that it was clearly aimed at gutting ridesharing
services. Jacob Huebert, senior attorney for the Liberty Justice Centre, warned that “citizens should be
disturbed by a city government that is more concerned about pleasing a politically connected special-
interest group than letting consumers choose the services they like best. And they should be more disturbed
that government officials are more interested in continuing cronyism for as long as possible than in letting
Chicago thrive in the twenty-first century.” In August 2014, the City of Chicago rejected the mayor’s plan,
passing an ordinance with a much more relaxed and workable set of requirements based largely on
constituents’ feedback.38

The reluctance for a restructured regulatory framework is not unfounded. Regulation comes with a cost to
any company, as responding to government directives requires businesses to invest in certain processes.
Nevertheless, it is essential to embrace new regulations to accommodate innovations. As President Obama
wrote in a commentary supporting a more progressive regulatory system, “Our economy is not a zero-sum
game. Regulations do have costs; often, as a country, we have to make tough decisions about whether

32 Bharti, R. (2014, October 1). Uber: A paragon of operational innovation. Wharton Magazine. Retrieved on November
7, 2016, from http://whartonmagazine.com/blogs/why-uber-is-a-poster-child-for-operational-innovation/
33
Hanks, D. (2016, February 25). Uber faces fingerprinting in Miami-Dade. Miami Herald. Retrieved on May 14, 2017,
from http://www.miamiherald.com/news/local/community/miami-dade/article62532202.html
34 Batra, S. (2015). Uber Technologies, Inc.: Global strategies, local challenges. WDI Publishing at the University of
Michigan.
35 ibid.
36 Fiegermann, S. (2014, August 21). Driven: Uber’s campaign to run over competitors and win the world. Mashable.
Retrieved on October 11, 2016, from http://mashable.com/2014/08/21/uber-strategy/
#938OnuNRmkq6
37 Hubert, J. (2014, February 10). The 7 worst things in Chicago’s proposed Uber ordinance. Illinois Policy. Retrieved
on October 11, 2016, from https://www.illinoispolicy.org/the-7-worst-things-in-chicagos-proposed-uber-ordinance/
38 ibid.

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those costs are necessary. But what is clear is that we can strike the right balance.” 39 Additionally, President
Obama’s mandate for a “21st-Century Regulatory System” – backed by Executive Order 13563 (“Improving
Regulation and Regulatory Review”) – targeted issues of ineffective regulations brought about by redundant,
inconsistent, or overlapping regulations and unnecessary compliance burden and costs, by reminding the
public that regulations need to be adopted with the cumulative costs of regulation in mind. 40

The only losers from thwarting Uber are riders, who must suffer the inefficiency and backwardness
of the local monopoly, and would-be drivers who can’t break into the business because of that
protectionist, interest-ridden system.

Sheldon Richman, Journalist41

In the case of Uber, existing regulations were ill-equipped to accommodate the unique characteristics of an
emerging class of ridesharing services. The fact was that Uber’s core technology, which coordinated real-
time ride-hailing on massive scale, represented an unprecedented disruption in the industry. Regulators
themselves had flip-flopped in their decisions regarding Uber. For instance, in California alone, the
authorities had gone from issuing a cease-and-desist order for operating as an unlicensed taxi service in
2012 to legalising Uber-like services under a new category called Transportation Network Companies in
2013, enacting specific requirements for Uber-like businesses with the intent to regulate them. 42 In
Minneapolis, council member Jacob Frey took the lead to mandate an ordinance regulating Uber-like
businesses. According to Frey, this was a very different kind of business and as the network of
transportation would be expected to expand with new innovations entering the city, there has to be
willingness to think a little outside the box. 43 Thus far, Uber had managed to get new regulations introduced
in a few cities such as Washington D.C., Chicago, and San Francisco. 44

We are in the middle of a political campaign and it turns out the candidate is Uber.

Travis Kalanick, CEO, Uber45

Recognising the need for lobbying to shape the regulatory landscape in their favour, in August 2014, Uber
hired President Obama’s former campaign manager, David Plouffe, to wage its regulatory war against
protectionist policies and taxi cartels.46

We’re on an inexorable path of progress here. Uber is making transportation safer. It’s providing
jobs; it’s cutting down on drunk and distracted driving. I think the mission is really important.

David Plouffe, Senior Vice President of Policy and Strategy of Uber

39 Obama, B. (2011, January 11). Toward a 21st-century regulatory system. Wall Street Journal. Retrieved on May 14,
2017, from https://www.wsj.com/articles/SB10001424052748703396604576088272112103698
40 ibid.
41 Richman, S. (2014, November 13). The war on Uber and Lyft shows how unfree our economy has become.
Reason.com Retrieved on May 14, 2017, from http://reason.com/archives/2014/11/13/stop-those-who-would-stop-
uber
42
Yeung, K. (2013, September 30). California becomes first state to regulate ride-sharing services, benefiting Uber,
Lyft, Sidecar, and Instantcab. The Next Web. Retrieved on May 14, 2017, from
http://thenextweb.com/insider/2013/09/19/california-becomes-first-state-to-regulate-ride-sharing-services/
43 Gupta, V. K. (2015). Uber: A next generation transportation company for everyone. The Case Centre.
44 ibid.
45 Zakrzewski, C. (2014, August 19). Former Obama campaign manager to lead Uber’s political crusade. TechCrunch.
Retrieved on October 11, 2016, from https://techcrunch.com/2014/08/19/obama-campaign-manager-to-lead-ubers-
political-crusade/
46 Isaac, M. (2014, August 19). Uber picks David Plouffe to wage regulatory fight. New York Times. Retrieved on
May 14, 2017, from https://www.nytimes.com/2014/08/20/technology/uber-picks-a-political-insider-to-wage-its-
regulatory-battles.html?_r=0

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When asked whether he was hired to repair Uber’s image problem, Plouffe replied, “I don’t subscribe to the
idea that the company has an image problem. I actually think when you are a disrupter you are going to
have a lot of people throwing arrows.”47

Prior to Plouffe, Uber hired Ashwini Chhabra, the erstwhile deputy commissioner of policy and planning at
the New York City Taxi and Limousine Commission, as its first leader of policy development and community
engagement. Thus, impassioned to redefine the new ridesharing economy, Uber hired lobbyists to guide
its political crusade in making transport accessible to everyone.

“Surge pricing” and Other Fare-related Issues

Uber’s fare is determined by the duration and distance of the trip measured by its GPS navigation system,
and is typically cheaper than existing alternatives. 48 However, during peak periods such as rush hour,
special events or bad weather, Uber’s “surge pricing” mechanism kicks in, raising the price to more than
1.2 times the normal fare. According to Uber, surge pricing is automatically activated whenever demand
exceeds the supply in a given area. 49 Regardless of surge pricing, Uber keeps 20% of the total fare as
commission and the driver keeps the remaining.

Although dynamic pricing is not a novel concept, and is used widely by companies including hotels, airlines,
cinemas and nightclubs, Uber’s surge pricing had invited a particularly high degree of negative attention
due to several specific incidents. For example, on New Year’s Eve of 2011, Uber fares surged to 7x their
normal rates, stunning and infuriating customers. In 2013, when winter snow storms battered the East Coast,
surge pricing again drew the ire of customers when Jessica Seinfeld, wife of comedian Jerry Seinfeld,
posted a screenshot of her $415 Uber bill on Instagram with a caption that read, in part, “#OMG
#neverforget #neveragain #real”. Yet, despite these complaints, Uber refused to back down from its policy
of implementing surge pricing when demand peaked – until mid-2016. The company’s argument for surge
pricing was simple: it was necessary to lure drivers on the road to meet demand during busy times. As
Kalanick puts it, “people would love to have 100% reliability at a fixed price all the time. I get it. That is not
possible.” 50 Rather, Kalanick defended the surge pricing policy on the basis of ultimately benefitting
customers, as higher earnings incentivised drivers to conduct more pickups especially in areas of high
demand. He asserted that “what we are aiming for is the equilibrium of supply and demand. A perfect day
is when you set an all-time record for trips per hour with zero surges.”

Nevertheless, a group of customers launched a class-action lawsuit against Kalanick for allegedly violating
antitrust laws against price fixing by illegally conspiring with Uber drivers to charge higher fares during
periods of high demands through surges. The suit was granted standing in April 2016. In response to
complaints about fare transparency especially during peak periods, Uber changed its interface to implement
upfront pricing in June 2016. Rather than showing an estimated price range for duration and distance alone,
upfront pricing included tolls, traffic, and surge, and was shown prior to a customer’s request for pickup.
Uber argued that this would be especially useful for customers during periods where surge pricing is in
effect, as commuters could agree to pay Uber a specific fare (or consider a competitor, or refuse ridesharing

47 Swisher, K. (2014, December). Man and Uber man. Vanity Fair. Retrieved on October 11, 2016, from
http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy
48 Silverstein, S. (2015, April 8). We did the math: Is Uber really cheaper than a taxi? Retrieved on October 11, 2016,
from http://www.businessinsider.sg/mathematical-breakdown-uber-vs-taxis-money-transportation-2015-
4/#Cs25umqOcFxHxUw.97
49 Moon, Y. (2015, November 1). Uber: Changing the way the world moves. Harvard Business School.
50 Stone, B. (2014, February 20). Invasion of the taxi snatchers: Uber leads an industry’s disruption. Bloomberg
Business. Retrieved on October 11, 2016, from http://www.bloomberg.com/news/articles/2014-02-20/uber-leads-
taxi-industry-disruption-amid-fight-for-riders-drivers

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altogether) as opposed to having to mentally calculate an approximate amount including surge pricing or
face sticker price shock at the end of an unexpectedly long ride. 51

Another issue Uber faced was its consistency in fare pricing compared to taxi fares. In February 2015, a
controversial ordinance in Orlando forced UberX to charge a minimum fare commensurate with “the same
per-mile rate charged by traditional taxicabs.” Uber noted that by doubling UberX fares, low-income
residents were harmed and driver net income decreased as “lowering fares actually increases driver
earnings because they’re so much busier.”52 In fact, a three-year study by Uber’s New York City office
provided data to support the notion that increasing minimum fares was an inefficient strategy. 53 The
company contended that it was possible for UberX riders to pay less and drivers to make more because
the process was “getting much more efficient, helping make each hour a driver spends logged into the Uber
system more valuable than it’s ever been.”54 A driver’s time online is broken down into three components:
idle time while waiting for a trip request, driving to pick up a rider, and transporting a rider to their destination.
With Uber’s system, time spent idle and en route to a rider was significantly minimised.

Insurance Coverage

Apart from fare-related problems, another major issue that plagued Uber was the adequacy of insurance
coverage. On New Year’s Eve in 2013, an UberX driver ran into a family at a pedestrian crossing, killing a
6-year-old girl and injuring her mother and brother. Uber claimed that the driver was not covered by Uber’s
commercial insurance; despite having the app open and waiting for a booking, he had no fare accepted or
passengers onboard. Thus, he was not technically working for Uber at that time. 55 In a similar case, in
January 2014, an Uber driver in San Francisco struck and killed a young girl, possibly at a time when he
was distracted by Uber’s app. Uber’s commercial coverage was also not in effect at the time since he was
neither heading towards a passenger nor carrying a fare. 56 In both situations, the period not covered by
Uber – aka the grey period when the driver has the Uber app open but has not received a booking or
accepted a pick-up – is known as Period 1. During Period 1, any incident would technically be covered by
the driver’s personal auto insurance. However, some insurance companies cancelled their customers’
policies as they believed that their personal auto insurance policies were being abused by Uber drivers;
many of these insurance companies also felt that Uber drivers should buy commercial insurance – which
was too expensive for many UberX drivers.57

On July 1, 2015, California authorities passed a bill 58 to clarify insurance coverage for ride-hailing
companies such as Uber and Lyft. 59 Thereafter, Uber purchased insurance to provide primary third-party
liability insurance that covers costs of injury, death, and property damage to third parties during Period 1 to

51 Singh, A., and Zhao, D. (2016, June 2013). Upfront fares: No math and no surprises. Uber Newsroom. Retrieved on
May 14, 2017, from https://www.uber.com/en-HK/blog/hk/upfrontfares/
52 Williams, R. (2015, January 14). Why Orlando’s ridesharing bill doesn’t work. Uber Newsroom. Retrieved on May
14, 2017, from https://newsroom.uber.com/us-florida/why-orlandos-ridesharing-bill-doesnt-work/
53 Salzberg, A. (2014, October 29). Three Septembers of UberX in New York City. Uber Newsroom. Retrieved on May
14, 2017, from https://www.uber.com/blog/new-york-city/three-septembers-of-uberx-in-new-york-city/
54 ibid.
55 Alba, D. (2015, July 1). California forces Uber and its rivals to bolster insurance. Wired. Retrieved on October 31,
2016, from https://www.wired.com/2015/07/california-forces-uber-rivals-bolster-insurance/
56 Williams, K., and Alexander, K. (2014, January 28). Uber sued over girl’s death in S.F. SF Gate. Retrieved on May
14, 2017, from http://www.sfgate.com/bayarea/article/Uber-sued-over-girl-s-death-in-S-F-5178921.php
57 Alden, W. (2016, January 27). Meet the guy who solved Uber's insurance problem. BuzzFeed News. Retrieved on
October 11, 2016, from https://www.buzzfeed.com/williamalden/meet-the-guy-who-solved-ubers-insurance-
problem?utm_term=.gxXYzAAaey#.bsQlWxxZj5
58 California Legislative Information. (2014). AB-2293 Transportation network companies: Insurance coverage.
Retrieved on May 14, 2017, from
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2293
59 Alba, D. (2015, July 1). California forces Uber and its rivals to bolster insurance. Wired. Retrieved on May 14, 2017,
from https://www.wired.com/2015/07/california-forces-uber-rivals-bolster-insurance/

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comply with the California bill as seen in Figure 1. Uber’s change in insurance policy was a major step in
protecting its drivers and defining operational considerations for future Uber-like businesses.

Figure 1
Insurance for Rideshare Drivers with Uber60

Uber drivers: Employees or Contractors?

Sharing economy companies like Uber shift risk from corporations to workers, weaken labour
protections, and drive down wages.

Avi Asher-Schapiro, Journalist, Jacobin61

Unlike taxi companies that employed licensed drivers, Uber drivers were regarded as independent
contractors who did not receive typical employment benefits such as healthcare benefits, retirement
benefits, vacation leave, insurance, and unemployment or injured workers compensation. After battling two
class-action lawsuits in California and Massachusetts, Uber was happy to keep drivers as independent
contractors by offering a significant amount of concessions including up to $100 million in payments to
385,000 drivers.62

60 Uber. (N.D.) Driving jobs vs driving for Uber. Retrieved on November 5, 2016, from https://www.uber.com/driver-
jobs/
61 Asher-Schapiro, A. (2014, September 19). Against sharing. Jacobin. Retrieved on October 11, 2016, from
https://www.jacobinmag.com/2014/09/against-sharing/
62 Tepper, F. (2016, April 2016). Uber strikes $100M class-action settlement to keep drivers independent contractors.
TechCrunch. Retrieved on October 11, 2016, from https://techcrunch.com/2016/04/21/uber-strikes-100m-class-
action-settlement-to-keep-drivers-independent-contractors/

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We’re happy to announce that we’ve successfully come to agreement with Uber to represent the
35,000 drivers using Uber in New York City to enhance their earning ability and benefits.

James Conigliaro Jr., Guild Founder, Assistant Director and

General Counsel, International Association of Machinists District 15 63

Associations of Uber drivers had for a long time called for attention to the long hours, low pay, and
precariousness that they faced.64 According to Alex Rosenblat, there was very little about Uber which was
light-touch, from its service categories to the clarion calls of its leader, Kalanick, through the media:

There is a lot of information and power asymmetry built into the Uber system. If there was one
way to characterise drivers’ relationship to Uber it would be through this lens of asymmetry, which
narrows the kinds of choices that drivers have to accept.

Alex Rosenblat, Researcher, Data & Society65

In response to a strike by the New York drivers’ association, Uber backed down from a plan to require its
UberBlack drivers to accept lower-cost fares like its cheaper UberX service. 66 Other concessions included
being more transparent about drivers’ ratings and how they fare against other drivers, detailing
circumstances that cause a driver to be banned from the platform, and refraining from penalising drivers
who decline trips (previously, drivers faced the threat of deactivation if they did not accept a certain
percentage of trips – similar to a job requirement typical of employees instead of independent contractors).
Lastly, in May 2016, Uber officially created the Independent Drivers Guild, an association for its drivers in
New York with a prominent union to provide a platform for its drivers to facilitate regular dialogue and afford
them some limited benefits and protections. This agreement was, at the time of writing, Uber’s latest attempt
to assuage mounting concerns from regulators and drivers’ groups about the company’s labour model.

Safety and Driver Background Check

Most of Uber’s public drubbings on safety involved drivers arrested for assaults (physical and sexual),
drivers making lewd or racist comments, drunk drivers, or customer complaints about drivers taking longer
routes – although Uber would quickly refund customers who reported inefficient routes. For example, in
July 2014, a driver in Washington, D.C. took several riders on a high-speed chase.67 On the flipside, there
were also some high profile news stories about customers attacking or harassing Uber drivers. While it was
difficult to monitor and compare the troubles between Uber and regular taxi rides, the United States
Taxicabs, Limousine & Paratransit Association started a campaign to track and shed light on ridesharing
risks and incidents.68
63 Scheiber, N., and Isaac, M. (2016, May 10). Uber recognizes New York drivers’ group, short of a union. New York
Times. Retrieved on May 14, 2017, from https://www.nytimes.com/2016/05/11/technology/uber-agrees-to-union-
deal-in-new-york.html
64 Rogers, B. (2016, June 5). The social costs of Uber. University of Chicago Law Review Dialogue, Forthcoming;
Temple University Legal Studies Research Paper No. 2015-28. Retrieved on May 14, 2017, from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608017
65
Knight, S. (2016, April 27). How Uber conquered London. The Guardian. Retrieved on October 31, 2016, from
https://www.theguardian.com/technology/2016/apr/27/how-uber-conquered-london
66 Griswold, A. (2014, September 12). Uber just caved on a big policy change after its drivers threatened to strike.
Slate. Retrieved on May 14, 2017, from
http://www.slate.com/blogs/moneybox/2014/09/12/uber_drivers_strike_they_protested_cheap_uberx_fares_uber_
backed_down.html
67 Zauzmer, J., and Aratani, L. (2014, July 9). Man visiting DC says Uber driver took him on a wild ride. Washington
Post. Retrieved on May 14, 2017, from https://www.washingtonpost.com/news/dr-gridlock/wp/2014/07/09/man-
visiting-d-c-says-uber-driver-took-him-on-wild-ride/?utm_term=.5a02e945455f
68 Who’s Driving You. (N.D.). Reported list of incidents involving Uber and Lyft. Retrieved on October 31, 2016, from
http://www.whosdrivingyou.org/rideshare-incidents

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Hitherto, local regulators had disagreed on the thoroughness of Uber’s safety standards and its
implementation. As such, the current legislative modus operandi is a delicate balancing act weighing
efficient business practices against public safety. Uncomfortable precedents for Uber’s driver screening
process were already evident in Colorado (where Uber “helped persuade lawmakers to ease drivers’
background checks in a bill that legalised ride-sharing companies”), in Illinois (where “after a lobbying push,
Governor Pat Quinn vetoed a bill that would have forced Uber to strengthen [driver] checks”), and in
California (where Uber “helped kill a law that would have required drivers to undergo a background check
by the state’s Justice Department, as is required for taxi drivers”) in 2014. 69 In defending its screening
processes, Uber further claimed that safety was “built into” all things Uber, ranging from its driver
background checks, extensive driver screening process, and commercial insurance policies. However,
Uber’s incongruent actions unsettled some regulators. Unrelenting, the state of California filed a lawsuit
accusing Uber of misinterpreting its drivers’ background checks; in April 2016, Uber settled the lawsuit by
agreeing to pay $10 million and ceased using the terms “safest ride on the road” or “the gold standard” in
its marketing.70 Uber also had to refund its customers the $1 “safe ride fee” it had been charging. 71

Another common criticism of Uber was that it was putting non-professional drivers on the road. Since they
were non-professional drivers, the background checks for UberX and UberPool drivers were generally
perceived to be less rigorous than those of taxi drivers. Yet, Uber claimed that its background checks for
drivers were in fact more thorough than those of the taxi industry. To qualify as an Uber driver, drivers had
to be at least 21 years old, must possess a personal license and personal auto insurance that covered
using the vehicle for commercial purposes and have access to a 4-door vehicle in good condition that fits
Uber’s vehicle requirements and that they were legally authorised to drive. Additionally, drivers were
required to have clean driving records and pass Uber’s background checks. Uber currently offers a three-
step background check (county, federal, and multistate) and “review[s] drivers’ motor vehicle records
throughout their time” spent with the company to ensure ongoing safe driving behaviour. However, given
the variability in how different taxi companies vetted their drivers, it was impossible to verify if Uber’s model
was truly more stringent than the taxi industry’s standards (see Figure 2).72

In response to politicians sponsoring a bill to require companies like Uber to comply with the taxi industry’s
screening processes, Uber hired Giuliani Partners, the consulting firm founded by former mayor of New
York, Rudolph W. Giuliani, to conduct an external audit of Uber’s procedures. It was found that Uber’s
methodology fared better than traditional taxi screening processes. Further, Uber hired lobbyists and
organised a public relations campaign with over 100 drivers and passengers protesting at the Assembly
steps, spending over $650,000 lobbying the bill in California alone.73 As a result, the bill, which proposed
to have Uber drivers undergo background checks similar to taxi drivers’ by the state departments, was
successfully defeated in 2014.

69 Isaac, M. (2014, August 19). Uber picks David Plouffe to wage regulatory fight. New York Times. Retrieved on
May 14, 2017, from https://www.nytimes.com/2014/08/20/technology/uber-picks-a-political-insider-to-wage-its-
regulatory-battles.html?_r=0
70 Grandry, L. (2016, April 7). Settlement and district attorneys of San Francisco and Los Angeles. Uber Newsroom.
Retrieved on May 14, 2017, from https://www.uber.com/blog/california/da-settlement/
71 McGarry, C. (2016, February 12). Uber has to refund those so-called safe ride fees. Macworld. Retrieved on May
14, 2017, from http://www.macworld.com/article/3033033/software/uber-has-to-refund-those-so-called-safe-ride-
fees.html
72 Uber. (N.D.) Safe rides, safer cities. Retrieved on October 31, 2016, from https://www.uber.com/en-SG/safety/
73 Isaac, M. (2014, December 9). Uber's system for screening drivers draws scrutiny. New York Times. Retrieved on
October 28, 2016 from https://www.nytimes.com/2014/12/10/technology/ubers-system-for-screening-drivers-
comes-under-scrutiny.html

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Figure 2
Uber driver requirements74

Privacy

A less frequent but no less important issue to deal with is data privacy. Customers’ credit card and personal
details, including their location and ride history, are all captured in the Uber platform. Uber’s use of rider
data sparked concern about its privacy policy, especially after widespread coverage of a plan by Emil
Michael, Uber’s senior vice president of business, who suggested that the company hire researchers to
conduct “opposite research” on journalists critical of Uber’s policies and executives. 75 Days after the plan
was identified, the New York Times ran a story reporting that some users had ceased using the service as
a result.76 One angel investor explained to the Times why she had stopped using Uber: “I don’t want them
to have my information, my credit card or my name.”77

Following Michael’s comment, Senator Al Franken of Minnesota sent a letter to the company requesting
information about its privacy practices, how the company utilised data on customers who use the service
on a daily basis, and which employees had access to such sensitive information. According to Senator
Franken, “The report suggests a troubling disregard for its customers’ privacy, including the need to protect
their sensitive geolocation data.” 78

74 Uber. (N.D.) [Graphic illustrating different requirements for drivers of different vehicles for Uber]. Driving jobs vs
driving for Uber. Retrieved on November 5, 2016, from https://www.uber.com/driver-jobs/
75 Isaac, M. (2014, November 19). Uber’s Privacy Practices Questioned by Senator Franken. New York Times Bits
Blog. Retrieved on October 28, 2016 from http://bits.blogs.nytimes.com/2014/11/19/senator-questions-uber-on-
privacy-practices/?_r=0
76 Holson, L. M. (2014, November 21). To delete or not to delete: That’s the Uber question. New York Times. Retrieved
on May 14, 2017, from https://www.nytimes.com/2014/11/23/fashion/uber-delete-emil-michael-scandal.html
77 ibid.
78 Isaac, M. (2014). Uber’s privacy practices questioned by Senator Franken. New York Times Bits Blog. Retrieved on
October 28, 2016 from http://bits.blogs.nytimes.com/2014/11/19/senator-questions-uber-on-privacy-practices/?_r=0

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After coming under fire for its questionable privacy practices in May 2014, Uber hired a data privacy expert
and a law firm to seek recommendations on its privacy practices. In Uber’s privacy update in May 2015,79
the new privacy policies were shorter, simplified, and “explain[ed] more clearly and concisely what data
Uber asks for, and how that data is used to provide or improve our services… Users will be in control: they
will be able to choose whether to share the data with Uber.” In other words, Uber would explicitly state when
it needs user’s location data, such as when connecting drivers with customers, when it requires customers’
contact details, and when it needs to access customers’ contact lists for promotional offers.80 By simplifying
its privacy policies, Uber reduced ambiguity and ensured that customers were aware of granting Uber
permission to access sensitive data.

GROWTH OF UBER

In pursuit of our simple mission – transportation as reliable as running water everywhere and for
everyone – we aspire to transform the way people connect with their communities, revolutionising
the way they move, work and live.

Travis Kalanick, CEO, Uber81

What started as a vehicle to get executives around in fancy rides on the streets of San Francisco and New
York evolved into a social commitment to making transportation reliable and accessible to everyone. This
shift in vision was aptly reflected in its slogan from “Everyone’s private chauffeur” to “Get there”.

"Get there."

Since its inception, Uber has expanded its services from UberBlack and UberX to include UberPool (an
alternative to UberX in which users carpooled their rides), UberPedal (an on-demand UberX with bike racks
for cyclists), and UberMoto (an on-demand option for motorcycles) (refer to Exhibit 2A).

Learning from Amazon’s approach to favour growth over the pursuit of profits by keeping prices down to
win customers and gain market share, Uber adopted a similar tactic by subsidising rides to keep fares down
while rapidly expanding into new cities, and by launching new non-transport related services such as food
delivery and courier services.82 Uber’s market entry playbook typically included the following steps: two
teams were sent into the selected area six weeks prior to launch – one team was responsible for building
Uber’s brand in the market, and the other was responsible for recruiting drivers by marketing its advantages
of flexible working hours, good income, automatic payment for fares, and great bonus incentives; for
potential drivers who did not possess a car, Uber offered favourable loans to facilitate ownership of cars to
drive for the company.83 As evident from the number of legal battles, Uber’s egregious disregard for taxi

79 Tassi, K. (2015, May 28). An update on privacy at Uber. Uber Newsroom. Retrieved on October 31, 2016, from
https://newsroom.uber.com/an-update-on-privacy-at-uber/
80 Kerr, D. (2015. May 29). Uber updates privacy policy, but can still track users. CNET. Retrieved on October 31, 2016,
from https://www.cnet.com/news/uber-updates-privacy-policy-but-can-still-track-users/
81 Gupta, V. K. (2015). Uber: A next generation transportation company for everyone. The Case Centre.
82 The Economist (2016, September 3). From zero to seventy (billion). Retrieved on September 15, 2016, from
http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy
83 Moon, Y. (2015, November 1). Uber: Changing the way the world moves. Harvard Business School.

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laws and regulations had triggered strong criticisms from regulators and taxi incumbents. To stand its
ground, Uber hired lawyers and lobbyists as it expanded to new locations to fend off taxi commissions and
local regulations on the ground of antitrust laws as its defence. 84

They don’t even make any effort to comply with what they think are bad laws.

Dave Ashton, co-founder, Snapcar85

Beyond expanding its services, Uber also sought to improve its technology through acquisitions and
research. For instance, Uber invested heavily into research and development of driverless technology. In
2015, Uber partnered with Carnegie Mellon University’s (CMU) robotics department and donated $5.5
million86 for CMU researchers and Uber designers to develop new technology such as driverless cars and
improved mapping systems.87 However, research at CMU stalled as Uber hired away four of the institution’s
faculty as well as 36 of its researchers and technicians.88 In 2016, Uber began testing its self-driving cars
with Volvo in Pittsburgh.89 Besides R&D, Uber acquired two companies: in 2015, Uber acquired mapping
startup deCarta; and in 2016, Uber acquired Israeli startup Otto, which focused on building self-driving
technology that could be fitted into trucks, for $600 million and 20% of Uber’s future profits from trucking. 90

Beyond transportation, Uber utilised its technology to experiment with other services. These services
include (see Exhibit 2B for more):

 UberEATS. It started out as a small concept in Los Angeles, California, and Barcelona, Spain, wherein
Uber facilitated users with on-demand food deliveries from their favourite restaurants. The restaurant
food delivery service quickly expanded to Chicago, New York City, Houston, Texas, Los Angeles, San
Francisco, and Toronto, Canada, by March 2016.

 UberRUSH. Whether or not it was prompted by its successful foray in the food delivery business, in
2015, UberRUSH was launched in New Jersey. It allowed business owners and other users to deliver
items to customers, associates, or friends, employing bike and on-foot messengers to do so at a $2.25
base fare, plus $1.65 per mile, with a minimum charge of $5.91 UberRUSH expanded into New York City,
Chicago, and San Francisco. Initially, UberRUSH was just an option on the Uber rideshare app (along
with UberPool, UberX and UberBlack). It then partnered with Shopify, Delivery.com, Nordstrom, and
several other companies, allowing these businesses to utilise UberRUSH simply by adding an
UberRUSH API to their website and apps.

84 Merkert, E. (2015). Antitrust vs. monopoly: An Uber disruption. Undergraduate Law Journal.
85 MacMillan, D., Schechner, S., & Fleisher, L. (2014, December 5). Uber snags 441 billion valuation. Wall Street
Journal. Retrieved on May 14, 2017, from https://www.wsj.com/articles/ubers-new-funding-values-it-at-over-41-
billion-1417715938
86 Kalanick, T. (2015, September 9). Uber and Carnegie Mellon University: A deeper partnership. Uber Newsroom.
https://newsroom.uber.com/cmupartnership/
87 Toppa, S. (2015, February 3). Uber and Carnegie Mellon partner up to design driverless taxis. TIME. Retrieved on
October 31, 2016, from http://time.com/3693222/uber-carnegie-mellon-driverless-taxis/
88 Somerville, H. (2016, March 21). After a year, Carnegie Mellon and Uber research initiative is stalled. Reuters.
Retrieved on May 14, 2017, from http://www.reuters.com/article/us-uber-tech-research-idUSKCN0WN0WR
89 Crook, J. (2016, May 19). Uber confirms it’s testing self-driving cars in Pittsburgh. TechCrunch. Retrieved on October
31, 2016, from https://techcrunch.com/2016/05/19/uber-confirms-its-testing-self-driving-cars-in-pittsburgh/
90 The Economist (2016, September 3). From zero to seventy (billion). Retrieved on September 15, 2016, from
http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy
91 Uber Newsroom (2015, February 2). Introducing UberRUSH.

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UBER’S COMPETITORS AND RESPONSES

Lyft is Uber’s largest competitor in the United States, among others such as Sidecar, Hailo, Juno and Via.
As of December 2013, Lyft was estimated to be doing one-third of Uber’s weekly ride load and growing
twice as fast as Uber. In 2014, Lyft’s estimated net revenue was $130 million, and by 2015, it had reached
$1 billion in gross annual revenue. Positioned as the “anti-Uber” offering friendly peer-to-peer ridesharing
services, Lyft offered low-tier ridesharing options Lyft Line and Plain Lyft (similar to UberX), and Lyft Plus
for larger groups.92 In contrast to Uber’s low-key, understated style, Lyft drivers greeted passengers with a
fist bump, and a distinctive playful pink moustache is placed in front of a vehicle to identify it as a Lyft vehicle.

The general perception thereafter was that Uber engaged in overly aggressive competitive tactics. In
January 2014, Uber responded to Lyft’s launch by placing social media advertisements depicting a man
and a woman fist-bumping with the headline “Don’t Pay a Premium to Fist Bump.” The caption read, “Uber
costs less than Lyft, guaranteed.”93 In another case, Uber was caught trying to slow down the service of
one of its ridesharing competitors by ordering and cancelling cars en masse. 94 Furthermore, Uber was also
known for attempting to poach drivers from its competitors by deploying sales representatives to order rides
and then try to convince the drivers to defect to Uber with offers of monetary bonuses and other incentives. 95

In 2014, Uber attempted to acquire Lyft; however, negotiations fell apart over price. Nevertheless, Kalanick
insisted he did not regret the outcome: “It’s a really powerful thing for a company to compete. It makes you
fierce about serving your customers.” Additionally, having a rival helped deflect regulator’s scrutiny in
alignment with anti-trust laws Uber used to shield off taxi incumbents’ protests to regulators.96

…this isn’t about a democracy, this is about a product, you can’t win 51 to 49. You have to win 98
to 2.

Travis Kalanick, CEO, Uber97

FUNDING UBER AND ITS FUTURE EXPANSIONS

Today we are one step closer to our vision of UberEverywhere – a bold idea that no matter where
you are, a reliable ride with Uber is just 5 minutes away.

Natalia, Executive, Uber

In October 2010, Uber received an angel investment of $1.2 million, followed by a total of $48 million in
Series A and B funding led by Benchmark and Menlo Ventures and a valuation of $60 million in 2011. Over
the next three years, high profile companies such as Google Ventures and Fidelity Investments pumped

92 Weiler, V., Farris, P., Yemen, G., and Ailawadi, K. (2014, July 30). Uber pricing strategies and marketing
communications. Darden Business Publishing, University of Virginia Darden School.
93
Cotton, D. (2014, January 17) In Quest for Ride-Sharing Supremacy, Uber Takes on Lyft with Facebook Ads. Adage.
Retrieved on October 31, 2016, from http://adage.com/article/digital/uber-takes-lyft-facebook-attack-ads/291158
(accessed Mar. 18, 2014).
94 Stone, B. (2014, February 20). Invasion of the taxi snatchers: Uber leads an industry’s disruption. Bloomberg
Business.
95 Moon, Y. (2015, November 1). Uber: Changing the way the world moves. Harvard Business School.
96 The Economist (2016, September 3). From zero to seventy (billion). Retrieved on September 15, 2016, from
http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy
97 Swisher, K. (2014, December). Man and Uber man. Vanity Fair. Retrieved on October 11, 2016, from
http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy

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money into Uber; the company raised $258 million in Series C and $2.6 billion in Series D and E funding
with a valuation of $40 billion by the end of 2014 (see Exhibit 3).

As a private company, Uber’s financial performance was equivocal. Leaked information suggested that in
2013, Uber’s gross annual revenue was approximately $500 million with net revenue of more than $100
million. 98 Additionally, Uber’s net revenue allegedly tripled to more than $1.5 billion from $495 million
between 2014 and 2015. 99 In another leaked report by The Information in January 2016, Uber’s gross
bookings (total fares charged to app passengers before drivers get their cut) was $3.62 billion in the first
half of 2015, up from just $2.93 billion in 2014. Furthermore, Uber’s net revenue came in at $663.2 million
in the first half of 2015, compared to $495.3 million in 2014.

With a steady stream of customers and drivers flocking to Uber, investors’ exuberance was bolstered by
Uber’s position at the intersection of three linked disruptive trends: firstly, the emergence of asset-light
business models keeping the cost of expanding low with little logistics and few employees; secondly, the
shift towards the sharing economy underpinned by peer-to-peer services; lastly, consumers, especially
millennials, having an increasing preference to pay for access rather than own items. 100 As the epitome of
these three disruptive trends, Uber’s huge cash pile now acts as an “almost unassailable barrier” to new
entrants, according to Sidecar founder Sunil Paul.

Even as Uber continues to infiltrate US cities, it is setting its sights on expanding Uber internationally. Its
global expansion strategy is typical Uber: roll into new cities, offer consumers a better alternative to
incumbent taxi and livery services, and aggressively battle regulations that restrict Uber’s operations. Its
expansion strategy is a concerted effort of some of Uber’s investors and its team. Specifically, Goldman
Sachs was brought on as an investor for reasons beyond a financial injection in 2011 and a $1.6 billion
convertible debt deal in 2014; through its strategic partnership with Goldman Sachs, the ride-hailing unicorn
could leverage on Goldman Sachs’ considerable resources and networks, and effectively access
international markets.101

To support Uber’s global vision, Uber’s key hires included Ed Baker, former head of international growth at
Facebook, and David Plouffe, who was hired earlier to head Uber’s public relations, communication, and
branding function. The latter was also tasked to oversee Uber’s global policies. Plouffe was to be “a strategic
partner on all matters as Uber grows around the world”, 102 and the ambitious global growth plan was
enthusiastically supported by bullish investors. As of August 2016, Uber received a cumulative total of
approximately $12 billion in funding with a valuation of $60 billion, with backers including Saudi Arabia’s
Public Investment Fund LetterOne, Microsoft, Baidu, Tata Opportunities Fund, Apple, and venture debt
financing from Morgan Stanley and Goldman Sachs. Even then, Kalanick continued asking investors for
more: “If the money is there, that means my competitors will raise it, and that means I need to as well.”103

98 Kosoff, M. (2015, August 6). New revenue figure show $50 billion Uber is losing a lot of money. Business Insider.
Retrieved on October 31, 2016, from http://www.businessinsider.sg/ubers-revenue-profit-and-loss-2015-
8/#oj5zIAmCVrfVBAIJ.97
99 Efrati, A. (2016, January 11). Uber’s losses grow, but so do its profit projects. The Information. Retrieved on October

31, 2016, from https://www.theinformation.com/ubers-losses-grow-but-so-do-its-profit-projections

100
The Economist. (2016, September 3). From zero to seventy (billion). Retrieved on September 15, 2016, from
http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy
101 Brooker, K. (2015, July 28). Goldman in Ventureland. Bloomberg. Retrieved on November 7, 2016, from

www.bloomberg.com/news/features/2015-07-28/how-goldman-sachs-became-a-tech-investing-powerhouse
102 Macmillan, D. (2014, August 19). Uber hires Obama adviser amid regulatory fight. Wall Street Journal. Retrieved

on May 14, 2017, from http://blogs.wsj.com/digits/2014/08/19/uber-hires-obamas-former-campaign-manager-david-

plouffe/
103 The Economist. (2016, September 3). From zero to seventy (billion). Retrieved on September 15, 2016, from

http://www.economist.com/news/briefing/21706249-accelerated-life-and-times-worlds-most-valuable-startup-zero-
seventy

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As Uber continues to expand to other US cities and globally, how should it compete in its quest for legitimacy?
Should it stick to its aggressive “move fast and break things” approach to growth? Or should it adopt a
softer, less confrontational, and more cooperative approach to growth? How can it continue to grow without
stirring up more legitimacy issues, as evidenced by the strong reactions of unhappy passengers, irate taxi
drivers, and frustrated regulators? What more needs to be done?

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EXHIBIT 1

TAPPING ON CUSTOMERS AS LOBBYISTS104

104 Bharti,R. (2014, August 20). Love it or hate it, Uber is here to stay [LinkedIn post]. Retrieved on May 14, 2017, from
https://www.linkedin.com/pulse/20140820072319-1920776-love-it-or-hate-it-uber-is-here-to-stay

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EXHIBIT 2

LIST OF UBER’S SERVICES

A. Transport-related services

Service Description

UberBlack  Uber’s luxury service providing black luxury sedans.

 Includes commercially registered and insured vehicles.
 Drivers are professional livery drivers possessing commercial license and
insurance.

UberX* (also known as  Uber’s basic and cheapest private car service offering rides on non-luxury
UberPOP in Europe) sedans that hold a maximum of 4 passengers.
 Drivers do not need a commercially registered and insured license; drivers
need to be at least 21 years old, possess a driving licence, have 3 years of
driving experience, and possess an in-state car insurance policy in the
driver’s name, in-state car registered that does not need to be in the driver’s
name, and social security number for background checks.
 Driver background check requirements include no records of the following
in the past seven years: DUI or drug-related offenses, driving without a
license or insurance, fatal accidents, history of reckless driving, and criminal
history.

UberPOOL  A ride-sharing alternative of UberX. UberPOOL is 20% cheaper than UberX;

Drivers can pick up to 4 riders travelling along a similar route for each
request.105
 Driver requirements are the same as UberX.
 UberPOOL charges $5 per cancellation.

B. Non-transport-related services

Service Description

UberRUSH  Uber’s on-demand courier network.

 Delivery fleet includes Uber drivers and bicycle.
 Available only in New York City Area (Manhattan, Brooklyn and Queens),
San Francisco and Chicago.106

UberEATS  Food delivery network.

UberCARGO  Van for delivery of goods.

 Available only in Hong Kong.107

105 Haydu, S. (2014, September 2). UberPOOL San Francisco: Everybody’s in!. Uber Newsroom. Retrieved on
November 1, 2016, from https://newsroom.uber.com/us-california/uberpool-san-francisco-everybodys-in/
106 Uber. (N.D.) FAQ. Retrieved on November 1, 2016, from https://rush.uber.com/faq/
107 Uber. (2015, January 7). UberCARGO: A reliable ride for your items. Uber Newsroom. Retrieved on November 1,

2016, from https://newsroom.uber.com/hong-kong/a-ride-for-your-goods-introducing-ubercargo/

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EXHIBIT 3

UBER’S FUNDING INFORMATION

A. List of funding obtained from Crunchbase.com. 108

Date Amount / Round Valuation Investors (not exhaustive)

Jul, 2016 $1.15B / Debt Financing — Morgan Stanley (lead)

Jun, 2016 $3.5B / Series G — Saudi Arabia's Public Investment Fund (lead)

Feb, 2016 $200M / Venture — LetterOne (lead)

Jan, 2016 $2B/ Uber China — Baidu

Aug, 2015 $100M / Venture — Tata Opportunities Fund (lead)

Jul, 2015 $1B / Series F — Microsoft

Qatar Investment Authority

Feb, 2015 $1B / Series E — Valiant Capital Partners
Foundation Capital

Jan, 2015 $1.6B / Debt Financing — Goldman Sachs (lead)

Sherpa Capital
Dec, 2014 $1.2B / Series E $40B Summit Partners
Wellington Management

Fidelity Investments (lead)

Jun, 2014 $1.4B / Series D $18.2B
Menlo Ventures

GV (lead)
Aug, 2013 $258M / Series C $3.5B Benchmark
TPS Growth

Menlo Ventures (lead)

Dec, 2011 $37M / Series B — Jeff Bezos
Benchmark etc.

Benchmark (lead)
Feb, 2011 $11M / Series A $60M Scott Banister
Innovation Endeavors

First Round (lead)

Oct, 2010 $1.25M / Angel — Jeremy Stoppelman
Alfred Lin

Garrett Camp and Travis Kalanick (lead)

Aug, 2009 $200k / Seed — Techstar Ventures
Kevin Hartz

108 Crunchbase. (N.D.) Uber. Retrieved on October 26, 2016, from https://www.crunchbase.com/organization/uber

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