Danish lecturer and commentator Jonathan Løw happily uses Uber but he says “it’s decidedly wrong” when people see Uber as an example of disruption. It’s more about the deliberate use of a legal grey area, he writes. There are at least three reasons that Uber is not a disruptive company.
Before you get totally annoyed about my title, I’d like to stress that I use Uber with great pleasure and easily understand that people opt out of traditional taxis where the service is often poor. Conversely, it is just a blatant misunderstanding if you think that Uber is the “disruptor” of the taxi industry. There is much confusion about the concept of disruption and there is a need to get things straight.
These days many wise people talk about disruption. The ever increasing use of the word has meant that nowadays it seems to mean almost everything. But Uber is no disruptor. Harvard professor Clayton Christensen, the man behind the concept of ‘disruptive innovation’, describes why in an excellent article, and it is crucial to stress that this is not just an academic discussion about definitions and semantics.
Disruptive innovation is not everything and nothing. It is a way for both startups and established companies to open up new customer groups, markets and business opportunities through a conscious process and approach to innovation and positioning. Netflix is an excellent example. When Netflix was established back in 1997, they had established players (such as Blockbuster) focus on upgrading their existing products and services to retain customers and increase prices. This meant that all players ignored the potential customer segments which had no place to go.
It gave Netflix a position, which followed the disruptive innovation model: Focus on a solution that will slow the established players – not with many features, but one which is simple and affordable. Focus also on customers who do not currently get serviced, and deliver an acceptable product for them.
Years passed, Netflix increased its market share, and now they began the next part of the disruptive innovation: To improve the product, digitize it and attack the established players’ customer segments. This development took place in the 00s, and when we got to the 2010s, Netflix had developed such a technologically superior product that Blockbuster and other players could not react.
Disruption is something that occurs both gradually and suddenly. We can look at the logics of disruptive business models. And the question is, how do they fit with Uber. Disruptive innovation creates new markets. Something Uber has not done.
Disruptive innovation starts with customers that no one else wants. Uber has not done this. Disruptive innovation is gradual and strikes suddenly. Not so with Uber.
Uber’s instrument is not disruption, but deliberately exploiting legal grey areas. So it is, at best, disruption of the law understood as just the original meaning of the word disruption: To turn something into pieces. Uber’s go-to-market strategy has been to move quickly and aggressively, secure massive investment to do this and act in a way where you establish yourself heavily in a market where the somewhat less agile legislature will have defined guidelines. Or where the courts can agree or disagree on what the law says.
By extension, we come to the actual debate in Denmark. Entrepreneur Martin Thorborg has said that Uber has only been successful because the service of the established players is lousy. I agree. I am a 100 percent advocate of free competition, but Uber is not free or fair competition. Uber is a foreign and booming business that deliberately exploits a number of legislative grey areas in a market that still has to find its legs.
I use the Copenhagen taxis (and Uber) every week, and the difference is striking: The established taxi drivers are usually acidic, talking on the phone while they are driving, listening to loud music (I have not asked for) and always ask me ‘What route?’ when I ask to be driven somewhere. I think the tactic included is that one can choose a slightly longer route if the customer does not know it. On the contrary Uber runs from an already defined and optimized GPS route.
So far, I agree with Martin Thorborg, CEPOS director Martin Ågerup and other Uber-advocates. It is healthy for competition that Uber has come. The problem is that the proponents overlook that Uber’s current success is not based on free and fair competition, as Ågerup and other others advocate. I can not count on the following assumption, but it follows a sound logic: I wonder if the aforementioned difference in customer experience is due to competing on unequal terms, and that the established drivers work in an increasingly negative business climate? Whether they work for themselves or for a company, they are frustrated because business is bad and earnings are falling dramatically.
Uber does not create new customers, but goes consciously after the established market and claims that they do not meet the necessary requirements for video surveillance, environmental certification, insurance of both passengers and employees, etc. That is neither free or fair competition, but the vague and lengthy legislation and legal procedures generally produce only one winner: The player who does not follow current legislation.
As companies, we can learn quite a bit from Uber and far more genuine ‘disruptors’ like Netflix or Gomore. I will not interfere in the question whether Uber is legal or not. It will probably be determined by the court this week despite two previous postponements. I would encourage that we do not make Uber into something it is not. It is neither disruption, competition, or carpooling.
Uber is arguing namely that the taxi service is carpooling – and not a so-called pirate taxi. This argument has been repeated by several debaters. But it will not be more true just by repeating it. Uber has nothing to do with carpooling and as my good friend and founder of Gomore, Matias Dalsgaard, said to Ritzau:
“Car sharing is when a person is driving from A to B and offers to sell seats available in the car to other passengers contributing to the costs. Taxi driving is when a passenger needs a ride and the driver makes money. This is what Uber does.”
Uber taxis, located in and circling around the Copenhagen centre, you can book via an app. I do it myself, and I love the service level and the simple interface. But as companies, we can learn quite a bit from Uber and far more from genuine disruptors like Netflix, Gomore and others.
- Read Jonathan Løw’s opinion in the Danish version: