Uber: aggressive international expansion
How finance, experienced founders and a confrontational entry strategy drove rapid internationalisation, and where first-mover advantage ran out.
- Sector
- Transport (ride-hailing platform)
- Source
- Week 6 tutorial resource (Copenhagen Business School study, chapter 5)
The case in brief
Garrett Camp and Travis Kalanick, both experienced founders, developed Uber from Camp’s idea of on-demand rides via an iPhone app. It launched in San Francisco as UberCab on 31 May 2010 and soon received a cease-and-desist order from regulators, after which it renamed itself Uber.
Uber is a two-sided platform: private drivers use their own cars, riders book through the app, and Uber takes a fee of up to 30%. Because it owns no fleet, it can scale fast and price below taxis.
When entering a city, Uber meets officials but launches before any agreement, grows fast so it cannot be ignored, and mobilises users against restrictive rules; in London 200,000 users signed a petition against proposed Transport for London rules. Where it was not first, notably China against Didi Kuaidi, it faced costly price wars funded by very large investment rounds.
Key facts
- Founders
- Travis Kalanick (Scour, Red Swoosh) and Garrett Camp (StumbleUpon)
- Launch
- San Francisco, 31 May 2010, as UberCab
- Early funding
- USD 1.25 million angel round; USD 11 million Series A at a USD 60 million valuation (February 2011)
- Total funding (at the time of the case)
- About USD 9.01 billion from 53 investors; valuation of at least USD 50 billion
- China
- Kalanick said Uber was losing over USD 1 billion a year there; after Didi Kuaidi’s USD 3 billion round, Uber secured a single USD 2 billion investment in January 2016
- Commission
- Up to 30% of the fare, charged to the driver
Analysis through module theory
Innovation types (Week 1)
Best argued as business model innovation at a disruptive level: the ride is unchanged, but who supplies it, how it is booked and how Uber earns are all new.
Entrepreneurial finance
Funding paid for user acquisition, driver bonuses and below-cost fares. Finance was a competitive weapon in races with Lyft and Didi Kuaidi, not only a way to survive.
Founder competencies
Prior international platform ventures gave the founders a global mindset and learning from failure (Scour ended in bankruptcy). Uber added local knowledge through country managers and experienced local hires.
Triple liability
The liability of foreignness appeared as regulatory conflict in almost every market, including the arrest of Uber’s general director in France. Uber’s response was to grow quickly and use its user base to press for new rules.
Discussion questions
- 1.What kind of innovation is Uber, and why is it not the other types?
- 2.Why did Uber need so much external finance?
- 3.Why did first-mover advantage protect Uber in the USA but not in China?
Takeaways
- When a product is easy to copy, the user base and the money to win it become the advantage.
- Experienced founders speed internationalisation but do not remove the liability of foreignness.
- Confrontational entry can win markets but carries legal and reputational risk.