The Rise of Ridesharing Platforms An Uber-assessment of bits and atoms Magnus Ofstad Master Thesis Design, Use, Interaction 60 credits Department of Informatics UNIVERSITY OF OSLO 05/2017 II III The Rise of Ridesharing platforms: an Uber-assessment of bits and atoms IV © Magnus Ofstad 2017 The Rise of Ridesharing Platforms: an Uber-assessment of bits and atoms Magnus Ofstad http://www.duo.uio.no/ Trykk: Reprosentralen, Universitetet i Oslo V Abstract This thesis is a case study of Uber. The research questions are 1. How do ridesharing platforms evolve from startups into large-scale market disrupters? 2. How can ridesharing platforms augment its user base and capture more segments within the transportation business? Uber’s scaling is traditional. The initial growth consisted of capturing the high end of the market. Later on, Uber moved down market, making ridesharing affordable for the masses. The master stroke was to devise a scalable business model that was replicable in different markets. More unique is Uber’s managerial approaches. Uber has devised novel strategies to overcome challenges thrown up in front of her. In short, Uber has leveraged its vast user network and partnered-up with outside forces to solve intractable tasks. These task networks have corroborated to turn the tide against the push back from taxi operators and unfriendly regulatory authorities. They have also aided Uber in the competition against other ride sharers. Uber’s decentralized structure consists of multiple innovative task networks. Local teams take initiatives which continuously spawn out new services and products. Simultaneously, Uber’s autonomous car project is a vast innovation network. The goal of the network is to bring the novelty first-to-market. Above all, the recruitment of drivers is the key to Uber’s scaling. This thesis claims that macro conditions in the labor market make it easy for the app to add new workers. Furthermore, venture funding gave Uber economic leverage to add users at a rapid pace through low prices and subsidized driver earnings. VI VII Preface Uber is an upstart which has reached a global presence. The venture is in the news almost on a daily basis. Despite Uber’s success, no one has given a full scholarly account of why it has been able to scale the user base exponentially. This thesis is an attempt to uncover the ingredients in this success formula. During the research process, it was evident that there were and are serious obstacles to Uber’s growth. These barriers arise from how Uber disrupt old practices in society. This thesis shows how Uber has devised fresh managerial approaches to overcome these hurdles. One particular strategy deals for instance with how Uber has solved the emergence of self-driving cars. The purpose of this thesis is not only to give a glimpse into the specific actions in Uber’s history that proved crucial to its success but also to provide theories that can be used to analyze other upstarts within the sharing economy. The last point is vital since I struggled with finding an all-encompassing theory to describe all the things that go on in Uber. This thesis, therefore, employs a multidimensional theoretical approach. Many of the theories used her might prove insightful and useful in the study of other cases within the sharing space. I would like to thank my academic supervisor Professor Ole Hanseth. He gave me suggestions about relevant research papers that inspired me to do this study. In the age of ‘fake news,' I will also compliment great journalists doing a tremendous job. My investigation would have been harder, more time-consuming, and less interesting without their effort. Uber is a wide case, and an old saying is that ‘the devil is in the details.’ I have tried to get most things right, of course, but if some dates and other minor details are slightly wrong, I will apologize for this in advance. The faults are all mine. Magnus Ofstad, Oslo, 05/02/2017 VIII IX Content 1 Introduction ........................................................................................................................ 1 1.1 Introducing ‘ridesharing’ in platform markets ............................................................ 1 1.2 An Uber review ........................................................................................................... 5 1.2.1 Labor .................................................................................................................... 6 1.2.2 Innovation ............................................................................................................. 8 1.2.3 Governance ......................................................................................................... 12 1.3 The ethics of Uber ..................................................................................................... 18 2 Background theory ........................................................................................................... 22 2.1 Brazilianization .......................................................................................................... 22 2.1.1 The first world .................................................................................................... 22 2.1.2 The third world ................................................................................................... 24 2.2 Platform economics ................................................................................................... 25 2.2.1 Multisided platforms .......................................................................................... 25 2.2.2 Network externalities ......................................................................................... 26 2.2.3 Early adopters and marquee users ...................................................................... 27 2.2.4 Innovation, subsidizing or quality ...................................................................... 27 2.3 Generative digital infrastructures .............................................................................. 29 2.3.1 Complex adaptive systems ................................................................................. 29 2.3.2 Generativity in digital infrastructures ................................................................ 30 2.3.3 Generative contextual conditions ....................................................................... 31 2.3.4 The generative replicative pattern mechanism ................................................... 32 2.3.5 The generative network of networks mechanism ............................................... 33 2.3.6 The generative innovation mechanism ............................................................... 35 3 Methods ............................................................................................................................ 36 3.1 Case selection ............................................................................................................ 36 3.2 Methodology .............................................................................................................. 37 3.3 Data collection ........................................................................................................... 38 3.4 Data analysis .............................................................................................................. 40 4 Findings ............................................................................................................................ 42 4.1 How Uber conquered San-Francisco? ....................................................................... 42 4.1.1 The creation of an app Leviathan ....................................................................... 42 X 4.1.2 The product as an asset ....................................................................................... 46 4.1.3 The Users as an asset .......................................................................................... 48 4.1.4 Flexibility and aggressiveness ............................................................................ 49 4.1.5 The launch pad ................................................................................................... 53 4.2 How Uber scaled exponentially? ............................................................................... 54 4.2.1 Revving up the motor with venture capital ........................................................ 55 4.2.2 Establishing the launch playbook ....................................................................... 56 4.2.3 Market segmentation and cheaper prices ........................................................... 59 4.2.4 Innovative recruitment and pricing policies ....................................................... 63 4.2.5 Design improvements ......................................................................................... 66 4.2.6 Technological improvements ............................................................................. 70 4.2.7 The fallout from dynamic pricing ...................................................................... 73 4.2.8 This is how Uber scaled ..................................................................................... 74 4.3 Augmentation Obstacles ............................................................................................ 75 4.3.1 Uber and regulators ............................................................................................ 76 4.3.2 Are driver’s employees or freelancers? 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