Adapted from Stone B. 2017. The Upstarts: How Uber, Airbnb, and the killer companies of the New Silicon Valley are changing the world. New York: Little, Brown and Company.
- Wireless transmission networks. A "generation" generally refers to a change in the standards governing the fundamental nature of the transmission technology, peak bit rates, new frequency bands, wider channel frequency bandwidth in Hertz, and higher capacity for many simultaneous data transfers. New mobile generations have appeared about every ten years.1
For example, the 1981 analog (1G) to 1992 digital (2G) transmission shift provided significantly more efficiency, enabling far greater mobile phone penetration levels. It also introduced data services for mobile, starting with SMS (Short Message Service) plain text-based messages, picture messages and MMS (Multimedia Message Service).1,2
In 2001, 3G provided multi-media support, spread spectrum transmission and, at least, 200 kbit/s peak bit rate. The bandwidth and location information available to 3G devices gave rise to applications not previously available to mobile phone users such as Global Positioning System (GPS), location-based services, Mobile TV, Telemedicine, Video Conferencing, and Video on demand. Later 3G releases, often denoted 3.5G (2008 release) and 3.75G, also provide mobile broadband access of several Mbit/s to smartphones. This ensured it could be applied to wireless voice telephony, mobile Internet access, fixed wireless Internet access, video calls and mobile TV technologies.2
4G in 2011/2012, an all-Internet Protocol (IP) packet-switched network, gave rise to mobile ultra-broadband (gigabit speed) access3, whereas 5G, currently under development, should provide performance as high as 20 Gigabits per second, and should be deployed beginning in 2018.4
- Devices. Following the introduction of 2G, IBM demonstrated the first prototype phone enabling functions other than phone calls in 1992. By 1994, BellSouth (a network operator) had demonstrated the touch screen-equipped cell phone “Simon” which could send and receive faxes and emails and included an address book, calendar, appointment scheduler, calculator, world time clock and notepad, as well as other visionary mobile applications such as maps, stock reports and news. In 1995 ATT dubbed Simon a “smart phone.”5 The devices were also prohibitively expensive and primarily targeted enterprise end users, not consumers.6
In 1996, HP and Nokia devices appeared which merged personal digital assistant OS with cell phone hardware. The phones were bulkier than either stand-alone device but allowed a modicum of internet access. Drawbacks included high cost, expensive data plans, expansion limitations, decreased battery life, and bulkiness. By 1999, NTTDoCoMo (a network operator in Japan) had achieved mass adoption of a smartphone but the device’s capabilities were still limited by the slow rate of data transmission (9.6kbps). Thus, their phones had limited functionality and small screens.5
In 2007, Apple’s iPhone (software and devices) abandoned the use of a stylus, keyboard, or keypad in favor of a capacitive touchscreen for direct finger input.5 It integrated the touchscreen display with the best web browsing experience yet to be offered on a mobile device.6
Software/e-commerce7. Predecessors to the modern Internet were by and large non-commercial, smaller networks, some of the most important of which were sponsored by government for university research (DARPANet, NSFNet). Thus, some small e-commerce applications emerged in the 1970s. In 1984, the first email programs were launched by CompuServe and by 1989 Sequoia Data had introduced the first Internet-based system for e-commerce. In the early 1990s the first web browsers were introduced (1990 World Wide Web, 1994 Netscape Navigator) and by 1995, the NSF had lifted its ban on commercial activity across its network. The stage was set for large-scale e-commerce over the Internet and in 1995, both Amazon and eBay were launched. By 1999, the founders of Napster had established a peer-to-peer file-sharing system for MP3 (music) files. However, the company ran into legal difficulties over copyright infringement and ceased operations in July 20018.
The first commercial electronic software distribution catalog, Electronic AppWrapper, appeared in 1993. However, the first digital distribution platform for commercial software on a popular smartphone did not appear until July 2008 (Apple). It was soon followed by the predecessor to GooglePlay in October 2008. This recast the definition of a smartphone to include being a platform device on which software “apps” could be installed, albeit with limited functionality on a mobile phone versus a PC. The online store allowed users to browse through, acquire (often at no cost), and download the apps.
Political, Legal, and Regulatory Environment
In 2010, the city of San Francisco, like many other cities around the world, had regulations in place designed to (1) guarantee the availability of passengers to taxi companies, and (2) ensure that taxi drivers could earn a reasonable wage. In fact, the city had capped the number of taxi licenses at 1500 and the price at $250,000. The resulting shortage of taxis, however, presented a real problem for consumers. Getting a cab in San Francisco was a gamble: riders couldn’t reliably hail a taxi on street, some would drive by without stopping, and even reserved taxis could not be reliably counted upon to show up. Consumers could plan extra time in advance and still be late.
Incumbent Taxi fleet owners/drivers. Tom DePasquale, founder of Taxi Magic, described the resistance among incumbent taxi companies and drivers to changing the way business was done in 2010. “Fleet owners were “technically clueless.” They did not know what a modem was, whether they had one, or where it was. Drivers were in constant conflict with owners over wages and their employment status. And market shares wars flared among fleet owners in many cities. They did not care much about riders, as they had no permanent relationship with them, and there was no penalty for bad service.”
Online marketplaces. By 201410, online marketplaces were considered to be “booming,” but because, unlike Amazon and eBay, they focused on services, not products, and because they focused on vertical markets, not horizontal markets (e.g., providing a broad selection of products). Opportunities remained for those who could remove offline transaction friction and provide a superior buying experience. Customer experiences delivered via apps or websites, pricing, branding, customer service interactions, and rating systems were important, as was back-end access to the best or deepest selection of service providers. Labor with industry-specific experience provided an additional advantage.
Garrett Camp, a native of Calgary and a commuting student at the University of Calgary, obtained a BS (2001) and MS (2005) in computer science while living with his parents. In college he had preferred public transportation, especially since his parents hadn’t wanted to pay the extra auto insurance. While still at the university he had also co-founded the semantic web start-up StumbleUpon with a friend, providing a way to search for “interesting things” on the Internet without having to use the Google search engine.
In 2005, with StumbleUpon beginning to show promise, the co-founders met an angel investor who convinced them to move to San Francisco and raise capital. Over the next year, the number of users on StumbleUpon grew from 500,000 to 2 million and the market for firms like Facebook and Flickr - firms which mined the social connections among Internet users - heated up. In May 2007, eBay acquired the firm for $75 million.
Flush with cash, Camp purchased a red Mercedes-Benz C-Class sports car but the vehicle just sat in the garage. He found driving in San Francisco too stressful, yet the city’s sad taxi situation put a cramp in his lifestyle as well. Thus Camp started to experiment with the city’s gypsy-cab fleet – unmarked black sedans that would approach prospective passengers on the street and flash their headlights to solicit a fare. Some customers avoided the cars, fearing for their safety or wary of a cab not possessing a running meter. However, Camp found the cars clean and their drivers friendly. He also learned of a major problem for these drivers: filling dead time between rides. In an attempt to solve this problem, most drivers would simply wait outside hotels, hoping to pick up their next fare. Camp would end up collecting the phone numbers of the best 10-15 of these drivers in the city. He also experimented with texting a driver hours before needing him and even with renting a car for an entire evening with a group of friends.
In mid-2008, Garrett saw a James Bond movie in which a Sony Ericsson mobile phone displayed the location of the car as graphical icon on a map, and something clicked. He knew that the Apple iPhone and AppStore would make this vision of the future possible as GPS would give the location of the car and the accelerometer inside the smartphone would make it possible to tell if the car was moving, making a taxi meter possible in the same device as well.
In late 2008, Garrett took a “deep dive” into black cars, noting especially their loss of utility (downtime). He bounced ideas off everyone and one of his acquaintances noted that “It was clear that he was already in the top one percent of market analysts who had looked at the space.”
Originally, Garrett’s idea was to buy some cars and to share the fleet among friends who were using an app. He was also considering the potential to use the system to coordinate eco-friendly Priuses and yellow cabs too. He estimated that if his idea worked in 100 cities then there would be a $100M market in service fees.
In late Fall 2008 Garrett continued to spend weekends cruising web, doing research on the transportation industry while continuing to work for eBay. He laid out hundreds of questions on a wiki and asked friend to use his assistant to answer them. He asked: Are there any one-click luxury on-demand services in existence? What is the average pick up time in the top ten US cities? What are the critical must-haves for dispatch software, and how much could be automated. He stated his goal: by Dec. 2008 to have reached a go/no go decision and by Jan. 2009 to be live with 5 cars.
In Dec. 2008, on his way to the LeWeb conference in Paris, Garrett stooped in New York to meet with a former colleague and friend from the University of Calgary, Oscar Salazar. Showing him pictures of the Mercedes-Benz 550 and mock-ups of iPhone screens demonstrating how customers might see cars moving toward them, Garrett recruited Salazar to lead prototype development. As Salazar was on a student visa, he could receive payments in cash, so he accepted equity in the fledgling start-up as remuneration.
At the LeWeb conference in Paris, Garrett met with his old Travis Kalanick, an individual who shared his enthusiasm for starting companies and solving technical problems. A computer scientist as well, Kalanick had just sold his own start-up Red Swoosh to Akamai and was recovering from “burnout” by travelling and angel investing. Kalanick had the idea that the firm should not buy cars or hire drivers but rather simply distribute the app to drivers. At subsequent meetings in Paris the duo hashed out projected costs and revenues. Ultimately, Kalanick was to describe the idea as “push a button and get a ride.” The pair wanted to offer a “classy ride” and coined the slogan “Everyone’s private driver.” The service was eventually priced at 1 ½ to 2 times cab fare but 2 times less than traditional car service fee.
During the first half of 2009, Salazar and his programmers worked on algorithm to match passengers with the closest vehicle. They began with a version requiring a customer to text a message including their address to a special telephone #, coupled to software to locate the message and relay it to a nearby driver. It didn’t work well: customers could make mistakes inputting their address. Another version involved using the Uber website, but this did not work for customers on street who were not near a computer. Finally, Garrett suggested that the programmers work with a partner who had already commercialized location-aware software via GPS and firm subsequently partnered with iNap to modify Uber’s app for this purpose.
By fall 2009 a working prototype had been developed. It was tested in New York City with a few black-car drivers but it was buggy and barely worked. In subsequent meetings, it was decided to reassign prototype development to Mob.ly, a mobile application consulting firm.
Despite targeting a summer 2010 public launch for the nascent firm, neither Camp (still involved in StumbleUpon) or Kalanick (advisor and angel investor) wanted to devote full-time to it. Thus, in January 2010 they hired Ryan Graves, a GE leadership trainee. Graves had been unsuccessful at developing his own social app but still sought an opportunity to run a firm.
That spring, in subsequent tests in San Francisco, the app continued to underperform. The wireless coverage of ATT was bad in the city and the GPS usage quickly drained the battery. Thus, Camp added another engineer (Conrad Whelan from the University of Calgary) and leased a small office. Meanwhile Graves and Kalanick, who was now working 20 hours per week for the start-up, began cold-calling and visiting San Francisco town car fleets. According to Kalanick “a third would hang up before I could make the pitch, a third hung up after the pitch, and a third were interested.”
In June of 2010 the UberCab app went live on Apple’s App Store and the founders decided it was time to raise capital. At the time, the firm could boast 10 town car drivers, ten rides a week (most by Uber’s own employees, founders, and friends), a buggy product, and a small, cramped office. There was only one statistic in their pitch: that ½ of UberCab app downloaders actually went for a ride.
Naval Ravikant, a friend, had created an email network of accredited angel investors. He allowed the firm to send 165 messages to his list in June 2010 in exchange for permission to become a seed round investor. For 150 of the messages there was no response.
Potential Silicon Valley investors had the following objections:
- Ryan Graves was inexperienced,
- The founders were not involved enough,
- The App is extravagant indulgence for wealthy urbanites (there is a limited market),
- Some investors had had personality conflicts with Travis Kalanick before, and
- Many were wary of the potentially hostile tangle of city and state transportation laws which Uber might confront.
Nevertheless, the founders continued to spread the word through friends.
Q1: Do a SWOT analysis for Uber. Use the terminology in Chapter 4 (e.g., resources and capabilities, tangible/intangible, Table 4.1 categories, etc.) to describe Uber’s key strengths and weaknesses
- 1G, 2G, 3G https://en.wikipedia.org/wiki/List_of_mobile_phone_generations
- 3.5 G https://en.wikipedia.org/wiki/High_Speed_Packet_Access
- 8. https://en.wikipedia.org/wiki/Napster
- https://www.forbes.com/sites/groupthink/2014/08/20/why-online-marketplaces-are-booming/#6f0aa56d531d Laumeister G 2014. Why online marketplaces are booming. Forbes.