Porter’s Five Force Analysis of Uber (Research Paper Sample)

Porter’s Five Force Analysis of Uber Founded by Travis Kalanick and Garrett Camp in 2009 (Blystone), Uber is a ride-hailing company that enables clients to contact drivers in the area for a ride via the Uber app, with payment information being exchanged through the app, and Uber taking a percentage of all transactions to generate revenue (Blystone, 2020). Now, due to the popularity of its business model and recent parabolic growth, it faces constant threats from various external factors that it needs to address if it wants to stay ahead of the competition. Micheal Porter’s (1979) Five Forces Framework -which was first mentioned in the paper “How Competitive Forces Shape Strategy” for the Harvard Business Review- is an excellent tool that has the ability to help companies position themselves well within their competitive field. It encompasses the bargaining power of suppliers and buyers, the threats of new entrants and substitutes, and finally rivalry among existing competitors. However, due to the 42 years that have passed since Porter’s framework originated, the question is whether the methods are still applicable for modern businesses to utilize. Arguably the most prominent concern to Uber is one component that Porter’s framework does indeed address; rivalry among competitors. Uber may be the most recognised ride hailing brand, due to its successful marketing, yet its market share and global presence does not reflect that. Didi continues to remain dominant in China, Ola has done the same in India, and Lyft is concentrating all of its resources towards rapid expansion in the US (InnovationTactics, 2018). As a result, there is a reduction in profits for each company, especially Uber, marketing expenditure is increased to attract more customers, and prices are marginally cut in order to provide a unique selling point (Porter, 1979). Furthermore, the lack of barriers to entry, in theory, make it simple for new businesses to provide new competition to the ride hailing industry; all that is required is to program an app. Despite that, the underlying costs, economies of scale and required product differentiation which are concentrated in attracting customers through creating demand, and finding drivers to provide supply are high enough for Uber to feel relatively safe (Porter, 1979). The problem lies in already established companies such as Apply or Volkswagen deciding to enter the market with low marginal rates due to the brand awareness and mountains of cash. (InnovationTactics, 2018). Moreover, an aspect that Uber may have to devote more time and attention to, is retaining their current drivers, and ensuring their supply remains stable. After videos went viral of ex CEO Travis Kalanick shouting at one of the drivers, that provides an insight into Uber’s toxic, cutthroat culture (InnovationTactics, 2018). Events like this occurring will result in drivers switching to alternative apps, with wages remaining similar yet the quality and job security being much higher. Suppliers having such a level of bargaining power mean that Uber has to pay attention to the relationships that its managers have with its drivers, or a majority of Uber’s profitability will be taken (Porter, 1979). Although Porter’s framework appears to cover all angles of the competitive environment, there is one flaw; that is how to determine the extremity of the threat. Due to the fact that prior to the 21st century there were a lesser number of companies, let alone companies that could pose threats from a plethora of geographical...