Market Entry Games - Lessons from Uber

Issue 2: Reinventing the Wheel

Barriers to successful product introductions - always significant - have increased in today’s fragmented social and traditional media environment. New shared-economy ventures based on digital platforms face particularly daunting market and institutional challenges, offering lessons in business strategy to any company. In each local market they enter, such platforms must rapidly build an ecosystem of both users and service providers. Laws were not written with these new platforms in mind, and local regulators and other stakeholders may be hostile, egged on by incumbent competitors.

A recent study in the Strategic Management Journal uses Uber’s successful entry into four US cities to illuminate its strategies and tactics. The key to success was the adaptation of its digital platform and business model to leverage opportunities and address concerns as they emerged – a strategy known as liminal (or transition phase) movement. Uber then adopted different strategies as it transitioned from aggressive upstart to established industry leader.

Platforms like Uber are digital marketplaces that help parties connect and transact. Uber needed drivers to offer riders the service and quality it promised. Simultaneously, it needed riders in sufficient numbers to make it worthwhile for those drivers to sign on. Uber used three market strategies to play this “chicken-and-egg” game:

• Supply-demand management: Uber lured drivers from its competitors, and focused on high-volume locations.

• Economic incentives: Uber subsidized drivers – to the outrage of the taxi industry – and offered free phones. It gave riders credits if they were unable to get a ride, and offered referral benefits.

• High visibility: Uber sought publicity through attention-getting events.

Uber had to move quickly, but it learned as it went and applied these learnings when entering new markets (another best practice).

Uber had to play a second game at the same time. Like other innovative products and services, it had to establish “sociopolitical legitimacy” – government officials, the public and other stakeholders had to accept it as appropriate. Because Uber was providing services similar to regulated businesses, regulators pushed Uber to conform to each jurisdiction’s laws, some of which Uber viewed as inconsistent with its business model. Rather than wait for regulatory approvals, Uber entered each market aggressively and then deployed four non-market strategies:

• Avoidance: Uber argued that it could avoid regulations because it was a technology company, not a taxi service.

• Defiance: It defied regulators and city officials and fought them in court.

• Manipulation: Uber tried to convince powerful or sympathetic groups to see the advantages it, so that these stakeholders would pressure regulators and government officials.

• Compliance: Only if regulators were sympathetic would Uber peacefully comply.

Because each market was different, Uber would use different non-market strategies in each case. The goal was to delay regulators until the pressures from riders and drivers forced them to accommodate Uber. Again, it built on its learnings for future entries.

Both Uber’s market and non-market strategies and tactics were – and remain – extremely controversial. Indeed, the Washington Post recently ran a series of articles based on leaked e-mails that described, in unflattering terms, Uber’s actions around its entry into Paris and other European markets. Uber did not defend its tactics; instead, it stated that it no longer used them. That statement gained credibility from the 2018 ouster of its CEO Travis Kalanick, heralding Uber’s transition from an aggressive newcomer to an established force. Similarly, Uber aligned with other gig companies to pass a ballot initiative overriding the California legislature’s regulation of its drivers, but giving them more rights and benefits than during its start-up phase. As Uber’s name recognition grew, the “chicken-and-egg” game was much easier, but the “sociopolitical legitimacy” game became harder and required new strategy. Uber was not the only one learning lessons; regulators and taxi drivers were learning too.

Liminal movement is not useful to digital shared-economy platforms alone. Uber succeeded because it understood the games it was playing, the other players, and their levers. Such gaming is equally valuable to any business facing a complex environment with important external players. Uber also illustrates the need to play games dynamically: as the players, preferences, and its options changed with each new market and over time, Uber modified its strategy and tactics accordingly. Had it not, it is unlikely that Uber would today be a household name or have attained a peak market capitalization of over $100 billion.

Uber has added enormous value for riders, drivers and shareholders, and has transformed an industry and society. Yet leaders must balance aggressiveness with ethics, or they may suffer Mr. Kalanick’s fate.

Source

Garud R et al, “Liminal movement by digital platform-based sharing economy ventures: The case of Uber Technologies”, Strategic Management Journal, 2020