Team 43 – Technology of the week: Platform mediated networks: Uber and TransferWise
Traditional industries have been disrupted by technology-enabled platforms. Innovative business models have found ways to keep cost and prices significantly lower for the users, capturing significant market share in a short time. Two of such companies are Uber and TransferWise. Uber makes it easier, quicker and cheaper to get a ride. While TransferWise makes it up to ten times cheaper to send money abroad.
Uber is a ridesharing platform that acts as an intermediary by matching passengers with the nearest drivers through a smartphone application. More drivers will result in more passengers subscribing and vice-versa (positive cross-side network effects), while too much of one side leads to negative same-side network effects. Uber succeeded in achieving a competitive advantage through not having to pay licenses and not employing drivers. Although Uber is aiming at becoming a price leader, when demand is larger than supply, the company applies surge pricing to encourage drivers to supply. This has led passengers to become increasingly price-sensitive.
The taxi-and ridesharing industries are expected to grow, which will contribute to Uber’s expansion in the future. Furthermore, Uber’s potential to grow will depend on (1) adoption by the status quo, (2) response by competition, and (3) regulations. Currently, Uber has achieved a competitive advantage by being faster, cheaper and allowing a mobile feedback system. However, it is facing competition from similar applications and legislative obstacles that could limit its growth and profitability.
TransferWise is a currency conversion transfer service which is cheaper and faster than conventional transfer methods. Each outgoing transfer matches an ingoing transfer. The peer2peer mechanism and working without cash reserves keeps the service much cheaper and faster. It has positive network effects between different currencies, and negative network effects among the same currencies. Another secret is that money transferred never actually leaves the country. The future of TransferWise depends on (1) growth of bank-to-bank currency transfers, (2) response from competition, and (3) strategic maneouvering by TransferWise. Competition, both large financial institutions and fintechs, are expected to respond by envelopment and improvement.
Both companies have a strong cost position and aim to be cost leaders. Neither of the two platforms have reserves (drivers, cars or cash) or any control over the platform users (supply or demand). Although TransferWise does not have a first-mover advantage as Uber, the peer-to-peer mechanism is a new way to do business providing the platform competitive advantage. Technology truly enabled a market disruption in traditional industries. However, both models face a strong threat of imitation.
While TransferWise is a one-sided network with transient roles, Uber is a two-sided market (passengers vs. drivers). Furthermore, Uber has the flexibility to lower their currently high revenue share while TransferWise, already at marginal pricing, cannot. While Uber is currently facing uncertainty due to many legal issues, TransferWise is operating fully legally and authorized by FCA.
Rabab Laarabi – 371492
Dilara Okci – 366348
Lilian Geniz Shann – 342890
Dénise Breemans – 373666