Uberization: will the empire strike back?

Christophe Deshayes / Speaker and Consultant / 2016-02-25

Henceforth, many companies are afraid of getting uberized. Now, this danger, which has its roots in the emergence of the web twenty years ago, can be considered neither as a novelty nor a surprise. So why is the corporate world so unprepared? A simple matter of denial or an overly superficial understanding of digital technology? In any case, it has never been so urgent for the corporate world to understand what is going on. Be it only prepare the counter-attack.

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Taxi drivers are not the only ones to have lost sleep. Big companies are worried too, at least if one believes Publicis’ CEO Maurice Lévy, according to whom “getting uberized” has become management’s number one fear! Beyond the particular case of the platforms of the so-called sharing economy, this panic has its source in the feeling that the transformations underway since the emergence of the Internet over two decades ago are today speeding up at a dizzying rate. The barbarians are coming, and no industry will be spared!

It is normal that taxi drivers did not see the uber-phenomenon coming, since their profession is regulated and hence, in theory, protected from outside competition. It is rather strange, however, to see hardened managers with long experience in the mechanisms of the free market being surprised that new entrants can threaten their established positions. What exactly do these new entrants stand accused of? Of not respecting the rules of the market? Of resorting to unconventional weapons (namely, digital ones)?

The impression of powerlessness goes beyond just managers. Why are organizations as powerful as large private conglomerates terrified by the arrival of the digital savages? Did these companies, as is so often the case, put off confronting uncomfortable, but indispensable, strategic questions or did they simply manage to miss the profoundly subversive nature of the digitalization of the world?

Chronicle of a de-intermediation foretold
Contrary to a widespread misconception, Uber does not aim to take the place of independent taxi drivers, but merely that of dispatch centers. As for the drivers, it needs them and prefers subordinating them to killing them off.

Uberization should not be understood as pulverizing the market and the trades that are dependent upon it. Rather, it is one of the forms – if, of course, an innovative one – of a phenomenon that is well known nowadays: the general tendency towards “de-intermediation.” This development is consubstantial with network technologies and has been accelerating of late with the advent of a platform economy.

Since the emergence of the web some twenty years ago, an imposing literature has been regularly pronouncing the de-intermediation of this or that economic activity. And if some naively believed that it was the internet’s vocation to eliminate intermediaries, this was to forget that behind practically each act of de-intermediation there is new intermediary lurking.

Of course, these new intermediaries are not always presented as such. (Sometimes one needs to know how to make oneself inconspicuous and be patient, in order to conquer without hindrance such a strategic position.) Of course, their economic model – which some, moreover, have taken time to find – has not always been based on the traditional model of the broker: a commission (a percentage) on each transaction. But almost all the success stories of the digital age are stories of de-intermediation/re-intermediation, involving the arrival on a market of a new intermediary (a broker) in place of historical intermediaries.

Amazon replaced the bookstores; eBay replaced the auction halls and antique dealers; Apple, which was on the edge of bankruptcy at the end of the nineties, succeeded in extremis in replacing the record stores thanks to its legal selection of music built on the iTunes/iPod couple… Others have figured out how to federate a new market, on which they have become the dominant broker. Google is the dominant broker on the “free information” market, which it helped to create; Facebook became, at least at first, the dominant broker of social contacts; LinkedIn, that of professional contacts; YouTube, of everything that can be filmed – even if they monetize their strategic position via advertising rather than by charging a commission. Wikipedia is also an intermediary, even if its mode of financing is unique. Kickstarter is an intermediary with respect to a crucial subject: high-risk investment on start-up projects. Blablacar is likewise an intermediary, and it has even managed to render profitable and develop a highly personal practice: car-pooling.

The most effective way to take the place of an already established intermediary has always been to eliminate the raison d’être of the intermediation, by reconfiguring the economic model or the contours of the market (and, as a rule, by taking advantage of the dissatisfaction of consumers or producers on the market in question). The market – like the nature of yore – abhors a vacuum. Very often, de-intermediation is just a phase of re-intermediation.

The middleman economy
Intermediaries represent an important, even indispensable, cog of economic development. Hence, it is only logical that they are traditionally among the best paid economic actors. By expanding the size of markets to the whole world (web 1.0) and mobilizing the mass of internet users, both as clients and as producers (web 2.0), digital technology has boosted the wealth effect – at least for the winners of the digital revolution: the new intermediaries.

Nearly thirty years ago, the researchers Thomas Malone, JoaAnna Yates and Robert Benjamin predicted that with advances in computer science, no brokerage operation, no matter how complex or specific, would be able to rival electronic brokerage. Their study, which was published in 1987, showed, in effect, that air transport brokerage, which was regarded as complex and hence, up until then, performed by highly qualified human operators, was already in the process of being taken over by computers. They concluded that markets involving electronic intermediation were economically more efficient than every other form of organization and arrangement of transactions. Over time, certain enthusiastic observers concluded a bit too quickly that if human intermediaries were all condemned to extinction, then the same must be the case for brokerage firms. Now, as history has proved, there is hardly de-intermediation without re-intermediation.

Electronic intermediation is a form of intermediation like any other. It serves the interests of one or more economic actors. Computers always belong to someone: in this case, to companies that want to grow at the expense of their competitors. Contrary to the utopia of the pioneers of the Internet, relations of domination have not disappeared with the advent of the new economy.

The platform economy that dominates the internet nowadays provides a good example of the control that more powerful actors have upon an “ecosystem” involving less powerful users and actors. Perfectly embodied by Uber, but also by Airbnb, the new generation of start-ups are thus positioning themselves as the lords of the digital economy: the intermediaries of their respective market/ecosystem. Behind the vocabulary of sharing and happy sociability, there is hidden, above all, an ambition for control and hegemony. These new intermediaries no longer hesitate to rediscover the classical model of intermediation: the commission – and, as a rule, a substantial commission. They do not hesitate to attack a regulated market (taxis) or one that is almost fully supervised (hotels). It truly seems that intermediation is again worthy of attention and perhaps even enjoys renewed prestige, to the point that one even speaks of a “Middleman Economy” (Marina Krakovsky).

Information service versus intermediation service
History provides us evidence of the determinant character of positioning as intermediary in digital strategies. The service developed by Uber resembles that once created by a certain Google. Google Ride Finder, which was launched in 2005, was terminated, for lack of clients, in 2009 – the year of Uber’s launch. Google Ride Finder displayed a map on which the user could see all the free taxis available from partner companies near the user’s location. In fact, Google was not competing with the taxi dispatch centers. It was offering the user a considerable benefit for free: to be able to call a taxi that was just two blocks away whereas neither the user nor the taxi could realize this. The value offered seemed appealing, but, nonetheless, it proved insufficient to have success. It is precisely by positioning itself as a direct competitor to the dispatch centers that Uber has succeeded in getting customers to pay for a service that the very powerful and competent Google failed to impose…even for free. Google did not want or did not dare to reinvent the market: this is to say, to impose itself as intermediary. Uber’s advantage over Google is not digital, it is strategic!

The question on everyone’s lips – “Whose turn is next after the taxis?” – has thus already been answered for some thirty years now. All industries are under threat! The Uberization that is currently underway is just the concretization of the expectations raised by the “new economy” of the nineties. It is true that the bubble burst, because those expectations were delusional as concerns the timing – but not as concerns their substance.

Some try to dress up the phenomenon in the finery of an organizational innovation. The innovation would consist in conceiving a digital service and putting it at the disposition of an ecosystem in the form of an open platform, such that, on the one hand, certain minor actors of the digital realm improve the platform (new functions) and, on the other, the masses connect to it as clients, but also as sellers and service providers.

The platform is the digital infrastructure that configures an ecosystem around a host (that we call the intermediary) and manages the connections that participants make amongst themselves. What is new in comparison to a classical market is that this, so-called collaborative, ecosystem only creates competition (or sharing, if one prefers) between the exchanges among participants. There is never any question of allowing an actor to become a competitor of the platform itself. It is thus a matter of a market with one single, and hence monopolistic, intermediary. The more success the platform encounters, the more the clients/contributors find themselves subordinated to it without their having seen it coming.

Staunchly positioning itself as part of the economy of sharing, for which people spontaneously feel sympathy, this platform economy is nothing but a mystification that obscures what is in fact a situation of “modern monopolies” (Alex Moazed, Nicholas L. Johnson). For Evgeny Morozov, one of the most critical observers of the digital economy, most platforms behave like parasites living off other people’s activities.

If the fashion for “platforms” refers to a certain technical reality, it only reflects economic reality very imperfectly and is more of a hindrance than a help in carrying out the painful, but indispensable, strategic analysis for which the Uberization of the economy calls. We prefer, then, to use the terms de-intermediation and re-intermediation.

Strategic paralysis
As we have seen, managers knew or ought to have known. So, why are they so helpless today? Perhaps their will to prepare for the impending invasion was sapped by the passing of time, the routines of running a business, and the need to increase profitability. In numerous companies, the day-to-day grind of dealing with urgent matters that have nothing strategic about them probably took precedence over an uncompromising analysis of the situation, the rigorous elaboration of a strategy, the mobilization of personnel, and the agility of organizations. The bursting of the internet bubble was enough to discredit the cataclysmic scenarios developed by the new technology evangelists of the late nineties, making them seem like chimeras that needed to be forgotten. What a mistake! It was merely the – necessary – bursting of a bubble: a temporary correction of expectations that were unreasonable in terms of timing, but not the calling into question of the profound transformation that was underway.

This transformation took off again with the progressive emergence, beginning in 2005, of web 2.0, which organizes the mobilization of the mass of internet users for the purpose of making them produce the services to be rendered (crowdsourcing), followed then by social networks. The arrival of the Apple-style smartphone, starting in 2008, would finally provide the last missing building blocks required for the renewal of the onward march of the great de-intermediation that began twenty-five years earlier.

This return to the nominal trajectory happened all the more rapidly inasmuch as in the meanwhile the number of equipped and informed users (whether generation Y or not) has nearly doubled in volume and a permanent connection (always on) has become a reality.

This new “new economy” should, then, have been foreseen and the ground for it prepared.

In classical strategy, one above all fears a new market entrant that disposes of means that are so far superior to those of the established actors that it de facto kills the market such as it is currently organized. The mobilization of masses (crowdsourcing) offers every actor, even one with only modest capacities for investment, the possibility of effecting change. Uber did not have to buy a fleet of cars; Airbnb has not had to buy a selection of rooms or apartments.

Unfortunately, most traditional companies have only retained from 2.0 a certain idea of rendering communication more fluid. They have forgotten to involve their clients in a strategy of creating an ecosystem in which they would be the dominant intermediary. As for new technologies, traditional companies have poured enormous sums into them, but, unfortunately, in a way that is ill-suited to protecting them. They thought that they mastered the “ICT.” But in fact they only knew information technologies (the “I” of ICT) and were almost totally ignorant about communication technologies (social networks, peer-to-peer networks, virtual communities, instant messaging…) and the difficulty of articulating them with traditional business technologies that are almost exclusively dedicated to management information.

It is thus understandable that the considerable technological investments made by businesses in the last twenty years were devoted to constructing a kind of Maginot Line. This impregnable fortress, the information system (IS), was erected on the basis of proprietary technologies (ERP, CRM, PLM…), most often by outside consultants who left behind organizations that are solid, but rigid; whereas what needed to be done was to prepare them for a volatile world, as the researcher Pierre-Jean Benghozi suggested in 1998. The digital barbarians are, of course, specialists in Blitzkrieg and make light work of Maginot lines. In developing their strategies, they are fully cognizant of the asymmetry of the forces on the ground. They have no illusions about their fragility at the outset, but they know how to transform themselves into fearsome steamrollers once their initial performance allows them to accumulate a veritable war chest thanks to spectacular fundraising.

The war is not lost!
The power of the new actors is impressive. But do they represent the end of history? To believe so would be to forget that in matters of strategy, nothing is ever definitively lost (or won). Apple provides the most brilliant example. Without the unexpected millions received from Microsoft in July 1997, Apple would have quite simply gone bankrupt. Fifteen years later, Apple has become the world’s richest corporation.

Perhaps what is most astonishing about the fear of Uberization is the choice of the term itself. Among the barbarians of the digital economy, it is by no means sure that Uber is the most powerful. Uber is banned in several places across the globe: in particular, because of its most dangerous application, uberPOP. A court in California just recognized one of the drivers as being in a subordinate relationship to the company, thus obliging Uber to treat the driver as an employee with all the social benefits that go with this status and not as a contractor to be exploited as one pleases. In December 2015, the city of Seattle granted independent drivers the right to form unions in order to negotiate with the platforms (Uber, Lyft, etc.): a right that was hitherto reserved just for employees. Worse still, dissatisfied because of overly stressful monitoring (constant geo-localization, multi-criteria evaluations) and, above all, lower prices (-20%), a very large number of drivers are leaving Uber. These numerous malcontents are swelling the workforce of new rival platforms: often, local ones. Even the taxi dispatch centers are starting to prepare the counter-attack: like the French application eCab, a subsidiary of the dispatch center G7, which is expanding to Belgium, Canada and even India. If Uber is a perfect example of industrial Blitzkrieg, it is not necessarily the best example of invincibility.

The barbarians of the digital economy are thus not all invincible. But if the idea of bringing public authorities into play in order to protect a threatened profession is tempting, most often it provides only a Pyrrhic victory. One of the best known examples of Uberization remains that of music. After years of legal battles over Napster, a free music platform from the nineties, the music industry – above all, the North American music industry – succeeded finally in getting it banned. But, nonetheless, the industry’s revenues did not recover – in contrast to those of Apple, YouTube, and, in the meanwhile, Spotify, Deezer and others, which indirectly owe their success to the danger of piracy that the recording industry made the mistake of exclusively combatting in the legal domain.

Once the barbarians have taken over a new territory, even illegally, it is naïve to expect to re-establish the former status quo, even if one succeeds in driving them out through recourse to the courts. Customers do not want to return to the old order, and even the law will in the end adapt to the evolution of society’s expectations.

The end of strategic mimicry
Faced with the fear of Uberization, companies are today looking to recruit a Chief Digital Officer (CDO): a sort of pilot who can help the ship to get out of the danger zone before again turning over the commands to the captain for the long haul. Unfortunately, this metaphor is not relevant in the digital world and the search for a savoir, however brilliant, runs a high risk of ending in disappointment.

The strategic work that needs to be done is necessarily a thoroughgoing undertaking to develop a unique strategy that can mobilize forces, but is, nonetheless, adaptable. Far afield from managerial or digital fashions, the company has to redefine the value that it offers to its customers, but also to its employees and even to society as a whole. It cannot avoid reevaluating and probably calling into question its organizational principles, its mode of communication, its technological approach, and even its managerial style. This cannot be the task of a single person or even a single team. It is work that the entire company has to do: a cultural transformation, the stakes and instruments of which each and everyone has to try to understand as clearly as possible. It is perhaps a way to re-instill a spirit of enterprise in organizations that have sometimes allowed themselves to succumb to mere management technique.

In the last two decades, with the acceleration of globalization, companies have had to throw themselves head first into the internationalization of their activities and fusions/acquisitions. Although considerable work has been accomplished in tactical and operational terms, in terms of strategy, on the contrary, the task was quite simple, since it was merely a matter of disseminating a given model as quickly as possible and without hesitations.

In the end, what Uberization heralds is, above all, the brutal return of strategy: this rigorous, inspired and demanding art, of which humility, curiosity, intuition, and patience are the essential characteristics. Mimetic strategies have thus to be abandoned in favor of specific strategies that have been thoroughly and collaboratively elaborated, in order to reposition the company and verify its compatibility with society’s more or less clearly defined aspirations… These societal aspirations have been largely forged in digital culture, and they constitute the desires of individuals whose public, professional, relational, and private spheres are no longer clearly distinguishable…

The first stage in this strategic work is to analyze whether the company has the resources to aim to become a “lord of the digital economy,” at the center of its ecosystem. If so, then the strategic task will remain relatively simple, since it is enough to adopt the position of dominant intermediary in an ecosystem such as it has already been defined. The difficulty will consist in putting the plan into action (the tactical and operational aspects), and this difficulty will be all the greater inasmuch as it will be necessary to succeed in doing with the existing personnel almost exactly the opposite of what they have done, in every domain, up till now. The task is a formidable one, since what is essentially at stake is a cultural mutation in the modus operandi of a large company: hierarchy, arrogance, a culture of mastery rather than letting go, failure to appreciate collective intelligence…

The remaining companies, those that do not have the resources to adopt such a positioning, will have to make a choice: either reinvent their positioning, their activity and their culture or be forced to become a docile and subordinate actor that will be progressively pauperized, even as it assumes the greater part of the work and virtually all the risks. For those that chose to reinvent themselves, the task ahead will consist, above all, of a rigorous and inspired strategic analysis, which alone is able to illuminate the narrow path that leads to the strategic positioning of a free actor, master of its destiny.