Are innovation and regulation opposites? From a perspective that understands markets as open-ended, undeterminate processes, regulation is detrimental to innovation. Regulation presupposes a certain idea of the results of the markets. Often, this is not made explicit in the regulation itself, but being willing to make rules implies not being willing to accept any behavior or outcome. In this chapter it has also been explained how regulation serves the status quo in using the status quo to measure innovation. By necessity, innovation is different from the actual state of affairs, and, in as far as actual regulation is used to measure it, deviant. Actual regulation, by ‘correcting’ the deviances of innovation diminishes the innovative content or brings the whole process to a halt. So, in answering the leading question of the chapter, yes, innovation and regulation are opposites. Is Uber changing its business model because of regulation? Using the example of Uber it has been shown not only how the company adapts to regulation but in adapting to it, it changes its own business model and diversifies it into less regulated realms. Instead of advancing innovation in the markets it started to ‘disrupt’, Uber opts for complying and diminishes the development of new technology or products that were able to revolutionize these markets. Instead it expands to more generic, that is, less innovative products.
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Is someone destroying Uber, the destroyer? Many would like to. Sectorial and competition regulation could end in destroying the innovation of Uber, of the company. But there is also the danger of self-destruction: The more Uber adapts to regulation or submits to it, the less it innovates. This means that if Uber does not continue to disrupt the taxicab industry by innovating, it will itself become the target of even newer market entrants, even more disruptive innovators. By destroying creative destruction, Uber risks being destroyed itself.
What are creative destruction and disruptive innovation? Creative destruction is the overall process of change and adaptation of actual industries to novelties. Many traditional business models are driven out of the market processes by new technology, new forms of production, new marketing and new business models. Disruptive innovation is primarily technology-backed innovation starting at the low end of markets or creating a new market foothold. This innovation changes the whole character of market processes in which it is exchanged. It makes it impossible for the marker processes to exist without it. Both are open-textured processes with non-determinate and no-determinable possible outcomes. If a specific innovation was disruptive and if it creatively destroyed any industry can often only be stated during the process and not at its beginning. Is Uber an agent of creative destruction? Uber’s business model innovates on different levels. It lowers costs, it increases quality, it optimizes idle capacity and it has ‘flashy’ marketing. If that is enough to destroy the whole taxicab industry remains to be seen. Actually, it is unfolding disruptive energy and many taxicab providers have already adapted their value propositions to include many of Uber’s elements (app, rating, surveillance, among others). But because of this disruptive energy, many incumbent taxicab companies are trying to stop Uber by using regulation. It is not the task of regulation to stop innovation, but that it what Uber’s competition expects it to do.
The chapter provides the background on the economics of this book, on the ‘sharing economy’ and how Uber can be assessed as an economic agent. This book understands markets as open-ended undetermined series of exchanges between a potentially unlimited number of agents. These agents engage voluntarily in the different market processes without knowing more than the other agents but judging their own beliefs, preferences and costs subjectively. Agents use the market processes in order to learn about other agents’ beliefs, preferences and costs. Market processes are cooperative actions. Whatever might be labelled the sharing economy relies on these market processes and does not in any way fundamentally change them. The sharing economy is not different from the traditional economy; to the contrary, it applies and broadens the application of market processes and individual actions. However, the role that technology plays is important. With the development of online networking, e- and online payment methods as well as individual online mobility, many business models gain scale and scope. Technology often makes it possible to diminish costs of participating in a market process, to learn quickly or gather information in a timely manner as well as to scale up some market processes. Uber, in due entrepreneurial spirit, seized this opportunity and turned it into a successful business model.
What is Uber’s business model? Uber capitalizes on convenience. In order to do so, it identifies idle capacity, aggregates it and allocates it to consumers willing to pay the price. Uber is an intermediary of idle capacity. This intermediation happens at lower costs, which allows Uber to create value-added to customers. It makes finding a taxicab easier, it provides different service levels, it gives information about the quality and price of the ride and it allows interaction. This value-added is redirected at the company in form of feedback by the customers prompting their trust and loyalty. Characterizing Uber as an intermediary, as a technology platform offering its services as a matchmaker for those willing to sell spare capacity of cars to those willing to pay for this capacity, is therefore correct. Uber could have applied this business model to other different sectors, but it chose transportation. Transportation, however, is not the core of what Uber is. Rather, it is just its application.