Why Uber and Lyft Feature Competitors Who Could Cannibalize Them

Last year, Uber announced that it will start showing Lime scooters and Jump bikes in Uber app. On surface, it looks like this move will cannibalise Uber’s cab business. Per trip revenue made by Uber is much higher in case of a cab than in case of an e-scooter or a bike.

https://twitter.com/uber/status/1016348927312965633?lang=en

Six months later, Uber went one step further and started showing public transit information on the app. Now users can get to their preferred destination via Uber using public transport, which is non-monetised by Uber.

https://twitter.com/uber/status/1091022619028176896?lang=en

A week ago, Lyft followed suit and announced a similar experience on its platform with an arguably better user experience (bottom bar).

https://twitter.com/lyft/status/1176650044293824512?lang=en

So, why are Uber and Lyft adding commute options on their app that are potential competitors and will cannibalize their core business — cabs? To answer this we will have to take a step back and look at what is the “job” these apps are trying to accomplish for its users.

Theodore Levitt, the former Harvard Business School professor, famously said:

“People don’t want to buy a quarter inch drill. They want to buy a quarter inch hole”.

The premise of jobs to be done theory is that effective customer segmentation doesn’t happen by looking at customer attributes or product features, but by getting a deeper understanding of what job user is trying to accomplish.

People have “jobs” that arise in their day to day life, that need to be taken care of.

When people come across a job that needs to be done, they look for a product they can “hire” to get the job done. 

Users don’t buy a product to get product features. They hire a product to get a specific job done, in a specific circumstance.

The 5 Whys technique, made popular by Toyota, is very helpful while analysing jobs to done. The gist of 5 whys technique is that you'll find the root cause of a problem by asking why? multiple times.

Imagine a situation in which a person want to buy a quarter inch drill. The 5 why approach would be to ask the person why does he want to buy a drill. He might get back with a reason like: to make a hole in the wall.

Q — Why do you want to make a hole in the wall? A — To hang a picture of my family on the wall.

Q — Why do you want to hang a picture of your family on the wall? A — To give a personal/emotional feel to the house. In this circumstance, the job that a quarter inch drill is trying to do is to make the home personal.

The competitor of quarter inch drill in this circumstance is a sticky hinge that stays on a wall with a glue. Another potential competitor for a drill in this circumstance can be a digital picture frame, which probably does the job of making a home personal much better than what a quarter inch drill can do.

In words of Clay Christensen in his book Innovator’s solution: 

“The critical unit of analysis, while analysing a job, should be circumstance and not the customer”.

Let’s look at Uber from a jobs to done lens. What is the job users are trying to accomplish by hiring Uber? Users are not hiring Uber to get them a cab.

The job to done here is to transport users from point A to point B. Essentially cabs, e-scooters, trains, trams are trying to accomplish the same job for the user through different means — human driven car v/s an electric charged scooter.

These different means have underlying different business model but the user doesn’t care about that. The user will pick whatever options that suits him/her best in that particular “circumstance”. Uber wants to be the product users hire to get them to any destination in all possible circumstances.

Uber is Trying to Build Transportation as a Service Layer

Irrespective of the circumstance you are in, Uber can give you best option to transport from point A to point B.

In short term, this will lead to reduction in revenue for Uber. Essentially, all transportation options are competing against each other in this model on one platform. The long-term gain for Uber is a superior mobility experience for the end user that leads to sticky users and higher retention.

The ambition for Uber should be to reach a point in future that the user experience of getting to any destination is so superior on Uber that majority of mobility transaction in a city starts happening on its platform. That way Uber can leverage its huge sticky user-base, the demand side, to start charging on a per transaction to the supply side — public transportation. The long term advantage here out-weights short term loss.

Another aspect of doing this, from Uber’s standpoint, is building habits in users. Amazon has been trying to build habits in users for years. Whenever you think about buying something online you think of Amazon.

Uber is trying to build same habits in users for transportation. It wants to be in a position that users don’t open Google maps to check how to get to a specific place but always open Uber for that.

A caveat to be considered is that changing habits is even more difficult than building a new one. Uber has long way to go to instil a new transportation habit in users but it is on right track to do that.