3 most important facts relating toinnovation and entrepreneurship

Case Study Going for a ride: entrepreneurial journeys in the on-demand transportation sector Dr. Oksana Gerwe and Prof. Rosario SIlva Emergence of the on-demand transportation platforms The development of the Internet at the end of the twentieth century brought about opportunities for a particular type of a business model - multi-sided platform businesses. Over the last two decades digital platform businesses have generated tremendous efficiency gains, disrupted traditional players and achieved incredible scale, becoming some of the most valuable companies in the world. Globally, personal on-demand transportation services have traditionally been rendered by taxi companies or professional chauffeur providers. Tightly controlled by local authorities and strictly regulated, these are often rather expensive and, due to limited competition, inefficient or of inferior quality. However, entrepreneurs have taken advantage of new technologies, like smartphones, mobile connectivity and GPS systems, to bring to market drastically new ideas and services leading to the emergence of Lyft and Turo in the USA and Blablacar in Europe. Blablacar In 2003, French Entrepreneur Frdric Mazzella was trying to get to his family home in the French countryside for Christmas. However, train tickets were sold out and the streets were jammed with drivers rushing home for the holidays. Since he noticed that most drivers were alone, Frdric wondered if he could find someone going to his village, via the internet, to share a ride. To his surprise he could not find a service that would connect passengers looking for a ride with drivers going in the same direction. Initially named Covoiturage, three years later Blablacar was born in partnership with Francis Nappez and Nicolas Brusson. The team of founders brought to the start-up a diverse set of skills and experiences. Frdric had a strong scientific research and computer science background but also an affinity for branding and communications, which he had developed earlier during his MBA Programme at INSEAD. Francis brought an expertise in IT and major technical developments for European consumer internet and online platforms. Nicolas had substantial experience of start-ups during the dotcom boom. With the initial 600,000 start-up funding coming from the founders, their family and friends, the company was launched as a carpooling service website platform connecting drivers and passengers willing to travel together between cities, who would then split the cost of the journey. From the very start the founders decided to create culture of trust and companionship between its drivers and passengers that would differentiate it from other ride-sharing offerings. For example, the drivers' fee was strictly capped so that the driver would only cover the costs (fuel and tolls) but not make a profit. Even the change in the company name from Covoiturage, which in French means simply 'commuting', to Blablacar, was intended to reflect an easy-going, friendly approach to moving from one place to another with someone you could trust and talk with on the way. The unusual name creatively connected the idea of commuting with a feature that the platform was already providing to its passengers, who were given an option when booking a ride to choose how chatty they want their ride to be: one 'bla' meant a quiet driver, 'blabla' - a moderately chatty one and 'blablabla' - a very talkative one. In most markets, Blablacar charged 12 per cent of the ride price, which on average came to US$25 (22), depending on the length of the journey. Early on the company was looking to grow but the owners found it difficult to convince angel investors and other stakeholders, including the press, that the concept of 'online hitchhiking' was viable. Some external events, however, helped Blablacar gain stronger traction in the market. In 2007 a strike of French train drivers meant that for several days in a row you couldn't get anywhere by train. During this period the platform saw a massive spike in activity as it became a viable alternative solution for people to travel. Later, in 2010, a similar demand spike occurred when a volcano erupted in Iceland and flights were cancelled in Europe because of the resulting ash cloud. As a result of these events Blablacar received an increased brand awareness in the market, allowing it to raise 1.25m from a European venture fund, ISAI. Importantly, the company decided to expand to other countries early on, without waiting for big success at home. For example, in 2009 it took its service to Spain, in 2011 to the Emerging as a result of technological advancement, shifts in user-perception around procurement and payment of services, and changes in social attitudes, multi-sided platform businesses have become prominent in the on-demand transportation sector. Personified by the ubiquitous 'Uber', this case considers three different such businesses and the challenges they face in following up their early successes. 'This case was prepared by Dr. Oksana Gerwe and Prof. Rosario SIlva. It is intended as a basis for class discussion and not as an illustration of good or bad practice. Not to be reproduced without permission. Going for a ride: entrepreneurial journeys in the on-demand transportation sector 686 United Kingdom and then, in 2014, Blablacar expanded further - into Eastern Europe, Asia and South America, also acquiring a number of smaller competitors in various markets. After several rounds of capital raising, including US$100m (88m) in 2014 from Index Ventures, and US$200m (176m) in 2015 from Insight Venture Partners, the company achieved a market valuation of US$1.6bn (1.4bn), becoming one of the few European 'unicorns', a private start-up valued at over $1bn. By 2018, Blablacar was operating in 22 countries, serving over 18 million travellers per quarter. Some of its markets were doing especially well. For example, Russia by 2018 overtook France as the largest Blablacar market. Such success was, at least, partially due to the long cultural acceptance of people sharing rides for a small fee and hitch-hiking even for inter-city travel across Russia. However, despite the rapid international expansion, the company began to face some challenges. It had yet to enter the US market, claiming that higher car ownership, large distances between cities and comparatively cheaper gas prices meant that drivers were less interested in sharing ride costs with passengers. Offices in Turkey, Mexico and India had to be shut down due to country-specific reasons. In Turkey, the problem was market size since long-distance trips in cars were few or very seasonal. In Mexico, where Blablacar bought a local startup Rides, the fee that Blablacar would normally retain, had to be dropped due to local market conditions, but the investment needed to enter and expand in that market was still very significant. Hence, the economic rationale was in favour of leaving this market all together. As for India, the idea of paying for carpooling was difficult to market as the culture there was very informal and family-like. In addition, growth had slowed in Europe. More than a decade after its inception, Blablacar was considering the next phase of its growth and development and how it could strategically position itself in terms of its brand identity, product range and target markets. Considering the scale and reach of the company, was it time to upgrade the 'young and hip' Blablacar brand and positioning to a more mature image? Given the substantial funds raised in the previous years, were there any other transportation solutions that Blablacar could offer to its passengers in addition to carpooling? Lyft In 2007, Logan Green and John Zimmer founded a start-up Zimride that offered long-distance ridesharing, mostly for students travelling between different university campuses across the USA. As a student, Green had a first idea for such a start-up after sharing rides from his campus of the University of California in Santa Barbara to visit his girlfriend in Los Angeles. At that time, he used announcement boards on Craigslist to find a ride but would always find himself a bit anxious about taking a ride with people he did not know. When Facebook released its API (Application Programming Interface) to third-party developers, Green saw this as a 'missing ingredient',1 because this technology would allow a driver and a passenger to safely communicate and identify each other. Green met John Zimmer through a mutual friend on Facebook. Zimmer already had prior interest in ride-sharing ideas and the two quickly decided to pursue their ideas together. The name 'Zimride' was conceived after Green's trip in 2005 to Zimbabwe, where he saw locals share minivan taxis. Green later said: 'I came back to the US inspired to create that same form of transportation here.'2 Using his own coding experience, Green developed a pilot version of the company in four months and launched it at Cornell University, Zimmer's alma mater. After six months of usage, Zimride had 20 per cent of campus as users, who used Facebook profile information to get to know the driver and the passenger and solve trust issues. By 2012 Zimride grew to become the largest longdistance rideshare company in the USA. However, the competitive landscape of on-demand transportation had changed dramatically due to the spectacular rise of Uber. Logan and John decided to add to Zimride short distance services within cities, creating Lyft. The Lyft app was a platform that allowed drivers with cars to find passengers that are looking for a ride, facilitating payments and mutual ratings of passengers and drivers, creating trust in the system. Seeking to project a fun-loving, easy-going image, to foster a community bond around the service, and to differentiate themselves from Uber, Lyft put a large pink moustache on the front of its cars and encouraged passengers to sit in the front seat next to the driver to shorten the psychological distance between the driver and the rider. In 2013 Lyft sold Zimride, its long-distance ride service, to focus exclusively on rides within cities. By 2014, Lyft was operating in 60 US cities and through several rounds of financing had raised US$332.5m ( 292.6). The platform charged 20 per cent of each ride fare plus a separate booking fee. In just two years it became a strong local competitor to Uber in the US market, also competing with them in Canada. However, as Lyft grew, many passengers, especially business customers going to work meetings, started to show resistance to riding in a car with a giant furry moustache on the front. The decision was therefore taken to replace it with a smaller glowing plastic pink moustache, which was later abandoned altogether. In order to fund further expansion, by 2016 total funds raised by Lyft amounted to US$1bn (880m), based on a company valuation of US$2.5bn (2.2bn). Its shareholders already included General Motors, Carl Icahn, Prince al-Waleed bin Talal of Saudi Arabia, Alibaba Group and many other well-known funds and venture capital firms. After further investments by Alphabet Inc., Fidelity Going for a ride: entrepreneurial journeys in the on-demand transportation sector 687 Management and Research Company and other investors, by June 2018 the company was valued at US$15.1bn (13.3bn), operating in about 300 US cities and providing over 1 million rides per day. Its main concerns remained competition with Uber as well as various legal and regulatory problems. In every market, where Uber and Lyft were both present, the competition between the two on price and services was relentless. At the same time, even though Uber had a much larger capitalisation (in October 2018, Wall Street banks approached Uber with the proposals for an initial public offering, valuing the company at $120bn/105.6bn) and massive global coverage, Lyft was allegedly controlling more than one-third of the US ride-sharing market.3 Lyft seemed to have benefited from Uber's problems with legislators, internal harassment allegations as well as highly publicised scandals that led to the stepping down of Uber's Founder-CEO, Trevis Kalanick and his replacement by a new CEO, Dara Khosrowshahi. By early 2019, the competition between Lyft and Uber intensified further. In March, 2019, Lyft beat Uber to be the first ride-hailing company to start the road-show for its initial public offering (IPO) in the USA, seeking a $23bn valuation and raising up to $2.1bn (1.85bn). Uber was expected to list its shares shortly after Lyft, expecting to achieve a valuation above $100bn (88.5bn). Going forward, in order to compete with Uber, Lyft needed to clearly define and articulate its unique value proposition and brand positioning. Turo Originally named RelayRides and later renamed Turo, this entrepreneurial venture was inspired by other online platforms, such as Airbnb and eBay, where individuals with underused assets (an empty room, a second home, unused household items) could use a centralised platform to offer such assets to those who need them. The venture, started in Boston in 2010 and later moved to SanFrancisco by Shelby Clark, utilised a peer-to-peer car-sharing platform where car owners could rent out their vehicles when not in use. Shelby first had to try car-sharing when his car broke down during the cross-country journey to California. His car-free experience inspired him to create car-sharing platform 'for the people, by the people'4 relying on cars that are already in private ownership but are not used all the time. An MBA graduate from Harvard Business School, Shelby was particularly interested in entrepreneurship and social impact. Having started three other socially driven start-ups prior to Turo, Shelby wanted this company to have a strong social identity and mission. By connecting car owners, whose vehicle is idle at a particular moment, with those who need a car temporarily, Turo could create value for both sides of the platform and increase the use of an underutilised asset (car). Shortly after founding in September 2011, Turo invited Andre Haddad to become company CEO, capitalising on his experience as the former CEO of Shopping.com, the leading online comparison-shopping network acquired by eBay in 2005 for $600m (528m). Prior to Shopping. com, he was Senior Vice President, Product at eBay, where he was responsible for product management, design and research at eBay's global marketplace business. Andre also played several roles during his time at eBay, including GM in Europe, VP, International Operations, and VP, User Experience and Design.5 In the initial phase of growth, Turo focused on the short-term car rentals in the US market. The company would keep 15 to 35 per cent of every rental fee, depending on the insurance package the car owner would select and the listing cost. At the same time, every car owner still needed to have their own car insurance, but in case damage was done by the renter, Turo would pay for it. One of the big challenges for Turo was how to pass the key from the car owner to the customer at the point of rent. At first, it required installation of a special in-car device that enabled remote unlocking and GPS car monitoring. However, in 2012, Turo partnered with General Motors to enable renters to open GM cars with a mobile phone app. A year later, however, both the GM app and the in-car device were discontinued and replaced with the personto-person key exchange. In the period between 2010 and 2014, Turo received a total of US$52.5m (46.2bn) in funding from Canaan Partners, August Capital, Google Ventures, Shasta Ventures and Trinity Ventures. By 2015, it was valued at US$311m (273.6) and was included in the list of 14 'hottest on-demand start-ups' by Forbes.6 At that time the company decided to rebrand itself and changed the name from RelayRides to Turo, a made-up word that was created to evoke associations with words like 'tourism', 'turbo' and 'adventure'. The company wanted to differentiate itself from other car rental competitors. As CEO Andre Haddad said in an interview: '[Our customers] are interested in renting some of the unique cars we have in the marketplace. They are also interested in connecting with the owner of the vehicle and establishing a different kind of rapport with the city that they're visiting.'7 The positioning of the company changed with its name: Turo no longer targeted short-term car rentals but instead decided to go for longer-term car sharing and peer-to-peer rentals for several days, allowing users to find cars that would meet their unique needs rather than picking from what's available on the rental lot.8 In 2016, Turo began its international expansion, launching operations in Canada and in the United Kingdom. According to the company website,9 by the end of 2018, Turo had built a 'community over 10 million strong with more than 350,000 vehicles listed and over 850 unique makes and models'. Continuing to work on offering more efficient ways for consumers to open and access cars, in June 2018, Turo announced plans to develop a new in-car device with remote unlocking and GPS tracking Going for a ride: entrepreneurial journeys in the on-demand transportation sector 688 via the Turo app. At the same time, Turo was also considering direction for future growth. On the one hand, it was receiving a lot of push-back and competitive pressure from traditional car rental companies like Avis and Hertz. On the other hand, it wanted to further differentiate itself from these providers. Could it offer additional services to its users? What other geographical markets should the company consider for its expansion? Strategic challenges for on-demand transportation platforms Over the course of a decade the three companies (together with Uber) have transformed the face of their industry but also perceptions of what personal mobility can look like. The three platforms played a big role in shaping the new competitive landscape of the intra-city mobility (Lyft), inter-city travel (Blablacar) and the car rental sector (Turo), each disrupting incumbents in the traditional mobility sector. Yet, the choice of their unique branding and positioning, a particular business model and the type of the underused asset (an idle empty car for Turo, a car with a driver for Lyft and an empty seat with a fixed destination for Blablacar) set platform-specific challenges for growth and strategic opportunities for each venture. Notes and references: 1. ABC News (11 February 2009). 'Facebook's New Twist on Transportation'. 2. Zimride mini-doc @fbFund Rev 2009. 3. www.cnbc.com/2018/05/14/lyft-market-share-051418-bosa-sf. html 4. https://turo.com/meet-the-team 5. https://turo.com/meet-the-team 6. Brian Solomon (29 December 2015), 'The Hottest On-Demand Startups of 2015', Forbes. 7. www.fastcompany.com/3052940/relayrides-takes-a-page-fromairbnb-rebands-to-turo 8. www.forbes.com/sites/alexkonrad/2015/11/04/with-47- million-and-a-new-name-car-sharing-startup-relayrides-seeksrebirth/#3eee34581336 9. https://turo.com/abou