An exploratory research on the adaptation of sharing economy business models in different institutions

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An exploratory research on the adaptation of sharing

economy business models in different institutions

Danielle van den Broek Student Number: 10663150

Date of submission: August 31, 2015 (final)

MSc. Business Administration - International Management ABS

Supervisor: Dr. René Bohnsack

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This document is written by Student Danielle van den Broek who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

The sharing economy is a recent phenomenon has caused disruptive changes in various industries. Businesses in the sharing economy exploit something different than a traditional product or service produced by the firm. The purpose of this research is to gain a better understanding in how these new business models evolve in different institutional contexts. Sharing economy theory, business model theory and the institutional theory form the theoretical background for this explorative case study on Uber and Airbnb. Findings showed that most interactions between the institutions and the sharing economy businesses had to do with regulatory constraints that concerned either the drivers in Uber’s case or the Host’s in Airbnb’s case. However the findings on business model adaptions also showed that Uber’s lowest priced services and Airbnb have been trying to hold on to their generic business model as much as possible.

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Acknowledgement

In these acknowledgements I would like to give thanks to my supervisor Dr. René Bohnsack. I would like to thank him to find a fitting topic that I became interested in and for his expertise and supporting me with articles and tips to send me in the right direction. Lastly I know I’m not the easiest student out there, and my insecurity in doing research sometimes gets the better of me, but for every question I had he took the time and had the patience to answer me, for which I’m really grateful. I would also like to thank my parents who gave me the space I needed to finish this work. Also I want to thank my boyfriend who has given me the support and understanding that helped me finish this thesis.

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Table of content

1. Introduction 8

2. Theory 9

2.1 Sharing economy 9

2.1.1 Defining the sharing economy 9

2.1.2 Sharing economy background 12

2.1.3 Zero marginal cost society 12

2.1.4 Circular economy 13

2.1.5 Businesses in the sharing economy 14

2.2 Business model theory 17

2.2.1 A growing focus on business models 17

2.2.2 Business model literature reviews 18

2.3 Institutional influences on business models 21

2.3.1 Institution-Based View 21

2.4 Theoretical framework 24

2.4.1 Working proposition development 25

3. Research design 26

3.1 Data collection procedure 27

4. Findings 29

4.1 Uber 30

4.1.1 UberX New York City 30

4.1.1.1 Business model UberX New York 30

4.1.1.2 Customer relationships, channels and customer segments 30

4.1.1.3 Revenue streams and cost structure 30

4.1.1.4 Partners, activities, resources 31

4.1.1.5 Specifics New York City 33

4.1.1.6 Regulatory constraints and incentive 33

4.1.1.7 Cultural constraints and incentives 34

4.1.1.8 Interaction between UberX’s business model and New York City 34

4.1.1.9 Success UberX New York 35

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4.1.2.1 Business model UberPOP Paris 35 4.1.2.2 Customer relationships, channels and customer segments 36

4.1.2.5 Specifics Paris 37

4.1.2.8 Interaction between UberPOP’s business model and Paris 39

4.1.2.9 Success UberPOP Paris 39

4.1.3 UberPOP Amsterdam 40

4.1.3.1 Business model UberPOP Amsterdam 40

4.1.3.5 Specifics Amsterdam 43

4.1.3.8 Interaction between UberPOP’s business model and Amsterdam 45

4.1.3.9 Success UberPOP Amsterdam 46

4.1.4 Summary Uber 46

4.1.4.1 Infrastructure management adaptation 48

4.1.4.2 Value proposition change 49

4.1.4.3 Financial aspects change 49

4.1.4.4 Success and legitimacy 49

4.2 Airbnb 50

4.2.1 Airbnb New York City 50

4.2.1.1 Business model Airbnb New York City 50

4.2.1.5 Specifics New York City 55

4.2.1.8 Interaction between Airbnb’s business model and New York City 58

4.2.1.9 Success Airbnb New York City 59

4.2.2 Airbnb Paris 60

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4.2.2.5 Specifics Paris 62

4.2.2.8 Interaction between Airbnb’s business model and Paris 64

4.2.2.9 Success Airbnb Paris 65

4.2.3 Airbnb Amsterdam 65

4.2.3.1 Business model Airbnb Amsterdam 65

4.2.3.5 Specifics Amsterdam 67

4.2.3.8 Interaction between Airbnb’s business model and Amsterdam 69

4.2.3.9 Success Airbnb Amsterdam 70

4.2.4 Summary Airbnb 70

4.2.4.1 Customer interface adaptation 72

4.2.4.2 Infrastructue management adaptation 72

4.2.4.3 Financial aspects change 73

4.2.4.4 Success and legitimacy 73

4.3 Working propositions 74

5. Discussion 76

6. Conclusion 79

7. References 80

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1. Introduction

One of the leading business stories of the last decade is the rise of “sharing economy” firms. Sharing firms such as AirBnB, Uber, Lyft, Zipcar, BlaBlacar, TaskRabbit, and Car2go have been at the center of attention in press coverage and have received large investments (Rauch et al., 2015). What firms such as AirBnB, Uber, Lyft, Zipcar, BlaBlacar, TaskRabbit, and Car2go have in common is that they operate in “sharing economies” of collaborative consumption. Herein people offer and share

underutilized resources in creative, new ways. For example Airbnb gives people the opportunity to rent out part or all of their homes for short stays, and Uber makes real-time, location-based

ridesharing possible. People that may not have considered ridesharing or renting a room in private residence as their vacation home a few years ago now prefer such sharing models to mainstream models (Cohen and Kietzmann, 2014). These sharing economy firms have caused disruptive changes in a lot of industries, such as the hotel industry and the car industry. Next to that they have been disrupting concerning business models, as sharing economy firms need to exploit something different than a traditional product or service produced by the firm.

The focus of this research is on firms in the sharing economy and how business models develop in the environment of the sharing economy. Institutional environments are at the center of attention as well, as they are important in the development of sharing economy business models. The institutions that are most influenced by sharing economy firms and the other way around are cities (Rauch et al., 2015). Sharing economy firms operate in industries such as the restaurant, hotel, transport, and taxi industry. Cities regulate firms in these industries and subsidize, tax, or promote the firms to accomplish certain social or urban development goals (Rauch et al., 2015). Cities have tried to influence sharing firms mostly by imposing restrictions and by trying to protect current incumbents in industries. However, according to Rauch et al. (2015) in the future cities are likely to use more complex means for policy goals. Sharing economy firms for their part will likely try to receive benefits, subsidies and contracts from local and state governments and naturally do not want to be restricted (Rauch et al., 2015).

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2. Theory

2.1 Sharing economy

2.1.1 Defining the sharing economy

Despite for all the attention businesses in the sharing economy get, a central question remains

unanswered: What, defines the sharing economy? Botsman and Rogers (2010) are pioneering authors at the helm of the sharing economy movement. Botsman and Rogers describe an emerging

socioeconomic groundswell, that they call collaborative consumption. They state that the old associations with “sharing” used to be cooperatives, collectives, and communes. These associations are being refreshed and reinvented into appealing and valuable forms of collaboration and

community. This groundswell, that they call collaborative consumption is also known as the sharing economy or the collaborative economy. Sharing and exchange of assets – from spaces to skills to cars – is happening in ways and at a scale that has never been possible before. This creates a culture and economy of “what’s mine is yours” (Botsman and Rogers, 2010). The new socioeconomic systems enable assets that were previously unavailable or not conveniently available, to become widely accessible.

When you start to look for them sharing economy firms are everywhere. According to Gansky (2010) a new era of sharing-based businesses is starting.Big businesses such as Netflix or Zipcar as well as small ones such as an individual who rents Christmas trees, have figured out there is a demand for convenient access to shared goods (Gansky, 2010).These businesses are rooted in the technologies of social networks (Botsman and Rogers, 2010). With the use of web-based mobile networks, sharing businesses can define and deliver highly targeted, personal goods and services at the right time and location.Consumers can for example use their mobile phones to find quick access to goods and services they need. The Craigslist app for example uses the location of consumers to find nearby services they need such as the service of a mechanic (Gansky, 2010). The network can connect consumers to the things they need at the time they need it. People can increasingly gain convenient access to goods, which reduces the need to own them. There is for example no need to store and maintain a lawn mower, a buzz saw, or a car when they are easily and less expensively available to use when the consumer wants to (Gansky, 2010). Sharing economy platforms have the ability to accelerate the connection, transaction, and payment between buyers and sellers. The unifying theme

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these sharing economy businesses have is the focus on access instead of ownership and an improved use of assets. The focus of sharing economy firms is on efficiency and practicality (Nadler, 2014).

According to Rauch et al. (2015) the reduction of transaction costs is a common thread that is visible in the sharing economy. They note that businesses that are described as part of the sharing economy depend on an evident reduction in transaction costs. Technology has reduced transaction costs, which makes sharing assets cheap and easy. The change is the availability of more data about people and things, which allows physical assets to be “disaggregated” and consumed as services. Now owners and renters can be matched up more easily. In the sharing economy users can share, buy or sell, smaller units of goods or services than ever before. A rental company for example is able to rent out a car for only fifteen minutes at a time due to improved technology and data. Rauch et al. note that it is this change that defines the sharing economy (Rauch et al., 2015).

As introduced above, there are different definitions of the sharing economy. Table 1 is an overview of different definitions of the sharing economy by different authors. The studies in Table 1 have been selected because of their focus on the sharing economy as well as new businesses.

Study Definition Conceptualization

Botsman and Rogers (2010) Collaborative consumption/ sharing economy as a new socioeconomic system.

Product-service systems that facilitate the sharing or renting of a product (i.e., car sharing); second, redistribution markets, which enable the re-ownership of a product (i.e., Craigslist); and third, collaborative lifestyles in which assets and skills can be shared (i.e., coworking spaces). Gansky (2010) The Mesh: the storm of mobile,

location-based capabilities, web and social network growth, changing consumer attitudes, and market benefits of sharing platforms.

Mesh businesses share four characteristics: sharing, advanced use of Web and mobile

information networks, a focus on physical goods and materials, and engagement with customers through social networks. Nadler (2014) Unifying theme the platforms have

is the improved use of assets and the focus on access instead of ownership, emphasizing efficiency and practicality.

Rauch et al. (2015) Everything that is described as part of the sharing economy relies on an evident reduction in transaction costs. Users can buy sell or donate ever-smaller units of goods,

Reduction in transaction costs is a common thread, visible in the sharing economy.

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services or experiences.

Rinne (2013) Empower people to become both sellers and buyers. Peer-to-peer commerce.

Peer-to-peer technology

platforms unlock and redistribute untapped social, economic and environmental value of underutilized assets. Zervas et al. (2015) The decentralized peer-to-peer

markets are what defines the sharing economy

Belk (2013) There are two commonalities in

sharing and collaborative consumption practices: the first is their use of contemporary access non-ownership models of utilizing consumer goods and services. The second is their reliance on the Internet, and especially Web 2.0 to bring this about.

Sacks (2011) A global trend that makes sharing something economically significant.

The basic characteristic of these you-name-it sharing

marketplaces is that they extract value out of the stuff we already have.

Frenken et al. (2015) Consumers that allow each other contemporary access to

underutilized assets.

There are four different sorts of economies that all are forms of collaborative consumption as Botsman describes it.

- Secondhand economy - On-demand economy - Product-service economy - Sharing economy Table 1: Sharing Economy Definitions and Concepts

The definitions differ from each other, but there are three recurring themes: - Peer-to-peer commerce.

- Access instead of ownership.

- A focus on efficiency, underutilized assets

Frenken et al. (2015) state that there are four different sorts of economies that all are forms of collaborative consumption as Botsman and Rogers (2010) describe it. If you take a look at the different definitions from Table 1, it can be noted that all of them fall under the definition collaborative consumption by Botsman and Rogers (2010).

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2.1.2 Sharing economy background

As described above the sharing economy can be seen as a social and economic shift. This shift dates back to the invention of the Internet. Botsman and Rogers (2010) state that the sharing economy started online, by sharing files, photos, videos, code and knowledge. This has led to physical goods that are now being consumed in collaborative ways (Botsman and Rogers, 2010). Sharing economy forerunners are for example eBay and Craigslist. They appeared over fifteen years ago, and

empowered people to become both buyers and sellers through the adoption of peer-to-peer commerce (Rinne, 2013). Zervas et al. (2015) note that the decentralized peer-to-peer markets are what define the sharing economy. The peer-to-peer technology platforms enable the effectively unlocking and redistributing of what Rinne (2013) calls: “the untapped social, economic and environmental value of underutilized assets” (Rinne, 2013). Digital technologies make it possible for people to connect directly with each other, with fewer intermediaries (Rinne, 2013), and at a cost that is lower than ever (Rauch et al., 2015). Technology is the most tangible external factor that has influenced the creation and acceleration of the sharing economy. Other factors that contribute to the sharing economy are that many natural resources are no longer plentiful, and population and urbanization continue to rise. More people are aging while younger cohorts are also booming. In this setting, companies and governments are seeking to do more, with less resources (Rinne, 2013). In a McKinsey & Company rapport (2015) these factors are described as global forces that change the world economy’s operating system. The forces are urbanization, technological change, the aging world, and greater global connections (McKinsey & Company, 2015). In addition Rauch et al. (2015) describe demand-side trends from which the sharing economy stems. The great recession is one of the trends they describe that

contributes to the rise of the sharing economy (Rauch et al., 2015). This is the only trend that was not mentioned in the McKinsey & Company rapport (2015) and in the description of external factors by Rinne (2013).

2.1.3 Zero marginal cost society

Another trigger that is giving birth to the sharing economy is the zero marginal cost society (Rifkin, 2014). Rifkin introduced the concept of the zero marginal cost society. In the zero marginal cost society productivity is driven up and marginal costs are driven down to nearly nothing. Goods and services become nearly free and no longer subject to market forces. Rifkin (2014) explains that in the traditional market sellers are constantly probing for new technologies that can increase their

productivity and reduce their marginal costs so that they can put out cheaper products. However what they did not expect is a technology revolution that is so powerful in its productivity that it might reduce those marginal costs to near zero, making goods and services essentially free. An example

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Rifkin gives is that the World Wide Web invaded, the newspaper industry, the magazine industry, and book publishing, by enabling millions of people to send each other audio video and texts at zero marginal cost (Rifkin, 2014). Next to information, now physical goods are included in the network. Sensors are being attached to natural resources, electrical grids, recycling flows, and other entities. This leads to a global network that captures data. According to Rifkin analytics and algorithms from this data will accelerate efficiencies, increase productivity, and lower marginal costs (Rifkin, 2014). This way the sharing economy can also be seen as part of the zero marginal cost society, as the zero marginal cost society also includes the unlocking of value from underutilized assets.

2.1.4 Circular economy

Another concept that overlaps with the concept of the sharing economy is the circular economy. The circular economy refers to an industrial economy, that is by design or intention, restorative and which focuses on cradle-to-cradle- the complete recycling of resources – principles and materials

sustainability (Rinne, 2013). The concept of circular economy originated in 1998 and was proposed by scholars in China (Yuan et al., 2006). It was formally accepted in 2002 by the central government as a new development strategy. This strategy aims to transform traditional patterns of economic growth and production. The concept of circular economy builds on the notion of loop-closing and the solving of environmental problems (Yuan et al., 2006). The conventional perception of economic systems is that they are linear. With the circular economy this linear system is converted to a circular system when the connection between resource use and waste residuals is made (Bilitewsky, 2012). The core of the circular economy is the circular flow of materials. The three possible approaches in practice to the circular economy are reduction, reuse, and recycling of materials and energy. The strategy requires complete reform of both production processes and consumption activities (Yuan et al., 2006). The prevention of waste and pollution are the aims of the development of a circular economy. Next to that the circular economy aims for a better reuse and recycling of waste, and more recycling-friendly production of goods are demanded to achieve higher recycling rates (Bilitewsky, 2012).

A number of economic and informational instruments have been used to implement a circular

economy. Examples are: pollution levies, environmental taxes, and eco-labeling. Next to that there are environmental management tools such as cleaner production, energy and water cascading and as mentioned above reduction, reuse and recycling of waste. These tools have the same goal of improving resource use efficiency as well as to minimize the amount of waste that is produced, and converting waste where possible into useful industrial resources (Geng et al., 2009). The improvement of resource use efficiency is the most important link between the circular economy and the sharing

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economy. The sharing economy contributes to the circular economy by contributing to a more efficient use of resources. Therefore the focus on the sharing economy of this thesis will contain insights concerning the efficient use of resources that are relevant for the circular economy as well (Rinne, 2013).

2.1.5 Businesses in the sharing economy

As straightforward as the shift to the sharing economy appears, there are actually multiple businesses and platforms – from nonprofits to Fortune 500 companies – operating within the sharing economy. In a broad sense the Internet itself can be seen as a sharing economy model, as it contains a giant pool of shared content that people with an Internet connection can access. However in a more narrow sense Belk describes two commonalities in sharing and collaborative consumption practices. The first is their use of temporary access non-ownership models of utilizing consumer goods and services. The second is their reliance on the Internet, and most of the time Web 2.0, to bring this about (Belk, 2013).

Gansky (2010) describes sharing economy business by comparing them with old business models. Gansky states that there are new business models arising from the “The Mesh”, another name for the sharing economy. The old business model depends on a single traditional formula. In this formula a business creates a product or service then sells it and receives money. Sales and ownership are the important parts of the traditional model (Belk, 2013). In the sharing economy businesses create value another way with a focus on access instead of ownership. Sharing economy businesses use data collected from different sources to deliver goods and services to people at the exact time they need, and want them. According to Gansky (2010) sharing economy businesses contain four characteristics. The first characteristic is that the firm’s main product or service is something that can be shared within a market or community. The second characteristic is the use of Web and mobile data networks are used to find products or services and aggregate product information and usage information. The third characteristic is the focus on physical goods that can be shared. This includes the physical goods that make services relevant. The final characteristic is that a large part of the communication to the customer goes through word of mouth and is expanded by social media (Gansky, 2010). Not every sharing economy business contains all four of characteristics. According to Gansky (2010) there are two sorts of sharing economy businesses: businesses with an “Own-to-Mesh” model and businesses with a “Full Mesh” model. An example of a “Full Mesh” model is Zipcar. Zipcar owns vehicles that can be rent by consumers using a mobile app to find cars when they need them at their location. Consumers get the benefit of access to the goods, but without the inconvenience and costs of owning them. Goods that are expensive to own and that are frequently Used Goods, such as cars, are

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own goods and gain profit from renting out the goods in a micro-leasing way through information networks (Gansky, 2010).

The other sharing economy businesses models have an “Own-to-Mesh” model. Businesses with this model do not own goods that people can get access to. The businesses create a platform for people in which people who own things can share them easily. Income typically derives from transaction fees and partnership deals. These businesses provide tools and support to people who want to share their own car, or anything else (Gansky, 2010).

The distinction between “Full Mesh” and “Own-to-Mesh” is similar to the different categories Rauch et al. (2015) make the distinction between two kinds of sharing economy businesses. The first type of sharing economy business own goods or services that it rents to customers on a short term basis. The second type of sharing economy business delivers a peer-to-peer platform that connects buyers and sellers for a short-term exchange of goods and services. Next to the two types of sharing economy businesses there is a difference between the exchange of physical goods or services that must be provided in person and sharing economy businesses that do not include physical goods or services. An example this other form of a sharing economy business are money lending groups. They hold a different set of concerns (Rauch et al., 2015). Therefore only businesses that focus on the exchange of physical goods or of services that must be provided in person will be considered.

Botsman and Rogers (2010) describe sharing economy business models differently. They divided businesses into three types of systems: product service systems, redistribution markets, and collaborative lifestyles. The basis of product service systems is the benefit of a product, without having to own the product. Businesses that are product service systems own products that can be rented out to customers or they provide peer-to-peer sharing of products that are privately owned by people. As explained above, Gansky (2010) and Rauch et al. (2015) made a distinction between renting out products and providing a platform for peer-to-peer sharing. According to Botsman and Rogers (2010) this distinction does not have to be made and both forms fall under product service systems. The second type of sharing economy businesses is the redistribution market. Redistribution markets enable the redistribution of used or pre-owned goods. They can be seen as platforms that provide the redistribution. The last type of system Botsman and Rogers (2010) describe is

collaborative lifestyle. Collaborative lifestyles do not focus on physical goods but on less tangible assets such as skills, time, space, and money. Collaborative lifestyles include for example a business that focuses on shared working spaces (Botsman and Rogers, 2010).

Bauwens (2014) describes business models in the sharing economy in a different way. Bauwens created a model with four quadrants. In this model businesses can either be central or decentral and at the same time they can create either profit or social value. This leads to four types of business models

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in the sharing economy. The first type includes platforms that are centrally controlled with a clear focus on profit. The second type is not centrally controlled, but focuses on profit as well (A business model such as Bitcoin). The third type includes open platforms in which everybody can contribute without anybody making profit, and that are centrally controlled. The last type includes local initiatives that exist of a group of people that agree to support each other without profit being made and without central control (A business model such as Broodfonds) (Bauwens, 2014).

Frenken and Meelen (2014) make a distinction between firms that make real sharing possible and firms that do not comply with the definition of sharing economy they use. According to Frenken and Meelen the sharing economy is about consumers that let other consumers use their unused consumer goods (Frenken and Meelen, 2014). There are firms that are regularly wrongly associated with the sharing economy, as they do not provide the sharing of unused capacity between users (Frenken and Meelen, 2014). The sharing economy business model has three elements according to Frenken et al. (2015). The three elements are consumer-to-consumer commerce, the use of underutilized assets, and contemporary access. A business model can be called a sharing economy business model, only if all three elements are present in the business model. If two out of three elements are present the business model belongs to a different economy. The other three economies are: the secondhand economy, the product service economy, and the on-demand economy (Frenken et al., 2015).

The various descriptions of elements of a sharing economy business model are displayed in an overview in Table 2.

Study Various sharing economy businesses and their elements

Belk (2013) Two commonalities in sharing economy business models:

- The use of contemporary access, non-ownership models of utilizing consumer goods and services.

- The reliance on the Internet and especially Web 2.0, to bring this about.

Gansky (2010) Four elements sharing economy business models have: - Sharing.

- Advanced use of Web and mobile information networks. - A focus on physical goods and materials.

- Engagement with customers through social networks Two models for sharing economy business models:

- Full Mesh mode: The company owns assets that can be rent by consumers using an online platform.

- Own-to-Mesh mode: A platform for people who own things that enables them to share their possessions easily and profitably.

Rauch et al. (2015) Different categories of sharing economy business models: - A business owns goods or services that it rents out

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users for short-term exchange of goods and services. Botsman and Rogers (2010) Three categories in the sharing economy:

- Product Service System, this includes a service that enables multiple products to be shared or products that are privately owned to be shared or rented peer-to-peer.

- Redistribution market: a platform that facilitates the re-sale or exchange of used goods.

- Collaborative lifestyles: a platform that allows individuals to share non-physical assets, such as time and expertise.

Bauwens (2014) Four quadrants for business models divided in combinations between: - Central versus decentral

- Profit versus social value

Four types of sharing economy business models:

- Centrally controlled platforms with a clear focus on profit (Uber) - De-centralized platforms that focus on profit (Bitcoin)

- Centrally controlled open platforms in which everybody can contribute without anybody making profit (Wikipedia)

- (Decentralized) local initiatives that exist of a group of people that agree to support each other without profit being made and without central control (Broodfonds)

Frenken et al. (2015) Three elements sharing economy business models have: - Connecting consumers

- Use of underutilized assets - Contemporary access

Two elements of the Secondhand economy business model: - Connecting consumers

- Use of underutilized assets

Two elements of the Product-service economy business model: - Use of underutilized assets

- Contemporary access

Two elements of the On-demand economy business model: - Connecting consumers

- Contemporary access

Table 2: Sharing Economy Business Models

Table 2 shows that business models in the sharing economy are based upon those three sharing economy building blocks, but that they do not always contain all three of them. Sharing economy business models can also contain two instead of three of the elements: peer-to-peer commerce, access instead of ownership, and efficiency/underutilized assets.

2.2 Business model theory

2.2.1 A growing focus on business models

Next to the sharing economy, the theoretical focus of this paper is business model theory. In the past twenty years, the ‘business model’ has been the focus of substantial attention from both academics

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and practitioners. Business models have been examined through multiple disciplinary and subject-matter lenses. There have been published more than 1177 articles since 1995. These articles are from peer-reviewed academic journals in which the notion of a business model is addressed (Zott, Amit and Massa, 2011). Next to that, a growing number of practitioner-oriented studies focused on the business model. Business models are a recent phenomenon. The earliest articles with titles that include

“business model” were published in 2000 (Boons and Lüdeke-Freund, 2012). However, the term “business model” has already been used in literature in the period 1975 to 1989 (Wirtz 2011). Although the number of studies on business models is growing, scholars do not agree on what a business model is and the literature on business models is developing, according to the phenomena of interest of the respective researchers, largely isolated from other phenomena (Zott, Amit and Massa, 2011).

2.2.2 Business model literature reviews

According to Teece (2010) a business model is about the design or architecture of the value creation, delivery, and capture-mechanisms of a business (Teece, 2010).

There have been conducted several literature reviews of the business model concept. Wirtz (2011) made an overview of business model literature. He identified three theoretical approaches for the business model context. These three approaches are technology oriented, organization theory oriented, and strategy oriented. Literature started with the technology-oriented approach from 1975. This first stream focuses on technology. According to Boons and Lüdeke-Freund (2012) this shows that business models became popular during the Internet boom. It was then that firms came to realize that existing ways of earning a profit were not suitable for capitalizing on new technologies: web-based products and services (Boons and Lüdeke-Freund, 2012). Therefore there is a large body of literature that focuses on the consequences of particular technologies on how firms organize to earn profits.

In 1995 the organization theory oriented approach started (Wirtz, 2011). This approach deals with the business model as a strategic management tool to improve a company’s value chain. In this approach a business model serves as a development tool for business systems and architectures for planning, representing and structuring business with an emphasis on organizational efficiency (Boons and Lüdeke-Freund, 2012). Since 2000 the strategy-oriented approach exists (Wirtz, 2011). This approach adds the element of market competition to the efficiency focus of the organization theory oriented approach. Creating and delivering customer value is the core of any business model. Hereby the business model itself can become a source of competitive advantage (Boons and Lüdeke-Freund, 2012).

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Zott, Amit and Massa (2011) also made a literature review on business models. They found that there are four emerging common themes among scholars of business models. The first theme is about the business model that is emerging as a new unit of analysis. This unit of analysis spans traditional units of analysis, such as the firm independently of the network, which is the other traditional unit of analysis. The second theme they found is that business models emphasize a system-level, holistic approach to explaining “how” firms do business. This is the opposite from a particularistic and functional perspective that focuses only on “what” businesses do, such as what products they produce to serve needs in the market. The system-level approach focuses on how businesses do this, for example how they combine factor and product markets in serving customer’s needs. It focuses on both the content and the process of doing business.

The third emerging theme is that activities play an important role in the various conceptualizations of business models that have been proposed. These activities could be activities from a focal firm, or its suppliers, customers, or partners. A business model is described as a system that consists of

components with linkages between each other, and in which dynamics play a role. The business model is represented many times as systems of activities (Zott, Amit and Massa, 2011). The last theme that Zott, Amit and Massa found is that business models seek to explain how value is created, not just how it is captured. The focus lies on the creation of value, but the capturing of value is included as well. There has been a shift in focus in the literature from value capture to value creation. However both aspects are included in the business model literature (Zott, Amit and Massa, 2011).

The emerging themes that Zott, Amit and Massa (2011) describe can also be found in the concept that Boons and Lüdeke-Freund (2012) have developed. Boons and Lüdeke-Freund reviewed the current literature on business models in the context of technological, organizational and social innovation. The following elements of a general concept of business models were distinguished: the value proposition, organization of supply chain and customer interface, and financial model. The value proposition incorporates the question: what value is embedded in the product/ service offered by the firm? The second element is about the supply chain and how upstream relationships with suppliers are structured and managed. Next to that, the customer interface is important. How are downstream relationships with customers structured and managed? And the last element is the financial model, thus the costs and benefits from the first three elements and their distribution across business model stakeholders (Boons and Lüdeke-Freund, 2012).

These building blocks are also visible in the Business Model Canvas by Osterwalder and Pigneur (2010). In their research in 2005 Osterwalder et al. first described four pillars: value proposition, customer interface, infrastructure management, and financial aspects. Together these four pillars exist of nine business model building blocks. Customer interface consists of: target customer, distribution channel, and relationship. Infrastructure management consists of: value configuration, core

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competency, and partner network. Financial expects exist of: cost structure and revenue model (Osterwalder et al., 2005). Later these nine business model building blocks were transformed into the Business Model Canvas as is known today (Osterwalder and Pigneur, 2010). These nine business model building blocks will be addressed in this thesis as a way to describe existing business models. The various, and specific, building blocks enable a thorough and efficient analysis of companies and their business models. Besides that the nine building blocks can be traced back to the four pillars they are part of: value proposition, customer interface, infrastructure management, and financial aspects. By using the more detailed nine building blocks the overall value proposition, customer interface, infrastructure management, and financial aspects will be described more thoroughly. Table 3 shows the building blocks by Osterwalder and Pigneur (2010) that are chosen on the basis of the previously discussed business model concepts.

Business Model Building Block

Description

Value Propositions Answer to the question: What does the company deliver to the customer?

Infrastructure Management

Key Partners Answer to the question: Who are the key partners and suppliers of the company?

Key Activities Answer to the question: What key activities do our Value Propositions require? Key Resources Answer to the question: What key resources do the value propositions require?

Customer Interface

Customer Segments Answer to the question: For whom is the company creating value?

Customer Relationships Answer to the question: What type of relationship does each of the firm’s customer segments expect it to establish and maintain with them?

Channels Answer to the question: Through which channels do the firm’s customer segments want to be reached?

Financial Aspects

Cost Structure Answer to the question: What are the most important costs inherent in the business model of the firm?

Revenue Streams Answer to the question: For what value are the customers of the firm really willing to pay?

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2.3 Institutional influences on business models

2.3.1 Institution-Based View

The previous section showed that while business model theory has not been extensively developed, concepts of business models have been the focus of substantial attention. However less research has been done on institutional influences concerning business model design. According to Frenken et al. (2015) the functioning of sharing economy firms should not be seen as an autonomous development on which politic does not have influence (Frenken et al., 2015). Concerning sharing economy firms, local and state governments for example adopt policies to insisting on consumer or incumbent protections. In some cities regulations have either barred sharing firms from entering entirely or forced them to change their practices substantially (Rauch et al., 2015). Therefore the Institution-Based View is an important theory for this thesis. The Institution-Institution-Based View is well known in the field of international business. North (1991) states that institutions, together with the standard constraints of economics define the profitability and feasibility for businesses of engaging in economic activity. North describes institutions as the humanly devised constraints that structure political, economic and social interaction. They consist of formal and informal constraints. The formal constraints are for example constitutions, laws, and property rights. And the informal constraints can be among others sanctions, customs, and codes of conduct (North, 1991). Peng et al. (2008) state that an institution-based view is becoming the third leg of the strategy “tripod” (The other two legs are the industry- and the resource-based view). According to Peng et al. insightful as the industry- and resource-based views are, they can be criticized, because they assume institutions as “background”. In other words, they ignore the formal and informal institutional support that provides the context of competition among industries and firms (Peng et al., 2008). Formal and informal institutions, known as “the rules of the game” (North 1991), significantly shape the strategy and performance of firms (Peng et al., 2008). According to Provance, Donnelly and Carayannis (2011) the choice of a certain business model plays an important source of competitive advantage. However they state that existing literature does not focus on external factors that may influence the shaping of business models (Provance, Donnelly and Carayannis, 2011).

According to Scott (2005) institutions can be defined in terms of different institutional pillars. There are three pillars of institutions: regulative, normative, and cultural-cognitive institutions. Institutions are made up of these pillars with diverse elements that cause different bases of order and compliance and different rationales for gaining legitimacy for a business. The regulative pillar stresses legally sanctioning activities and regulative rule setting. In the regulative pillar rules, laws and regulations are set and enforced. The normative pillar is about social obligation. Normative institutions are morally

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governed and they include norms and values. The normative pillar defines what is appropriate and right for a member of the institution and can be seen as social obligations. The cultural-cognitive pillar is about the widely shared social knowledge. Instead of a social obligation, the cultural-cognitive pillar is about taken-for-grantedness and shared understanding (Scott, 2005).

According to Cantwell et al. (2010) a variety of recent literature proposes that firms co-evolve with the concerning institutions. This literature mostly approaches institutions in terms of isomorphism. This means the extent to which coercive, mimetic and normative pressures make firms adopt similar structures and strategies for legitimacy (DiMaggio and Powell, 1983). The processes of managerial adaptation and environmental selection influence each other and occur simultaneously (Cantwell et al. 2010). Literature has focused on this issue of adaptation and coevolution in relation to competitor firms and in an industry-specific environment. However it has not focused on the broader institutional environment within which firms operate (Cantwell et al. 2010).

Instead of an industry-specific environment, literature on business systems has focused on national institutions. Whitley (1999) states that there are distinctive forms of capitalism that can be seen as different systems of economic organization. The ways in which economic activities are organized in for example post-war Japan differs considerably from that in the USA (Whitley, 1999). Business system literature has explored how economies are organized in terms of labor market institutions, capital market institutions, and patterns of ownership. This results in different typologies of capitalism. Most of the business system literature has focused on examining the opportunities and constraints presented by an institutional landscape (Cantwell et al. 2010). Rugman and Verbeke (2000) focused on national institutions as well. They noted that government regulations by institutions influence industry competition. Government, through defining and enforcing the rules of competition affect the functioning of an industry and the relationship among market forces. It may have an immediate effect on firms as well, as an institution in this way is an “enacted environment” (Rugman and Verbeke, 2000). At the firm-level government regulation significantly affects an effective strategy for a firm. Next to that firms can, conditional upon firm-level dynamic capabilities, perceive government regulation as an intermediate good that can be influenced or used concerning its strategic objective (Rugman and Verbeke, 2000).

Rauch et al. (2015) stress the importance of government regulations as well. They state that sharing economy firms experience fierce regulatory contests in cities in America. Among others, incumbent firms in the taxi industry have pushed for regulations that can ban new sharing economy firms and the sharing economy firms have fought back using their popularity among consumers (Rauch et al., 2015). Institutions at a local and at a state level are important for sharing firms, as they will adopt certain policies in addition to insisting on either consumer or incumbent protection. Rauch et al. found

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three policies that different governments will use in different combinations. The first policy is to “subsidize sharing firms to encourage expansion of services that produce public goods, generate substantial consumer surplus and/or minimize the need for excessive regulation of the property market.” The second one is “harnessing sharing firms as a tool for redistribution.” The third policy concerns “contracting with sharing firms to provide traditional government services.” (Rauch et al., 2015: 1). Summarizing it can be stated that regulatory institutions can either use constraints or incentives to influence sharing firms. Therefore regulatory institutions will be added to the theoretical framework with the building block: regulatory constraints and incentives.

As described above next to regulatory institutions, normative and cognitive institutions can have influence on business. Cultural-cognitive institutions represent cultural values that are shared understanding (Scott, 2005). Hofstede (1994) found that there are five key dimensions in which cultures can differ, and that can affect the way firms do business. These dimensions are: masculinity, power distance, individualism, uncertainty avoidance, and long-term versus short-term orientation (Hofstede, 1994). Husted (2005) found evidence that countries with certain national cultures cause higher social and institutional capacity for sustainability (Husted, 2005). Therefore the national cultures can influence the acceptance and determine the success of companies doing business in national institutions. According to Husted (2005) it is not enough to look at economic causes of environmental sustainability, national culture must be included. Hofstede’s culture dimensions power distance, individualism, and masculinity/femininity are related to a country’s social and institutional ability for sustainability. Business can find support from the society they operate in if their practices match the cultural values and shared understanding of the society (Husted, 2005).

In summary, cultural-cognitive institutions will be added to the theoretical framework with the building block: cultural constraints or incentives. The building blocks of the cultural-cognitive institutions and the building blocks of the regulatory institutions as described above are shown in Table 4.

Institutional Aspects

Description

Regulatory constraints and incentives Describes the regulatory constraints and incentives regulatory institutions use at local level and at national level.

Cultural constraints and incentives Describes the cultural constraints and incentives institutions contain.

Table 4: Institutional Aspects Building Blocks

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2.4 Theoretical framework

Using the theory of sharing economy, business models and institutions a theoretical framework can be made using the building blocks of every theory. First of all in the sharing economy part the following building blocks were found in Table 1: peer-to-peer commerce, access instead of ownership, and a focus on efficiency/underutilized assets. These building blocks are extended in the sharing economy business model part. Table 2 shows that business models in the sharing economy are based upon those three sharing economy building blocks, but that they do not always contain all three of them. Sharing economy business models can also contain two instead of three of the elements: peer-to-peer

commerce, access instead of ownership, and efficiency/underutilized assets. These elements have been taken into account when the two cases for this thesis were selected.

From business model theory the nine building blocks from Osterwalder et al. (2015) in Table 3 are used in the theoretical framework. The nine building blocks will be addressed in this thesis as a way to describe existing business models in the sharing economy. The various building blocks enable a thorough and efficient analysis of companies and their business models. The institutional theory part showed that regulatory constraints and incentives as well as cultural constraints and incentives should be added to the framework. Formal and informal institutions significantly shape the strategy and performance of firms and thus their business models. Therefore building blocks from Table 3 will be extended to Figure 1:

Figure 1: Theoretical Framework

Figure 1 shows the aspects that are necessary to consider, for being able to evaluate the business models in question and the institutional aspects. The nine building blocks of the business model and the regulatory and cultural aspects serve as a pre-structured case in the subsequent empirical part of this thesis.

Business model:

Nine building block

Success

Institutional Aspects

Regulatory and cultural constraints and incentives

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2.4.1 Working Proposition development

A firm is expected to evolve differently in different institutions. It can be expected that it is important for businesses to adapt aspects of their business model to the institutional context in which they operate. It is not clear which parts of the sharing economy business models will adapt to different institutions.

Among others the popularity among consumers and the social value of the firm plays a role for regulators to make use of regulatory constraints or incentives (Rauch et al., 2015). Therefore it can be expected that sharing economy firms will adapt their value propositions to different institutional contexts to make its service more attractive to consumers and regulators. The following working proposition can be made:

Working proposition 1: Sharing economy businesses can be expected to adapt their value proposition to institutional differences

Rauch et al. (2015) found that institutions will adopt certain policies concerning sharing economy firms. One of these policies was the contracting with sharing firms to provide traditional government services (Rauch et al., 2015). If a sharing economy firm contracts with an institution, this would influence the infrastructure management of the firm. Therefore the following working proposition can be made:

Working proposition 2: Sharing economy businesses can be expected to adapt their infrastructure management to institutional differences

Regarding the customer interface of a business model there is no evidence that a change in this part of the business model might be necessary in different institutional contexts. According to Christensen and Rosenbloom the context within which a firm solves customers' problems is an important factor of the business model. User needs can require different or new value networks (Christensen and

Rosenbloom, 1995). However these value networks lie outside of the customer interface. Therefore there is no reason to expect the customer interface will change in different institutions.

Working proposition 3: Institutional differences have no direct influence on the customer interface of sharing economy businesses

Financial aspects of the business model are mostly changed when technological restrictions arise for a business. If a classical business model faces technological restrictions it is inevitable that there will be

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a shift in the revenue model (Kley, Lerch, and Dallinger, 2011). Sharing economy firms are not likely to face technological restrictions in different institutions. Therefore the following working proposition is made:

Working proposition 4: Institutional differences have no direct influences on the financial aspects of sharing economy businesses

As noted above according to Husted (2005) national cultures can influence the acceptance and determine the success of companies doing business in the institutions. Lee and Peterson (2001) found that Hofstede’s (1994) dimensions influence how conductive an institution is to innovativeness. A culture that is low on power distance, weak in uncertainty avoidance, individualistic and masculine in nature is most conductive to innovativeness (Lee and Peterson, 2001). Since sharing economy firms concern a new way of doing business the developed working propositions is:

Working proposition 5: Sharing economy businesses will encounter less resistance from institutions that contain most of the following cultural dimensions: low power distance, weak uncertainty avoidance, individualistic and masculine.

3. Research design

The purpose of the research is to investigate sharing economy business models and institutional influences on business models. In order to answer the research question, this thesis has a qualitative research approach and makes use of the case study method. Two cases of sharing economy business models are selected. According to Miles and Huberman (1984) with qualitative data, one can preserve chronological flow, assess local causality, and derive fruitful explanations (Miles and Huberman, 1984). Theory building from case studies is one of the best of the bridges from rich qualitative evidence to mainstream deductive research. Case studies emphasize developing constructs, measures, and testable theoretical propositions. Inductive theory builds from cases and produces new theory from data, whereas deductive theory tests and completes the cycle by using data to test theory (Eisenhardt and Graebner, 2007).

The research question of this thesis is: How do sharing economy firms adapt their business models

in different institutional contexts? According to Yin (2003) this type of explanatory question is likely

to lead to the use of case studies. The case study strategy has a distinct advantage when a “how” or “why” question is being asked about a contemporary set of events, over which the investigator has little or no control (Yin, 2003). Therefore case studies are used as a strategy to answer the research

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question of this thesis. Next to that, case studies can be considered as an appropriate tool for this thesis, because of the exploratory nature of the research topic. The topic of this thesis clearly has an exploratory nature, as the topic is not well understood yet. Sharing economy businesses are only recently being investigated. In the last five years sharing economy firms like Uber have generated huge market valuations and fierce regulatory contests in cities (Rauch et al., 2015). It is not sure how sharing economy firms will evolve in these institutional backgrounds as the sharing economy firms have a disruptive impact on the industries they operate in and the industries have long been subject to extensive policymaking.

The greatest concern about case studies has been over the lack of rigor of case study research. The case study investigator can be sloppy, not follow systematic procedures, or can allow biased views to influence the direction of the findings and conclusion (Yin, 2003). According to Cousin (2015) case study research is located within an interpretivist tradition in which the subjective bias of the

researcher is accepted as a given. However there are strategies for keeping “narrative fraud”. Narrative fraud means opportunistically cherry picking the data, overstating from flimsy evidence, ignoring local effects (Cousin, 2015). One of the strategies is that researchers need to be reflective about their own position and possible bias. If they are making a clearly contestable assertion, researchers can use triangulation to strengthen their evidence, they can provide diverse evidence sources. Next to that researchers can ensure that they provide a sufficiently “thick description” of the case such that the reader can share in the interpretation with the researchers (Cousin, 2015). Another concern about case studies is that they provide little basis for scientific generalization. However case studies, like experiments, are generalizable to theoretical propositions and not to populations. In this sense, the case study as well as the experiment, does not represent a sample. The goal of doing a case study will be to expand and generalize theories (Yin, 2003).

3.1 Data collection procedure

Qualitative research aims for analytical generalization (generalize theories) instead of statistical generalization (enumerate frequencies) (Yin, 2003). Therefore as various authors state, a random selection that leads to a generalizable sample is not necessary and not possible in qualitative research (Miles and Huberman, 1984; Eisenhardt and Graebner, 2007). For this research two cases are

analyzed and the selection of the cases is guided by certain criteria. These criteria are derived from sharing economy theory, theory of business models and criteria for different institutional contexts. This will lead to comparable cases in terms of sharing economy business models. The selection criteria for the cases used for this study are:

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- The company’s business model must be based on elements of the sharing economy. - The used business model must be evident.

- The size and notoriety of the company must be of a certain level. This level will be high enough if the company is easy to find online and articles have been written about it.

- Company information must be available in English or in Dutch.

- The company must be international, it must be present in different institutional contexts each with their own particular set of circumstances enabling for information on institutional differences.

The cases were selected using the above criteria and through research in the newspaper database LexisNexis Academic. Different keywords guided by the mentioned criteria were used to find articles in the database. Thereafter summaries of the articles were read, irrelevant ones were deleted and the two most occurring cases were selected. The two cases are Uber and Airbnb. Uber’s lowest-cost service and Airbnb’s service touch upon the three different themes of the sharing economy: peer-to-peer commerce, access instead of ownership, and underutilized assets and efficiency. Next to the focus on the three sharing economy themes Airbnb and Uber’s lowest-cost service were selected because they are apparent in among others New York City, Paris and Amsterdam. The specific institutional aspects of the cities can be compared to the business model of the case.

After the case selection all documents that could be found on Uber’s low-cost service in New York City (UberX), in Paris (UberPOP), and in Amsterdam (UberPOP) were gathered from the newspapers The New York Times, Financial Times, and Het Financieel Dagblad. The keywords that were used to search in the database were: “"Uberpop" OR “Uber x” OR “Uberx” and "Amsterdam" OR

"Netherlands" OR "Paris" OR "France" OR "New York"”. This resulted in 81 articles from The New York Times, 285 articles from Financial Times and 59 from Het Financieel Dagblad. Subsequently these 425 articles were filtered. Opinion articles, blogs and editorial letters were excluded. This resulted in 261 articles.

The same was done for Airbnb, all documents that could be found on Airbnb’s service in New York City, in Paris, and in Amsterdam were gathered from the newspapers The New York Times, Financial Times, and Het Financieel Dagblad. The keywords that were used to search in the database were: “"Airbnb" and "Amsterdam" OR "Netherlands" OR "Paris" OR "France" OR "New York"”. This resulted in 349 articles from The New York Times, 105 articles from Financial Times and 231 from Het Financieel Dagblad. Subsequently these 685 articles were filtered. Opinion articles, blogs and editorial letters were excluded. This resulted in 225 articles.

The 486 selected documents on the two cases were imported in the qualitative data-analysis software NVIVO 10.2. With this first selection of documents the database was populated and a first scan of

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results was done using the software NVIVO 10.2. For each city, an analysis of Uber’s low-priced business model was drafted and an analysis of Airbnb was drafted using the building blocks that were derived from business model theory and institutional theory as codes.

First UberX’s business model in New York City was coded. Next UberPOP’s business model in Paris was coded and thereafter UberPOP’s business model in Amsterdam was coded. The same has been done for Airbnb. Airbnb’s business model in New York City was coded, next Airbnb’s business model in Paris was coded and thereafter Airbnb’s business model in Amsterdam was coded. After that a closer look was given to the texts that were divided under the codes. This resulted in sub codes that divided the elements of the business model into different parts. For example for UberX in New York City the code Revenue Streams got two sub codes: Percentage Commission and Surge Pricing. The same analysis strategy was employed for the institutional contexts of the business models: New York City, Paris, and Amsterdam. The same data was analyzed again and coded on the basis of the building blocks derived from institutional theory. After this round of coding a second round of coding was done. This resulted in extra codes and subcodes. New York City Specifics, Paris Specifics, and Amsterdam Specifics were added next to the codes Regulatory Constraints and Cultural Constraints. A ‘snowballing’-method was employed to gather more information about the business models in the different institutions. The coded documents contained references to other studies and sources that were subsequently gathered and included. These information sources held the explicit information and missing information that completed the dataset and helped triangulate the found results.

4. Findings

As is shown in the theory part, the company Uber is mentioned a lot as a sharing economy firm. Uber has various business models that contain the three building blocks that were derived from the sharing economy theory. The focus of this study is on Uber’s lowest-priced services UberX and UberPOP.

Today the company Uber offers various services, employs different business models and operates in 57 countries worldwide. The different countries cause several barriers for Uber in implementing its business models in the different countries. This became clear when analyzing the data. In the following section the main findings of the business model design of Uber’s lowest-priced service in the cities New York City, Paris and Amsterdam are discussed. The different parts of the business model will be described in the following part. Thereafter the institutional context will be discussed on the basis of cultural and regulatory constraints and incentives. Subsequently the level of success of the business model in New York City will be discussed. The same will be done for UberPOP Paris and UberPOP Amsterdam.

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4.1 Uber

4.1.1 UberX New York City

4.1.1.1 Business model UberX New York City

Uber entered New York City in 2011 (Schonfeld, 2011). The company offers multiple services that function over Uber’s mobile app. Uber’s flagship service was a high-end car service, UberBLACK, that functions over an app. UberBLACK gives consumers an on-demand ride in a luxurious car. Other services are UberXL, UberSUV, for the consumer the main difference between these services are the type of cars that are used. Uber expanded its services to a lower-priced service in New York City in 2012 (Crow and Mishkin, 2015). In New York City this service is called UberX.

UberX provides cheap and fast on-demand rides in New York City.

Drivers and customers are being matched efficiently through UberX’s technology. This can be seen as the value proposition of UberX.

4.1.1.2 Customer relationships, channels and customer segments

With its lower cost service UberX aims at the price sensitive customer segment.

UberX’s customer service is automated through the mobile app. Via the mobile app customers can find a driver in the neighborhood, pay for the ride, and give the driver a rating on its service.

4.1.1.3 Revenue streams and cost structure

For the service UberX, typically 20% commission is collected per ride (De La Merced, 2014). The commissions are the main sources of revenue. The prices of the rides and revenue that UberX drivers receive are set by Uber and can not be changed by the drivers. Uber changes these rates on the basis of its strategy. UberX’s pricing strategy means that it makes its service more expensive at times when there is a high demand for the service. This is known as surge pricing. An example is during New Year’s Eve, when there is a high demand for taxis (Irwin, 2014).

In July 2014 Uber announced it had lowered prices for the service UberX with 20 percent in New York as a summer trial. This would make UberX cheaper than a ride in a yellow cab in New York

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City (Flegenheimer, 2014). In some of the cities in which UberX operates, the price cuts are taken entirely out of the 20 percent commission UberX normally takes. This results in a loss in each transaction for UberX. Uber’s strategy could be explained on the basis of ‘elasticity of demand’. This is about the reaction people have to lower prices. A lower price can lead to people making a lot more use of UberX. If this is the case, the lower prices can stay due the revenue that comes from the extra rides (Irwin, 2014).

However in New York price cuts are not taken entirely out of the 20 percent commission. The general manager of Uber New York stated that UberX drivers in New York will be treated differently.

According to him their incomes will stay the same, as customers will make more use of the service per hour when the rates decrease (Flegenheimer, 2014). Strikes of Uber drivers in New York also showed that UberX made price cuts possible by a drop in what UberX drivers earn in New York (Murphy, 2014). Drivers stated the discount comes out of their profits (Kosoff, 2014). In September 2014 the trial ended and Uber announced the 20 percent price cuts it made for the UberX service in New York are staying (Murphy, 2014).

A part of the costs made for UberX are linked to the gaining and maintaining of UberX drivers. In May 2015 for example UberX gave people a bonus of $500 if they signed up as drivers for UberX. For existing UberX drivers the company offers bonuses if drivers accept to drive for a certain amount of hours a week (Singer and Isaac, 2015). Next to that surge pricing is applied by Uber to attract extra drivers during peak hours, since prices of the rides get higher and drivers can earn more (Uber, 2012). Other costs are derived from certain promotions for UberX. For example UberX gave current and new customers a $20 discount on rides from and to the neighborhood the Bronx in the weekend of the 15th of May 2015 (Uber, 2015).

Next to the costs to gain and maintain drivers and promotion costs there are insurance costs involved. UberX changed its position over time regarding insurances for its drivers for when an accident happens at the time they drive for UberX. At first, UberX communicated to their drivers that they could submit insurance claims to their personal insurance company. If the personal insurance company of the driver did not accept the claim an UberX had a backup policy. In july 2014 UberX improved this insurance system and added primary coverage for its drivers (Lieber, 2014).

4.1.1.4 Partners, activities, resources

UberX’s key partners are the UberX drivers. The drivers are independent contractors. To maintain the quality of UberX drivers and their customers UberX uses two-way rating in which drivers and