Uber, the mobile startup from San Francisco, has been developing mobile apps for five years, although the Finnish media did not pay attention to the company until this spring.

The basic idea of Uber is simple – provide a mobile application that allows people to arrange pickups and ridesharing with their smartphone. The app displays available cars in the nearby area for the user to choose from. The payment is also done in the application.

The service’s reliability is based on reputation management. Customers rate the drivers based on their experience, so drivers have a clear motive to be customer-oriented. If the driver repeatedly gets bad reviews, they will quickly lose their customers.

The most novel thing about Uber is not the technology itself, but rather the idea that drivers registered to the service do not need to have a professional taxi license. All you need is a car, insurance and smartphone. This has made Uber convenient solution for students and other people to earn some extra money.

Obstacles in the way of World Domination

Despite the company’s young age, Uber is no longer just local small-scale service. The company operates now in 37 countries and was recently valued at a impressive 13.3 billion euro.

Because of the competitive threat it poses to taxi companies, Uber has unsurprisingly met resistance from the industry. In most countries cab ride service requires an official taxi license, which is not part of Uber’s basic idea – although they answer to the same customer need as traditional cabs.

The authorities in several countries have also expressed their doubts about the company’s business models. Uber’s business operations have already resulted, among other things, lawsuits and taxi driver protests. The company has assured that they carefully investigate each country’s legislation before market expansion.

As it happens, Uber has also announced the intention to start operations Finland, which has already caused some restlessness among domestic taxi companies. Helsingin Taksi has already pointed out that they already have a mobile app for ordering taxies that is technically similar to Uber.

Debate on Regulation

The case of Uber serves as a perfect example of the tensions that arise when new online companies – made possible by new technology, and operating according to the rules of the digital world – face the realities of established industries.

Online business is usually built around strong customer focus. The services gain users by responding to a specific need of modern people – such as, say, need to get quickly affordable car rides – with the straightforward way enabled by modern technology.

Customer community also has substantial power to affect how these services live and grow – in Uber’s case by constantly ranking the drivers.

Another characteristic of many online businesses is their agility and rapid grow, which stems from their young and lean organization. These companies appear on the markets almost instantly to challenge traditional businesses.

As the case of Uber shows, straightforward digital business approach can contradict with the traditional regulatory framework. From the taxi firms perspective Uber is not playing with the same rules as others by ignoring regulation, which distorts competition. Licensed taxi drivers naturally worry about their own jobs and livelihood.

Digitalization requires wise policy decisions

Uber’s case highlights the changes in the economic center of gravity. There has been long talk about how the focus of economic growth is moving from big companies and relatively permanent structures to a new culture, which is driven by smaller and more innovative companies emphasizing strong entrepreneurial spirit.

The changes pose a huge potential. In recent years, we have seen how new European companies can achieve international success and visibility by transforming industries through digital innovations. For example, Swedish company Spotify has changed the way millions of people listen to music.

If we want more of these kinds of companies, both in Finland and elsewhere in Europe, digital innovation needs to be supported with policy decisions.

We should ensure that creative European companies based on strong vision and excellent technical competence can grow to become international success stories – without the paralyzing effect of regulation dating back to pre-online days.

At the same time societies need to answer to the concerns – evident in Uber’s case – about how the rapid changes across industries affect employment and livelihood. There cannot be different rules for different companies in the market.

Combining these perspectives in a wise way is the best way to utilize the potential of the digital transformation while minimizing its risks.

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