Homework Assignment: Assignment 1

IT and Business
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1. How Uber’s Business Model differs from Traditional Taxi Services

Uber transformed the transportation industry by introducing an on-demand ride service through a
mobile app, connecting drivers and riders directly. This new model bypasses traditional
requirements like owning a fleet of cars or using central dispatch centers, focusing instead on
speed, flexibility, and availability. This approach has allowed Uber to provide a unique
alternative to traditional taxis.

One of the main differences is Uber’s direct connection between riders and drivers. With the
Uber app, riders can book a nearby car instantly, without the need for waiting at a taxi stand or
calling a dispatcher. This setup makes the process much faster and easier compared to traditional
taxis, where riders often have to wait in line or call ahead. As a result, Uber provides a quicker
and more convenient service, as riders can get a car within minutes, and drivers have immediate
access to nearby customers.

Another difference lies in dynamic or surge pricing. Uber’s pricing adjusts based on demand,
with fares increasing during peak times to attract more drivers. Traditional taxis, however,
generally follow fixed rates and cannot easily adjust to high demand, which often leads to a
shortage of available cars when demand spikes. This pricing flexibility allows Uber to ensure
availability during busy periods, meaning riders are more likely to find a car even at high-
demand times, while drivers can benefit from the potential to earn more during these hours.

A unique aspect of Uber’s model is its scalability and fleet flexibility. Unlike traditional taxi
companies, which must invest in, own, and maintain their vehicles, Uber operates with an “asset-
light” approach by relying on drivers who use their own cars. This means Uber can expand
quickly and enter new markets without the heavy costs associated with owning a fleet. Taxi
companies, by contrast, face limitations in growth due to the costs and logistics involved in
maintaining a fleet. Uber’s model allows it to meet demand in new regions quickly and cost-
effectively.

Uber also stands out due to its flexible work model for drivers. Uber drivers can choose their
working hours freely, turning the app on or off as they wish. This flexibility attracts a larger
number of drivers who work according to their own schedules, which in turn allows Uber to
respond to rider demand more dynamically throughout the day. Traditional taxi drivers, on the
other hand, often work fixed shifts, making it harder for taxi companies to adjust to sudden
changes in demand. With Uber’s model, more drivers are available when demand rises,
providing a smoother service for riders.

Lastly, Uber’s rating system helps maintain high service quality. Both riders and drivers rate
each other after each trip, giving Uber a consistent way to monitor and improve service.
Traditional taxis typically lack this kind of feedback loop, making it harder for companies to
address poor service or ensure consistent quality. With Uber, riders can expect a more reliable
experience, and issues with drivers or service are easier to identify and address.

2. How the company uses information technology to make the differences possible?

The first and most prominent use of information technology is Uber’s creation of a direct
connection between riders and drivers through its mobile app. This app serves as a platform
that removes traditional barriers in the taxi service industry, such as needing to call a dispatcher
or wait at a taxi stand. Instead, Uber uses GPS technology within its app to locate both riders
and drivers in real time. Once the rider requests a ride, Uber’s location-based algorithms match
them with the nearest available driver, ensuring that waiting times are minimized.

The use of GPS is a fundamental aspect of this innovation, as it not only provides location data
but also helps calculate the optimal route for the driver. Additionally, Uber uses sophisticated
matching algorithms that go beyond simple location proximity, taking into account factors such
as traffic conditions, estimated arrival times, and the driver’s previous performance. These
algorithms continuously refine themselves using machine learning, allowing Uber to predict
demand patterns and improve accuracy over time.

To support this seamless experience, Uber relies on cloud computing infrastructure to process
and manage massive volumes of real-time data. The company uses cloud platforms to store and
analyze vast amounts of ride requests, locations, and traffic data from global users. This enables
Uber to maintain a scalable system that can handle millions of requests per day, ensuring
efficient service even during periods of high demand. Cloud computing also allows Uber to
continuously update its platform, ensuring real-time availability of accurate data for both riders
and drivers.

The second major use of information technology in Uber's business model is dynamic
pricing, also known as surge pricing, which enables Uber to balance supply and demand in real
time. Uber uses advanced data analytics and predictive algorithms to track the demand for
rides and the number of available drivers at any given time. When demand exceeds supply,
Uber’s pricing model automatically adjusts the fare to incentivize more drivers to become
available, ensuring that riders can always find a ride, even during peak times such as rush hours,
large events, or bad weather.

These algorithms analyze large datasets to detect patterns in demand and forecast upcoming
surges based on factors such as historical data, weather conditions, and event schedules. By
using big data technologies and machine learning, Uber can predict and act on demand
fluctuations before they happen, making its pricing model dynamic and responsive. Cloud
computing plays an essential role here, as it allows Uber to process vast amounts of data in real
time, ensuring that fare adjustments are made instantly across all regions without service
interruptions.
The third way Uber leverages information technology is through its asset-light model.
Unlike traditional taxi companies, Uber does not own a fleet of vehicles. Instead, it utilizes a
network of individual drivers who use their own cars. This model is made possible through
technology platforms that facilitate communication, payments, and ride management between
riders and drivers. Uber uses mobile technology to allow drivers to access the app, accept ride
requests, and navigate to passengers using GPS in their smartphones.

Uber also utilizes supply chain management and predictive analytics tools to optimize the
allocation of drivers in different geographic locations. By analyzing real-time and historical data,
Uber can predict the number of drivers required in specific areas and adjust supply accordingly.
This use of predictive analytics helps Uber minimize inefficiencies, reduce wait times for riders,
and ensure that the right number of drivers is available at the right time, all without the need for
Uber to own any vehicles.

The fourth way Uber uses information technology is to support its flexible work model for
drivers. Unlike traditional taxi companies with fixed shifts, Uber allows drivers to set their own
working hours through its mobile app. This flexibility is possible thanks to Uber’s use of real-
time data analytics and geolocation services to monitor demand and communicate with drivers.
The system can detect areas with increased demand and send notifications to drivers,
encouraging them to log in and accept ride requests.

The real-time tracking capabilities of Uber's platform enable it to adapt quickly to changing
demand patterns. For instance, if demand increases in a particular area, the system can send
alerts to drivers in that region, prompting them to work during peak hours. This creates a
dynamic and flexible workforce, something that is impossible for traditional taxi companies with
fixed schedules. Additionally, Uber’s use of data analytics ensures that drivers can work
efficiently, only driving when there is sufficient demand for rides, which in turn improves overall
system efficiency.

The fifth and final aspect of Uber’s innovative use of information technology is its rating
system, which maintains the quality and reliability of both drivers and riders. After each trip,
both riders and drivers rate each other on a scale, providing valuable feedback about their
experience. Uber’s algorithmic systems aggregate these ratings and use them to evaluate the
performance of both parties. This data-driven approach helps Uber maintain service quality
and build trust within its community.

For drivers, those with low ratings are flagged by the system, and Uber may remove them from
the platform if their ratings remain consistently poor. Likewise, riders who receive poor ratings
from drivers can also face consequences, such as restrictions or removal from the platform.
Uber’s feedback loop ensures that both riders and drivers are held accountable, promoting a
higher standard of service across the platform.

Uber’s rating system also provides data insights that help improve the overall experience. By
analyzing trends and identifying common complaints, Uber can implement corrective measures,
refine its matching algorithms, and ensure a higher quality of service for both riders and drivers.
The data collected through ratings is fed into Uber’s larger machine learning systems, which
continuously refine the app’s algorithms to improve performance.

So, Uber’s strategic use of information technology has been pivotal in creating a business model
that disrupts traditional transportation services. By utilizing GPS-based matching, dynamic
pricing algorithms, cloud computing, big data analytics, predictive models, and its rating
system, Uber has created a highly efficient, scalable, and flexible platform. These technologies
allow Uber to connect riders and drivers, balance supply and demand in real time, optimize its
operations, and offer a superior service that is unmatched by traditional taxi companies. Through
these innovative uses of information technology, Uber has transformed the transportation
industry and continues to lead as a market innovator.