THE BLOG
09/17/2014 02:52 pm ET Updated Nov 17, 2014

How Uber Has Thrown Traditional Taxi Services Under the Bus

Want to start a fight?

It wasn't so easy to pick a fight with a stranger in the movie Fight Club. But in the real world, all you need to do is tell a limo operator or yellow cab driver that you're a big fan of Uber, the car service system's contribution to "the sharing economy." And, in this case, "sharing" doesn't necessarily mean "sharing the love."

With a valuation of "only" $18B, Uber pits happy-as-can-be customers against taxi operators, who view the service as an end-run against regulations and -- more existentially--a plot to put them out of business. Many believe that "eliminating the competition" is at the helm of Uber's strategy, and investors subsequently smell a disruptive business model. City and state regulators who have turned the provision of taxi services into a highly regulated system are caught in the middle, and -- cheering from the sidelines -- are the technologists who love the thought of industry disruption along with the libertarians who think the aforesaid regulations are nuts anyway.

The Uber debate is very well chronicled. From our seat, what's interesting is the continued ascension of disruptive businesses which show a sky-high Net Promoter Score (NPS) when compared against challenged existing businesses. While there are undeniably some great customer service driven businesses that predate 1990 that didn't need to re-invent established business models to delight customers in the post-internet economy, these businesses represent a startlingly small percentage of the companies in our database.

Uber's steady and successful rollout merely shines a bright light on the power of a disruptive business model around which there are a few universal truths:

Clinging to Status Quo = Surrendering to Stagnation

The sobering reality is that the majority of businesses leveraging established models have struggled to squeeze out NPS improvements over the last decade. Our own databases and analysis show relatively modest improvements, demonstrating just how hard it is to generate genuine gains that impact market share and growth.

Of course, some of that is attributable to poor strategic execution and/or the tendency to trivialize of NPS as a methodology. Oh, and it's just plain hard to create genuine transformation in customer experience. Regardless, for companies leveraging established business models, it's exceedingly challenging to achieve big gains in NPS.

No, the stars of the conference circuit and case study list are the rowdy new kids on the block -- Apple, Amazon, Zappos, Rackspace and of course Uber. They seem born to create "promoters."

While Technology Is the Fuel, the Customer Experience Is the Driver

It's natural to point to technology as the driver for market disruption. Even businesses selling traditional CPG products like razor blades (Dollar Shave Club) and diapers (The Honest Company) are leveraging technology to affect shifts within their industries. Uber relies on mobile technology as a critically important component of the value proposition.

But there is nothing revolutionary about the technology here, even if it is well executed. Booking a taxi service on mobile hardly blows your mind as an idea.

Perhaps more to the point, Uber operates in an industry with a checkered (pardon the pun) record on customer loyalty. Cab companies in many major cities are seemingly run for the benefit of drivers or city administrators and garner no love from their customers. Medallion systems and arcane work practices reinforce an entitlement culture that prevents operators from implementing change even if they want to because they are required by regulatory statute to comply with status quo. London cabbies biking around the capital for a year to learn the streets doesn't seem like terribly valuable exercise to customers in the GPS era. In the US, some customers would be happy if the driver simply spoke understandable English and knew which city they were in.

While Uber's technology connects people with cars to people who need rides, it's not the technology per se that's driving the customer satisfaction that's in turn fueling trial, adoption and loyalty. Rather, it's the customer experience that the technology facilitates and delivers on reliably.

In short, Uber is using technology to provide a service people really want, and disrupting an industry that has failed to uniformly serve its customer.

When the Embers Smolder, the Poker Will Strike

Given the innovative, entrepreneurial nature of the modern global economy, we should hardly be shocked by Uber's successful market disruption. And, within the context of the Net Promoter economy, it should make perfect sense.

Industries posting low NPS benchmarks across the competitive class around customer satisfaction tend to form a "lock-in" that limits the movement of incumbents. While customers don't love their vendors, they don't see better alternatives. Incumbents remain players because of the peripheral issues that present barriers to entry for new players -- things like distribution, infrastructure, legal requirements and practical obstacles for start-ups.

While economists often look to high profits in an industry as a key signal for new players to enter the market, a market posting across the board low NPS scores industry-wide is sending a similar signal.

Just down the road from Uber, Tesla, the revolutionary automobile manufacturer, contributes more to this story than just the association with transportation. In this case automotive dealers are on the defensive, working (more legally than operationally) to fight off the Tesla challenge to their protected business model. It feels like a losing battle, at least from a customer perspective.

But it's not entirely a free market fight for the customer. Uber, Tesla and AirBnB are all companies fighting entrenched interests that include, to some degree, the government and its regulators; as such, we have the anticipation of a conflict between consumer interest, represented by these high NPS companies, and their own government which is ostensibly acting to protect those same interests. Consumer rankings take on government standards to decide outcomes.

Regardless of the outcomes for these market disrupting companies, we feel the die is cast. Low NPS industries can't rely on government regulated defensibility any more than industry structure as a long run defense. Sooner or later, someone will invent a business that delights customers.