Uber: Not Suited for Vertical Integration

When it comes to vertical integration, Uber is definitely one of the companies that would NOT do well if they implemented this strategy. Normally, companies can capture added value by expanding their operations to include more of their supply chain. Whether this means expanding up the chain or down it, vertical integration can capture value because it puts the supply chain more in the firm's control and they also capture the margins in this part of the chain.

This all sounds good except when its applied to Uber's business model. Uber actually makes more money by LIMITING the part of the supply chain they control. In fact, they occupy a very small space - the only part they control is the deal making between a driver and a rider. By definition they cannot expand down the chain because they are already positioned right above the end user. If they were to move up the chain, this would mean having employees instead of contractors and possibly even owning the cars that are driven. This is what a cab company does. We've already discussed in previous posts why this isn't as profitable as Uber's business model because of the high overhead. So vertical integration is profitable for some companies, but certainly not for Uber.