Why is Uber going into the food-delivery business in Barcelona?

One of the most effective ways to launch a successful disruptive innovation in a highly regulated industry is by building your business model in the “other” category. Regulations tend to be classified according to industries and types of products: car insurance falls under one set of regulations, for instance, homeowners’ insurance another. Similarly, taxi companies, which transport people, fall under a different set of regulations than courier services, which transport documents and light packages. In any set of regulations there is always an “other” category for companies that are new, rare, or just don’t fit into any of the regulated categories. In every country, for instance, you will find the “other forms of insurance” or the “other forms of transportation” categories.

Uber has faced strong regulation not only in Barcelona but throughout Europe and most of the world, where few new taxi licenses are being issued, so new drivers pretty much need to buy or lease licenses from someone willing to give them up. With its drivers operating without licenses and, in some cases, without paying taxes, Uber looked less like an honest disruptive competitor and more like a non-compliant taxi company to the Spanish regulatory authorities, which recently declared its service illegal throughout the country.

This sounds like a setback, but I think the Spanish government has done Uber a big favor.

That’s because Uber has decided that the company will switch from transporting people to transporting food in Barcelona. This is how it works: Restaurants in (initially) four neighborhoods within the city can order an Uber transport for just 2.5 euros. The Uber driver will deliver the order to the customer in less than 10 minutes. Uber makes 20% of the 2.5 euros. Uber has promised that its delivery drivers will be required to pay taxes as a condition of employment. (Uber is trying this in other markets too, in cities like Los Angeles.)

This relaunch might make Uber a truly potentially disruptive company. By placing the service in the “other forms of transportation” category and paying taxes, Uber and its drivers become legal with a value proposition that is even more potent than the original one. Previously, if they wanted to offer delivery service, Barcelona’s restauranteurs had to find young people with scooters to do the job. Because there were relatively few of them, and they each had to cover a broad area, orders usually took more than half an hour to deliver. By contrast, Uber and its drivers can use the same infrastructure they had for transporting people, and restaurants can use the Uber app to order up a delivery in exactly the same way passengers used to request a ride, so there’s not much of a learning curve. That means restaurants can expand their client base at a much more reasonable cost than they previously could. And the taxi companies can no longer complain, since Uber is no longer in the same business.

Uber’s ability to transform itself by finding a new application for its existing business structure leads me to suspect this is just the tip of the iceberg in terms of its growth. Today, Uber is either illegal or allegal in most countries. But tomorrow Uber may learn to manage an even larger number of licenses in the “other forms of transportation” category than the entire taxi industry for any given country.

Once it’s legal and bigger than the taxi industry, Uber may potentially bring its own pressure to bear on regulators to bring back its passenger business. The usual response of governments in these cases is to re-categorize the license, which is what has happened in New York City with taxi cabs and black car services.

This is what I recommend to my students who want to launch a disruptive innovation in a highly regulated industry: Don’t do it illegally or allegally. Far better to gain a market foothold and grow in the “other” category of the regulatory universe until you become an economic force too woven into the economy for the government to ignore or forbid. Once you have become big enough, chances are that the government will end up making a new license just for you, and you can continue very happily on your march upmarket.