What do we make of a mark that has broad name recognition but struggles commercially? Stated otherwise, what is the relationship between trademark awareness and brand strength? Take the case of the Uber company: Is the "Uber' mark widely recognized? The answer is-- “yes”. Is "Uber" a strong brand? The answer is—(maybe) "no".

Let's start with the public’s awareness of the "Uber" mark. This Kat believes that he is on firm ground in saying that the mark and name have become widely recognized, both in the country of its establishment, the U.S, as well as abroad. Indeed, it is often used as a virtual synonym for the business of the sharing, or "gig" economy (as in when reference is made, with a whiff of genericness, to a business as the “Uber of [choose your sector]").

But is a mark with such broad public recognition a strong brand? After all, while trademarks are first and foremost a legal construct, they also provide the focus for the brand value of the business identified by the mark.

Consider the second quarter earnings reported by Uber (remember, Uber went public earlier this year, so it now has a quarterly reporting requirement). As widely noted, the company lost $5.2 billion dollars for Q2 2019. True, a portion of this loss was due to a one-time expense of about $3.9 billion for stock-based compensation paid out to Uber company employees following the IPO.

But that still left a loss of about $1.3 billion, nearly twice the amount of the loss in the previous year. Taking that into consideration, the company said that it expected to lose between $3.0-$3.2 billion this year. Add the fact that the company had its lowest disclosed quarterly growth rate.

All of this led Mike Isaac, a New York Times journalist who is the author of a recent book on Uber (“Super Pumped: The Battle for Uber”), to question the business model of the company as a profit-making enterprise. Thus, he wrote on August 23rd--

In cities around the world, Uber faces well-financed competitors offering a substantially similar product. And its food delivery business — a bright spot that executives point to for growth prospects — is in danger of becoming another cash-suck. Uber and most of its basically indistinguishable competitors (it names 10 of them in a recent filing) are subsidizing customers’ meals in a bid for market share, with profitability a secondary concern.

More recently, some Wall Street analysts, here, have expressed greater optimism about the company (and Lyft, as well), at least regarding the share price. But against that upbeat view, Isaac continues to paint a gloomy picture for the company, which aspires to achieve financial success by being a one-stop shop for transportation.

However, until now, the company has failed to show that it can scale such a business to reach profitability, especially when network effects are irrelevant (the Uber business model is not that of Facebook). In such a world, brand loyalty may be an elusive, even unachievable goal.

If so, does Uber represent an instance of a mark that is well-recognized by the public but is commercially is a weak brand? Lett’s take a closer look at the evolving understanding of a “strong brand", resting on the notion of a trademark as providing information about the brand to consumers. The earlier paradigm, described by Jerre Swann, in a 2014 article, as the anti-trademark, "Harvard School" approach [derived from the work of Harvard economist Edward Chamberlain], viewed a strong mark (quoting Daniel McClure) as one that—

[b]y successfully differentiating a standardized product from competitors’ products and achieving brand loyalty through advertising, a producer could insulate his market share from price competition … [and] create high barriers to entry.

As noted by Swann, this view was upended in the 1970-1980’s. Trademarks were no longer seen through the prism of constituting high barriers to entry and the role of advertising in erecting and preserving these barriers to entry.

Rather, emphasis was placed on advertising as providing valuable product information, offering a solution to the high search costs of consumers for such information in the absence of advertising. This pro-trademark approach was called the "Chicago School", because of the central role played by academics at the University of Chicago in developing this line of economic thought.

The Chicago School can be described as follows: (i) the trademark is the essence of the brand, communicating to the consumer information about the product and thereby lowering consumer search costs; (ii) this information about products includes quality, reliability, and image; (iii) lower search costs create incentives for investing in higher quality products; (iv) inferior product quality will be punished by the consumer by withholding subsequent purchases of the branded product; (v) brands that are more heavily promoted (“strong brands”) are more likely to convey the types of product information valuable to customers; and (vi) “better” brand information thereby provides a competitive advantage for its owner, including receiving a premium price for the product.

As summarized by William Landes and Richard Posner—

The more resources the firm spends developing and promoting a mark, the stronger will its mark be and the lower consumer search costs will thus be: so the firm will be able to charge a high price.

However, if the mark is not “strong”, neither the consumer nor the brand owner will be able to take advantage of the brand in an optimal fashion. It would seem that "Uber" does not meet the test for a strong brand. True, the brand is heavily advertised, but that has translated neither into steady profits (or the near-term likelihood of such) within the U.S., nor relentlessly successful expansion abroad. [One need only consider how competitors have bested it in such places as China [Didi Chuxing], Singapore [Grab] and India [Ola].

The company may have succeeded in creating a lasting new way for transporting people around (unless regulatory and legislative pushback, such as the recently enacted law in California requiring the business to treat drivers as employees rather than contractors, here, becomes widespread), but the long-term effect may be to turn it into a commodity, where familiarity with local market conditions and price competition, not brand strength, are paramount.

At the end of the day, a shared economy rider may not care [read: no brand loyalty] whether Uber or some other commercial transportation source provides the service, especially when the service is viewed as a roughly fungible.

When IBM concluded that the personal computer had become a commodity product, it ultimately abandoned the business. The strong IBM brand endures as the company successfully remade itself. It is questionable whether Uber has such an option.

By Neil Wilkof

Photo on left by pan Martin Jebas.