Business Model Of Uber: Explained in detail

To a common user, a plethora of questions arise in the mind when he books a cab or taxi from Uber especially when it provides a lot of offers. The potential questions are:

• What is the business model of Uber?
• How Uber Works?
• How does Uber Make money?
• What is the business strategy of Uber?
• Why is Uber so successful?

There is no doubt why an aspiring entrepreneur asks such questions. The business model of Uber is so successful and popular that it has fuelled a new startup economy, the “on-demand economy”. Hence, an entrepreneur must have a deeper understanding of this model. It will play a pivotal role in modeling your own on-demand startup business idea.

Amplework has always come forward to share its learning. With this blog post, we want to share the knowledge of Uber’s Business Model.

Start with Basics: Founder, Facts, Figures, and Fundings of Uber:

Before delving into the business model, let’s know a brief history of Uber, some facts about it, its journey from a small startup to a billion-dollar company.

Do you know that Uber was initially called UberCab?

Initially, the app only had the option of hailing a black luxury car

• Founders of Uber:

Garrett Camp, Oscar Salazar, and Travis Kalanick

• Year in which Uber was founded:

March 2009

• Uber Headquarters:

Bay Area, San Francisco, USA

• Legal Name:

Uber Technologies Inc. (Crunchbase)

• Total Funding:

$24.2B (In 22 funding rounds as of Oct 2018)

• Major Investors:

SoftBank Vision Fund, Tencent Holdings, Toyota Motor Corporation, and others.

• Current Valuation:

$120B (Source – Bloomberg)

Business Model of Uber: How Uber Works?

Now, Uber is not just an on-demand taxi-hailing startup that we commonly know but it has also expanded its roots in many other domains as well such as Uber Eats ( Food Delivery), Uber Freight (Trucking on-demand), etc. In this article, we would be focusing on the main domain of Uber for which it is popular i.e. taxi-hailing service.

If we talk in simple words then Uber is a digital aggregator platform that connects the people who are looking for a cab to reach a destination with the drivers who are willing to serve them.

Passengers create the demand while the drivers supply the demand and Uber is serving as a connector or facilitator or a marketplace to make this complete operation perform seamlessly on its app.

Well, it sounds pretty amazing. It also seems an easy process but there are many things to take care of. With this model, Uber has been successful to generate strong value propositions for both passengers and drivers to get onboard on this platform, and create disruption in the taxi/cab industry.

The value offered for Passengers by Uber:

• Booking a Cab
• Real-Time Tracking
• Accurate ETAs
• Cash or Digital Payment
• Lower Waiting Time
• Upfront Pricing
• Multiple Ride Options

The value offered for Drivers by Uber:

• Flexibility to drive the taxi on their own terms
• More Revenue
• Lower idle time for finding new passengers
• Training sessions
• Helps with vehicle loans
• Real-Time Tracking

Business Model of Uber:

Key Partners

• Drivers
• Technology Partners (API Providers and Others)
• Investors or VCs

Customer Relationships

• Ratings & Feedback System
• Customer Support
• Self-Service
• Highly Automated
• Meetings with Regulators

Key Resources

• Technology Team
• AI or ML or Analytics expertise
• Network effect (drivers and passengers)
• Brand Name and Assets
• Data and Algorithm

Key Activities

• Add more drivers
• Add more riders
• Expand to new cities
• Add new ride options
• Add new features
• Offer help and support

Customer Segments

• People who don’t own a car
• People who need an affordable ride (Uber-Pool)
• A person who need a premium ride
• Customers who need a quick ride
• People looking for convenient car bookings
• People who can’t drive on their own

Channels

• Mobile App
• Social Media
• Word of Mouth
• Online Advertising
• Offline Advertising

Value Propositions

• For Passengers
• On-demand bookings
• Real-time tracking
• Accurate ETAs
• Cashless rides
• Upfront pricing
• Multiple ride options

For Drivers:

• Work Flexibility
• Better Income
• Lower idle time
• Training Sessions
• Better Trip Allocation

Cost Structure

• Salaries to employees
• Driver Payments
• Technology Development
• R&D
• Marketing
• Legal Activities

Revenue Streams

• Commission per ride
• Surge pricing
• Premium rides
• Cancellation fees
• Leasing fleet to drivers
• Brand partnerships or Advertising

How Uber Makes Money?

In broader terms, Uber makes money by taking its commission from each ride from the drivers. But if deliver more into the revenue model of Uber, then it is more than just taking commissions.  Let’s discuss every oil well.

Trip Commissions

Uber provides its drivers with a robust supply of ride requests. Probably it is among those businesses where the demand is higher than the supply. The drivers can accept as many requests as possible. During the ride, the passengers make a payment to the Uber (not to the driver) in cash or digitally. Uber then transfers this payment to the driver after taking a commission for doing the work of an aggregator.  The commission will depend on the market. It can vary from 15-30%.

Surge Pricing

Surge pricing is a very creative concept that has been popularized by Uber and it has been adopted by other verticals as well as food delivery.

Whenever, there is a rise in the demand for taxis that can be served within that area and that particular interval of time, e.g. at a railway station in the morning after a major train arrived, the fare also went up based on a surge price calculation algorithm. Even though many drivers move to the surge area to earn extra money (due to more supply) while on the other side, many passengers wait until the demand gets reduced. This way Uber manages this situation of demand and supply.

Premium Rides

Many customers wish to get in nice sedans or exclusive cars especially when they are going to a special function. The profit margin for premium rides is much higher than the normal rides.

Cancellation Fee

The cancellation Fee is a very unnoticeable part of making money in Uber. If you cancel a ride after a particular interval of time then you will be charged the cancellation fee.

Leasing to Drivers

There is a leasing program run by Uber in many countries. In this program, it helps the driver to get onboard faster. They just have to pay for a security deposit for the vehicle and payments will be automatically deducted from their weekly earnings.

Brand Partnerships/Advertising

Uber is amongst the most popular apps across the globe with millions of active users. Hence, it becomes a good platform for companies to do promotions. Its current app interface pushes a feed style layout for intuitive content consumption. Over the period, it may go on to become a strong revenue source by becoming a channel for sponsored content.

New Business Verticals

As we mentioned above, Uber is not just a cab-hailing company but is also working in the other verticals as well. It is using its existing drivers for services like food delivery, truck services too.

Uber Eats

Uber Eats is a popular food delivery service. It is an on-demand food delivery app in which the user can make an order from the nearby restaurant listed on the app, and the delivery guy from Uber will pick up the order and deliver it to the customer. It was a great step for Uber to enter in this vertical as it aligns with the ridesharing business and also helps in managing its large fleet of drivers.

What did we learn from Uber Business Model?

We can always learn something from someone else’s journey. Uber is a pioneer in the on-demand industry today. It has seen its fair share of challenges over the period and been able to maneuver through most of them successfully.

Below are the outcomes of this case study:

Creating solutions for real-life problems

This is something jaded but can’t eliminate it. A real entrepreneur must find the problems in society and what solution he or she can provide. You have to figure out what technology to leverage just like Uber used mobile technology.

Don’t stop innovation

After reaching success, don’t believe it is the zenith. When a new market is created, competitors arise. Uber knew that after going into the ride-hailing business, competitors will come and it happened. But they keep innovating. They keep adding new features and functionalities to not lose their market.

Wander for scalability

It is crucial to building a scalable business model else you will not survive in the market. The platform of Uber is such that it can easily go into other business verticals too.

Keep Overhead costs low

It is not essential that for running a lean business model you require large infrastructural investments. Also, you will need a skilled workforce in a tech startup. This will increase your required costs for paying them. One effective way is to outsource the mobile app development to a reputed mobile app development company like us and just focus on the business part.

Wrapping Up:

We owe to Uber for the proliferation of the On-demand industry.  Its success is an example for many others. We, at Amplework, the best mobile application development company in India, can help you in building a great mobile as per your requirements, and you just need to focus on managing your startup, business, and all the necessary parts except the app development.