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Uber Business Model

Uber’s Uber company model is often referred to as an multisided business model which connects the drivers (offer) and customers (demand) in order to reduce the cost of transportation and provide another source of revenue. Based on Dara Khosrowshahi who is the chief executive officer for Uber, “Uber accounts for less than one% in all the kilometers travelled worldwide. A tiny percentage of the people living in countries where Uber is available have utilized Uber’s services”. But, I’m sure you are aware of about Uber and you’ve probably utilized its services, and probably, you have the app on your phone.

Uber is a technology-driven platform that has revolutionized transportation in cities — and has caused taxi drivers and taxi companies many headaches. It is an application that connects drivers with those who require rides by using smartphones as tool.

A brief background of Uber

Uber’s journey began back in 2008 in Paris. Travis Kalanick and Garrett Camp were at an annual technology event (LeWeb) in Paris and, at one point at this conference couldn’t get a taxi and began to think about what it would be like possible for people to call a taxi on their smartphones.

Camp was thinking about it for a while and, after returning the city of San Francisco, he bought the domain UberCab.com. The year 2009 was the time Camp became the CEO of StumbleUpon which that he had previously sold at a price of $75m to the auction site eBayin fact, Kalanick also had sold his business, Red Swoosh, to Akamai Technologies for $19 million the year before but he was able to start work on UberCab as a side venture.

By the end of summer, Camp persuaded Kalanick to join UberCab which was followed by the formal launch that of UberCab took place in the year 2010. The business grew rapidly. In the following year, it was to be launched internationally in Paris obviously. Since 2009, Uber raised a lot of money and in 2015 it was the most successful startup globally ($51 billion).

Presently, after more than 10 years since its inception, Uber is present in over 900 towns across the globe and has a market capitalization of over $70 billion. Let’s look at what is the company’s business strategy of this ingenuous urban transport giant that lets us access vehicles within one click.

Who Owns Uber

It was the month of June in 2017 when Travis Kalanick was on an UberBlack ride and had conversation between the Uber driver. After the event, Travis removed himself from the position of Uber’s CEO. Then, he started two new ventures 10100, a venture-backed firm and the real state-owned business City Storage Systems.

For Uber’s CEO, Expedia’s previous CEO, Dara Khosrowshahi, was choice following Kalanick was forced to step down and has been in the post until the present.

Uber’s Mission Statement

“We ignite opportunity by setting the world in motion.”

What is the process by which Uber work?

To use an Uber one, you’ll need an iPhone with an GPS system, an internet connection, along with an Uber application installed. After that, within the app, you select your location and the app will find the nearest driver, depending on the exact location of both. When you’re into the vehicle the driver will transport you to the destination you have chosen by using the navigation system built into the application itself.

There are various types of vehicles available in the app, based on the city where you intend to utilize it. There are a few differences in the fees for each category. The value of a race is determined by an Uber algorithm that considers travel distance, the elapsed time and the type of fuel consumed.

There are a variety of payment options, based on the area in which you are using the app. Additionally, there’s an evaluation system that is an essential characteristic of Uber. The user evaluates the driver as well as the driver examines the passenger. So, everyone is able to check the level of trust each other has prior to accepting the ride.

Uber’s Pros and Cons

The biggest benefit of Uber for its users is its convenience. In the beginning the app is easy to use and rarely goes down. Nowadays, almost all urban dwellers have the ability to use a mobile phone, mainly with internet connectivity and, therefore, most people has the ability to ask for a vehicle without even walking one step from where they are.

When they make a request the user will receive a wealth of details about the car’s driver and driver like the license plates, names, photograph as well as the time of service and grade of the system of ranking. This gives more protection to the person making the request. They can transmit their information in real-time to a third party that will give them more security and peace mind.

The biggest advantage is that they can find a job simply possessing a vehicle and a cellphone, having the ability to set their own working hours and also having their earnings being paid often. Furthermore, with the system of ranking drivers also have more security as they are capable of checking the profile of the user and their scores through the app, and decide if they want to continue with the vehicle or not.

Concerning Uber as a company, its main advantage is that it is the first to enter this market. While it is true taxis are rivals to Uber however, the clientele is distinct, as we’re talking about a customer base that is willing to ask for an Uber ride through the app, and not wave at a car they know is blocking their path.

Additionally, Uber has established itself on the market, and not just because it’s the first to have their business strategy, but also because it has created an effective structure that has actually worked and gained the trust of riders and drivers.

In terms of negatives are to be mentioned, we should mention concerns regarding liability and insurance which Uber continues to confront in both the cities which Uber is launching and those where it has been operating. This includes fighting with taxi driver unions and also against a few municipal authorities around the globe.

In terms of the customers, users as well as drivers, the drawback is the absence of a strong competitor. In some areas, there is competition, the competitors can’t force an argument over price such as, for instance, letting Uber almost exclusively decide what they will charge users and, more importantly what amount to pass along to the driver.

How Uber earns its money

Uber’s model of business is based on commissions and is the reason it is the primary income stream. The value of every ride includes the driver’s pay tax, fees, and a company commission. In generally, the driver earns approximately 70% or eighty% of the cost, while the remainder is paid to Uber.

The commission may be about 50% in the short term due to the costs and the minimum cost. However, this isn’t Uber’s only source of revenue. Uber also earns money from promotional partnerships. These are advertising campaigns that are carried out through the app, as well as several times throughout the actual ride (for instance for instance, the BMW 7 Series offered free rides in their latest car to help promote the car). Additionally, it’s important to keep in mind that Uber has expanded its offerings for customers.

The most famous particularly during the time of social isolation triggered by the Covid-19 pandemic can be Uber Eats. It’s a food delivery service that delivers food, and has the same characteristics as the transportation application — connecting restaurant patrons to the restaurants through an online platform and providing the delivery service via partner delivery services. The income streams for this particular instance comprise three streams that are: advertising, delivery charge, and share of revenue shared with the restaurant. The numbers and percentages differ based on the area in which the operation is conducted.

Uber’s Business Model Canvas

Let’s look at how Uber Canvas for Business Models can be developed in the following:

DOWNLOAD HIGH-RESOLUTION PDF OF THE UBER BUSINESS MODEL CANVAS

Uber’s Customer Segments

The general rule is that Uber offers two two customer segments: drivers and riders. The riders side is those who don’t have a vehicle or require travel outside the city they reside in or do not want to drive during a particular moment, such as in the event that they’ll drink alcohol at a concert, party or other celebration. The other side of drivers are the people mentioned earlier and who may be not in the market or in need of some extra cash or may be starting an employment opportunity simply by driving, and making use of an application.

Uber’s Value Propositions

For customers, the most compelling benefit is the ease of not needing to search to find a taxi the car is delivered to you. Cars are always available and their routes can be monitored. Furthermore, prices are usually less expensive than those paid by taxi drivers and passengers can figure out how much the trip will cost prior to making contact with the driver. For drivers, it’s an income source (main or extra) and a position that does not require any experience, and comes with flexible schedules for work and easy access for passengers. Also, don’t forget that passengers can inform the location on this app. This helps avoid miscommunications when speaking of individuals who don’t have the same language. This is an advantage for both parties.

Uber’s Channels

In the past, during those 10 years, the primary source to connect with customers was word-of-mouth. The other well-known distribution channel is social media. Of course, there are the app stores, which is where drivers and riders download their Uber apps.

Uber’s Customer Relationships

The relationship between the customer and Uber is comprised of three parts including the driver, the customer and the regulators. Uber’s primary focus is the client. If the company does not have trust with the user that is, it doesn’t have any need to build a relationship with the two other companies. Transparency about prices and times and trust in privacy and security, are crucial in this case. The second-largest customer of Uber is its driver. Since the driver isn’t an Uber employee, and their vehicle isn’t Uber’s property , although there are numerous lawsuits regarding this issue the company must provide them with favorable working conditions and payment terms to allow its business to continue to operate. In terms of the regulators Uber is seeking compliance as well as obligation under the law in a manner that allows it to abide by the rules of the market.

Uber’s Revenue Stream

  • Share (%) per ride
  • Uber Eats

Uber’s Key Resources

Uber is a company with two major assets one of which is) The platform that connects riders and drivers and focuses on the continuous development of its services and algorithms.) Uber’s brand name. Uber brand that is utilized in every city where the company is operating.

Uber’s Key Activities

Uber’s two major activities include: 1.) developing as well as maintaining its app (and the algorithms it uses) as well as 2) keeping and improving the interaction between drivers and riders. To enable these activities to be successful, the key tasks also include marketing, communications between parties, customer service and much more.

Uber’s Key Partners

Uber’s primary important customer is their driver without whom the company can’t reach its customers and doesn’t provide its value propositions which means it doesn’t earn revenue. They’re the supply side in the supply chain. Another important partner are the investors, who help the company to grow and improve its performance. They provide the initial rounds of capital to help develop the app, the algorithms and innovative ideas, like driverless vehicles. Of course, this income can also be used to fund other expenses. Last but not least, the technology companies include GPS and payment systems, as well as communication cloud storage, data analytics, among others.

Uber’s Cost Structure

Its Cost of the structure for Uber is all about keeping the platform running and marketing to gain the new clients (Customer Acquisition Costs CAC). There are also legal fees and credit card fees. insurance investment in research and development as well as customer service and many more.

Uber’s Competitors

  • Lyft Lyft is the main rival. It was founded in 2012 and Lyft provides services across all of the U.S. and in more than 220 cities. It provides 18.5 billion rides each month. The company went public with an estimated $24 billion;
  • Curb is owned by VeriFoneSystems The company utilizes its own systems as well as credit card machines for operations. It was launched in the year 2015 and Curb manages the majority of the city’s yellow and green taxis. It aims to cover every major city within the U.S.;
  • DidiChuxing was launched in 2009, and is now one of the biggest companies in China It offers services like DiDi Chauffeur, Didi Test Drive taxi hailing, DiDi Minibus as well as DiDi private car rental via its mobile app. The company in 2015 logged 1.4 billion rides, and its value was estimated at $28 billion in 2016.
  • OlaCabs The company was launched in Mumbai in 2010 in the form of an online taxi service. The network now covers Australia, New Zealand, as well as the UK and its value was $5 billion as of 2015. Presently, Ola has a more than 60% of the market in India;
  • Grab The company was established in the year 2011 in Singapore and based in Singapore, the company provides services in the Philippines, Indonesia, Vietnam, Thailand, Myanmar, and Malaysia. In the year 2016’s final days, Grab introduced a messaging application which allowed translation of messages to help break down this gap in Asia;
  • Cabify The company was launched on the 11th of November 2011 in Spain It is regarded as the most secure sector, thanks to its advanced vehicles, experienced drivers and geo-tracking. The company is present across Spain, Mexico, Chile, Brazil, Peru, Argentina and Portugal as well as other countries;
  • Yandex Taxi: This Russian company provides ride-sharing and food delivery services across regions such as the Middle East, Russia, Eastern Europe, and Africa It is also one of the leading companies that develop self-driving cars. The company carried out 1 billion rides at the end of the year with more than 700,000 drivers.
  • Taxis that are local Every major city around the globe has taxi stops, usually near terminals, stations airports, hotels, and terminals. Taxis have the advantage of the possibility of negotiating rates directly with customers.

Uber’s SWOT Analysis

Below, there’s an in-depth SWOT review from Uber.

Uber’s Strengths

  • World-wide coverage: Uber is a global business, which makes it the most well-known brand in the field, considering that it is present in over 85 countries.
  • Efficiency: Uber is accessible to everyone with an internet connection as well as smartphones. It is simple to use, allows interactions with drivers, has a variety of payment options and is generally less expensive than regular taxis.
  • Prices: The company employs several variables to calculate the cost of a journey and also provides more benefits for drivers.
  • operating model: Uber doesn’t have employees This allows the company to invest more in its business and R&D
  • Mark: Uber has the largest coverage in the field it was the very first to launch and received lots of media attention.

Uber’s Weaknesses

  • Legal Proceedings: Uber has been involved in numerous lawsuits that have impacted its image and reputation.
  • Regulations The company has a an history of having problems with the government in relation to regulations and laws of the taxi industry.
  • Sustainable: Uber does not have policies within the company to reduce the environmental impact;
  • Transparency Since it’s an independent firm, Uber does not need to reveal its finances However, this lack transparency makes it difficult to determine if they’re spending money on R&D or not;
  • Safety As with all transport, Uber users are vulnerable to the threat of robbery, abuse and other safety concerns;
  • Internet dependency It relies on smartphones and the internet for its operation, but most emerging countries have issues with those things.

Uber’s Opportunities

  • Expanding: Uber has a massive potential to grow into new markets across the globe;
  • Diversification The company has added food delivery services, but it is able to diversify its offerings and offerings, particularly nipping down to specific categories of transportation such as transportation;
  • Amount of motorists is a matter of debate. Whether it’s the result of an economic recession or no, this business has been able to lure numerous drivers. This boosts the selection of automobiles, which is pleasing to people who use the service, increasing the number of frequent users.

Uber’s Threats

  • Competition High level and growing number of rivals could hamper Uber’s expansion which makes it more difficult to scale up as expected;
  • Margins: Uber keeps low rates, which result in lower margins. For instance, it holds around 88% part of its market shares in Brazil however, it is not profitable there;
  • Regulations: The government could enforce strict rules that could cause harm to Uber companies in a variety of countries.

Conclusion

The popularity of Uber’s business model is apparent by its fact you seldom see users checking prices on their mobile prior to requesting an Uber taxi. Users simply start their Uber app and then enter the destination. Additionally, the company has received a overwhelmingly positive reception from the public particularly in areas where there are problems with employment, because Uber offers a new option to many people who aren’t working.

Entrepreneurs can learn a lot of “lessons” from Uber’s business model. For instance it doesn’t require a lot of equity to launch a company. Uber does not even have any cars and, in fact providing more than 1 million rides daily. Beyond that the founders of Uber saw an issue in the industry and sought solutions. As a result they were able to revolutionize the taxi industry.

Then, there are two of the most important business classes you can enroll in are 1.) Make your employees partners, and) expand one step at each step. Uber began with cars, but is now operating with boats, bikes and helicopters!

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