Uber is both a marketplace and a platform, facilitating businesses between riders and drivers through a gamified interface. Uber earns money by charging a fee on gross reservations.
Uber is a textbook example of a two-sided market, but its true mechanics and drivers are poorly known.
Let’s discuss the Uber Business Model in detail, including how Uber earns money, where it spends it, and what profitability looks like.
Uber relies on lowering consumers’ expenses to grow, comfortable investing significant sums in driver recruitment and user incentives.
Uber allows its churn rate to reach around 13% each month, even though most on-demand application development companies undervalue retention.
What is Uber?
Uber is an online taxi booking service founded by Travis Kalanvariousick and Garrett Camp. Uber’s business strategy is based on peer-to-peer ridesharing, ride-hailing, and bicycle sharing.
Uber allows its clients to book a car online and have it delivered to their doorstep. It is primarily a cab aggregator and a partnership company.
Uber is a ride-sharing firm that has become fairly popular worldwide, operating in over 85 countries.
Uber’s origins trace back to 2009, and the company has continued to improve and diversify its business since then.
A user can now book an Uber cab trip instantly with the Uber mobile app.
The only thing you need to schedule a cab is a smart device and an internet connection. Uber’s entire concept revolves around utilizing time, proximity, and routes.
|Company Name||Uber Technologies Inc|
|Founders||Travis Kalanick, Garrett Camp|
|Product||Uber Taxi Booking Service|
|Founded Date||March 2009|
|Headquarter||San Francisco, California, United States|
How Does Uber Work?
Uber operates on a two-tiered business strategy. One component is focused on bringing on as many cab partners as possible to provide a smooth experience to the end consumer.
In contrast, the other is focused on marketing Uber to users as a wonderful ride-hailing service that can be used to book a cab with a few clicks on a smartphone.
Uber works as follows from the consumer’s perspective:
The application is the first point of contact for the consumer, as it is here that the customer inputs the details of point A and point B.
The user evaluates and selects ride options based on vehicle size, price, and drop-off time; selects the service that meets their needs and confirms the pick-up.
This is the offering’s foundation. The application algorithm notifies all nearby available drivers of the request, which they can subsequently accept or deny at their discretion.
The destination information is not revealed to drivers before they take a ride so that they will not have a bias.
Once accepted, the passenger is advised of the driver’s identity and the estimated arrival time at the departure point.
This is where the brand’s standards and security features come into play. While the cab is privately owned and controlled by the driver, Uber retains the Uber brand identification.
Once at the departure point, the rider and driver confirm the other’s identity and destination. This is frequently accomplished through the use of two-factor authentication (pin received by the rider).
The driver adheres to the rider’s directions.
Customers can also use the entertainment system and WiFi on premium rides during their rides. This aids in brand development.
The company also ensures that riders have a safe trip. Uber drivers undergo comprehensive background checks to ensure such an event does not occur.
Even riders’ accounts must be verified by their phone number and/or social media accounts.
Uber provides emergency assistance to riders and drivers, including directly calling 911 (or other emergency numbers).
The app also displays the rider’s current location and trip details, easily shared with the emergency dispatcher.
Additionally, there is an option to share the trip’s details and live location with additional friends and family members to protect their safety.
Uber’s payment policy varies according to the geography in which it operates. Regardless of the circumstance, money is often deducted upon the completion of the journey.
It can be paid using cash, a debit card linked to the app, a credit card, a bank transfer, or a wallet. a.
This is a feature of Uber’s operational model that was included to make the offering more community-friendly.
Following each ride, both the rider and the driver are allowed to rate one another. When combined with the ratings they receive from other riders and drivers, this rating is displayed to the other party whenever they book or accept the ride.
Additionally, the social validation system enables the company to monitor its drivers and ensure they adhere to the criteria necessary to satisfy the rider.
Additionally, a rider who violates the terms of service is barred from keeping the drivers’ commitment.
Uber Business Model
Uber popularized the concept of the aggregator business model. This novel business model entails forming alliances and allowing partners to work under your brand rather than independently generating and developing the offering.
Uber, in a nutshell, does not own any cars. Uber aggregates or collects taxi drivers who own their vehicles but operate under the Uber brand.
While the partners offer the actual service, Uber ensures that the service criteria are met — the cabs arrive on time, are clean, take the correct route, and assure the customer’s safety.
And, being the pioneer, this particular business model is sometimes referred to as the Uber for X business model.
Uber’s business model is composed of three major components. Consider each of these components to gain a better grasp of Uber’s business strategy.
It is the passenger who initiates the service. You can start a cab request at any time via the Uber app once you’ve signed up.
Passengers using online taxi services need to feel comfortable and confident due to the customer-centric nature of the market.
Building loyalty and retaining customers is easier when it has this feature.
Uber’s business model relies heavily on drivers. A valid driver’s license and a car are prerequisites for becoming an Uber driver.
Then, drivers are shortlisted based on their background checks. They obtain Uber phones to communicate with consumers.
You can pay with most forms of credit, debit, cash, and online wallets. Several factors determine the total fare, including the type of vehicle, its location, demand, peak hours, weather conditions, and distance.
How Does Uber Make Money?
Uber earns money by operating a ride-hailing service and taking a percentage of fares. Uber also offers an Uber Eats food delivery service alongside a freight shipping service, Uber Freight.
These services operate similarly to ride-hailing, except they connect individuals with delivery drivers and freight shippers, respectively.
Uber appears to be fairly comparable to any other taxi company at first glance. The business model of Uber, however, differs markedly from those of traditional ride-hailing firms.
This means the revenue it generates from rides is not its own since it does not employ drivers.
Uber’s income model consists of commissions, with the company charging a 20-25 percent fee on all fares, depending on geography and vehicle class, for using the Uber brand and services.
Uber connects customers and drivers, offers payment options like credit cards and wallets, a user-friendly application with directions and estimated arrival time, and charges 20-25 percent of the ride fee plus additional fees such as safe ride fees, booking fees, etc.
Furthermore, it is not up to drivers to determine how much they will charge for a journey. You can hire Uber for various rides/offerings at a set rate per kilometer/mile.
1. Fee from riders
Uber’s business model encompasses various taxi services, including Uber Black, Uber ridesharing, Uber taxi, Uber X, and Uber SUV.
Uber charges a commission to drivers for each ride under each of these services. This commission is deducted from the trip’s final fare.
A ride’s total cost depends on the base fare, the duration, the distance, the airport fee, the demand fee, the convenience fee, the service tax, toll and parking fees, cancellation fees, and fees paid for advanced booking. A commission charge of 20% to 25% is charged.
Uber also uses surge pricing to determine the final price.
Customers must pay higher fees during times of heavy traffic, inclement weather, public holidays, or strong demand.
Uber is clear about its pricing policy and notifies customers in advance of the price increase.
Uber’s Mobility division is the company’s primary ride-hailing business.
This is Uber’s largest division, accounting for 55% of revenue in 2020, decreasing 43.1 percent from 2019. Uber discloses adjusted EBITDA on a segment-by-segment basis.
Uber’s Mobility business is the only one that is profitable under this expanded definition. A decrease of 43.6 percent compared to the prior year was achieved by the segment’s adjusted EBITDA of $1.2 billion in 2020.
Uber’s commission of 20-25 percent is determined by the price paid by the customer.
2. Uber Freight
Uber Freight is a logistics platform that connects carriers and shippers.
The company was founded in 2017 and has since expanded throughout the United States and several other countries, including Germany and the Netherlands.
The platform is used by thousands of shippers and half a million truck drivers to streamline the shipping process.
Typically, shipping businesses conduct business through freight brokers who operate as a middleman.
These “Middle Men” connect firms with drivers in exchange for a commission.
Uber provides freight services to shippers for a predetermined fee. Car rides on a per-kilometer/mile basis contribute significantly to Uber’s revenue generation.
Uber Freight, which launched in 2017, connects truck drivers and shippers seeking to transfer freight in the same manner as Uber’s ride-hailing service connects drivers and passengers seeking a ride.
Uber Freight accounts for a relatively modest amount of Uber’s total revenue, approximately 9% in 2020. However, it is rising at a 38.3 percent rate year over year.
Uber Freight eliminates the middleman and links shipping companies and truck drivers directly.
The drivers receive a list of available tasks and pertinent information such as the route, the cargo, and the pay rate.
When they complete the delivery, they can use the app to locate the next task.
Uber’s future focus will be on their New Mobility organization, including electric bikes, scooters, public transportation, and other modes of transportation.
3. Uber Eats
Uber Eats is a meal delivery service that may be the company’s most profitable division.
Uber produced $7.9 billion in gross bookings in 2018, making it the largest food delivery business outside China.
This is a food delivery business that operates online. It serves as a conduit between eateries and potential clients.
Customers can place food orders from surrounding restaurants and have them delivered to their door.
This segment is lucrative because it leverages Uber’s existing network of drivers to provide value-added services to consumers.
Uber charges eateries a fee for bringing in clients.
This commission is proportional to the order’s value. Additionally, Uber charges drivers who utilize the company’s network to deliver food.
This cost is calculated based on the delivery fee and the driver’s earnings. Uber Eats delivers food from over 220,000 restaurants in over 500 locations via local drivers using their normal app.
Uber Eats delivered food to more than 16% of Uber’s active users in the fourth quarter of 2018.
4. Promotional Partnerships
Uber has amassed a sizable consumer base. This gives a chance for other brands to partner with Uber to increase their consumer base.
Uber charges these brands a commission for advertising their products and services on Uber.
Uber frequently engages with these brands on campaigns or displays their advertisements on the Uber app. These collaborations benefit all parties.
Uber profiteers, brands get new customers, and customers benefit from a variety of offers and benefits.
Uber’s massive user base is a key draw for larger firms seeking collaborations as part of their marketing campaigns.
Uber’s business model does not just rely on driver commissions. It also generates revenue by advertising.
Pepsi, Hilton, BMW, Starwood, and Spotify are among the company’s brands in the past.
5. Uber For Business
This is mostly utilized to prevent inefficient and time-consuming travel charges.
If a business has an Uber for Business account, it can create trips and invoiced directly to the company via the Uber driver app.
The Uber for Business and personal profiles provide identical travel experiences: customers can switch back and forth between them for personal and business travel.
However, the organization will be unable to view any information about trips made using the user’s profile, only trips made via an Uber for Business account.
Key Takeaways From Uber Business Model
Uber is one of the world’s largest online taxi service providers.
Uber overcame the issue of local taxis by effectively adopting users, capitalizing on expansion opportunities, and leveraging word of mouth advertising to acquire and retain such a large client base.
All of this has been critical to Uber’s business model’s success, as evidenced by users rarely compare applications for booking cabs anymore.
Uber has been a game-changer for both a cab firm and a business model, inspiring many new businesses worldwide. It is a success and will continue to expand in size.
While the company operates on a truly revolutionary business concept, its revenue strategy has yet to show profitable.
Gross bookings increased to $65 billion in 2019, up from $50 billion in 2018. This results in net revenue of $16.25 billion (or 25% of gross bookings) in 2019.
Uber continues to run at a loss.
However, given the trends and growing need for on-demand services, the company is certain to become profitable in the future.
So, what are your thoughts on Uber’s business model?