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October 8, 2017, vizologi

Uber Business Model | How does Uber work? | Revenue & Insights

What is Uber? Uber can be considered as one of the largest transportation service providers out there in the world. On the other hand you can also consider the company as a great technology platform focused on transport, it is similar but isn’t the same concept, due to Uber does not have physical assets. The services offered under the Uber brand are not just limited to a specific geographical location. The company is well known among people who are from all parts of the world. The company has now expanded its services in more than 60 different countries in the world, covering 300 major cities. The popularity of Uber is increasing on a daily basis as well and it has become one of the most valued brands in the world as well. Therefore, it is important to take a look at the business model canvas of Uber and figure out what’s unique with it.

Company information

Before exploring the business model of Uber, it would be a good idea to have a basic understanding about the company. Uber Technologies Inc. can be considered as the name of the company, which has given life to the Uber app. Headquarters of the company is located in San Francisco. Uber can simply be defined as an on-demand taxi service. People can reserve the services offered by Uber through a simple smartphone app.

Even though Uber is the largest on-demand taxi service provider in the world, it has not got any fleet on its own. Instead, Uber uses the vehicles provided by third-party owners. The company was started back in 2009 and the operations offered by it have expanded exponentially. The current valuation of the company is over $78 billion, which makes it worthier than Honda, Ford, and GM.

Uber how does it works?

Uber is a company, which acts as the middle layer in between drivers and travelers. The service offered by drivers is provided for the travelers who are in need. For the service offered, the travelers make a payment to the driver via Uber. Then Uber would take a commission out of this service provided. This is the basic revenue generating mechanism of Uber. However, it has evolved along with time and the company has come up with few other methods to generate revenues.

Even though Uber looks similar to a taxi company, you can find many different variations in between the service offered by Uber and traditional taxi companies. Uber is a massive company, which facilitates more than one million unique rides per day. As a result, the company has found it as an easy task to generate profits through a variety of mechanisms.

Uber is a taxi company that can cater the needs of any person, who is looking forward to get hold of a taxi. In other words, the company does not limit its business operations to a specific group of people. If you are a person who loves to travel in a black car, you can find Uber Black. On the other hand, a variety of cost-efficient solutions are also being offered to you. If you are a person who wants to save money by traveling in a compact vehicle, you can go for it. Or else, if you are a person who prefers luxury, you are provided with the ability to go ahead with your preferred selection.

Surge pricing can be considered as one of the most prominent revenue generating streams for Uber. There are instances where the demand for Uber taxis increase. In such instances, the price per mile would also increase automatically. In here, the price would be entirely dependent on the number of people who are booking Uber for rides and the number of drivers who are available to cater the demand. Uber has already applied to receive the patent for surge pricing in United States as well.

Uber business model offers some other types of rides as well. However, these rides are not available in all the countries out there in the world. Uber has now started offering helicopters, boats and other transportation methods for the people in need. Uber recently introduced a motorbike pickup service for the people in Paris. An ice cream delivery service was also started in seven major cities in the world. Moreover, a sophisticated delivery service was started by Uber to cater the needs from San Francisco.

How is pricing determined?

Travel distance and travel time can be considered as the key parameters, which define the end price that the traveler as to pay. It is important to keep in mind that Uber charges all the fees in the local currency. The distance cost is being calculated per kilometer. In some countries, there is an initial fixed fare. The travel time is being calculated per minutes. However, a free number of minutes is being offered per day in some countries.

When calculating the price, Uber takes waiting time into consideration as well. In addition, the taxes relevant to the country would also be added for the final calculation amount. In the last month, Uber introduced a new fee named Appetite Fee. With this feature, the users are provided with the ability to make a payment based on the previous information that he has along with the company.

How Uber app works?

The functionality of Uber app can mainly be divided into four major steps. They include:

  1. Requesting a cab – This can be considered as the starting point of an Uber transaction. People who want to use the services of Uber, in order to cater their transportation needs, go ahead and request for a taxi through the mobile app that they have installed in the smartphones. It would be possible for them to order a taxi instantly or schedule it for a later time slot.
  2. Matching the request to a cab – When a traveler initiates a request, it would be mapped to a service provider. In here, the nearest cab driver would be selected. However, the cab driver has the ability to accept the ride or reject it as per his personal preferences. In case if the cab driver rejects the request, it would be sent to another driver from the area.
  3. Offering the ride – The precise location of the traveler and the cab is indicated on a map via GPS technology. Therefore, the taxi driver would be able to get a clear understanding on where to pick up the passenger. Likewise, the traveler is also provided with the chance to see where the taxi driver is and what route he is following in order to pick up. The drivers who work for Uber are always friendly and a comfortable experience would be guaranteed for all the passengers. The estimated time of arrival is also shown to the traveler to make it a smooth experience for everyone.
  4. Payments – When the ride is successfully completed, payment is deducted from the customer. The customer can use cash or credit card to make the payment. In here, ability is provided for the travelers to use promotion codes to get discounts from their rides as well. Apart from the payments, the travelers are also provided with the ability to rate the service offered by taxi drivers. These ratings would be added to the profile of the driver. People who make a booking for a taxi would be able to see this rating, when they are being assigned to a specific driver.

What has contributed towards the popularity of Uber?

Business innovation can be considered as the main reason, which has contributed towards the popularity of Uber. In this sharing economy, people are always looking for conventional methods to save money as much as possible. That is where the service offered by Uber comes into play.  

Uber has grown into a significant online marketplace along with time. Therefore, travelers do not need to wait for extended durations of time to get hold of the taxis that they want. The prices that they have to pay for the taxis are also low, when compared to the service offered by other taxi companies. Uber always focuses on delivering a personal driver for the people in need. As a result, all the travelers would be provided with the opportunity to travel in style. In some cases, the travelers will be able to experience amazing discounts and even free rides. On the other hand, the price offered to some of the common places, such as airports is fixed.

If you see how Uber drivers work, you would realize that it is one of the best options available for the people to earn a decent income out of the vehicles that they own. They just need to offer the vehicle for the ride of people in need. Flexible working hours are being offered for all the riders and you will never be restricted to any commitments. Whenever you are free, you can simply go ahead and start offering the service. Uber has created a convenient payment procedure for the people in need as well. All the drivers would be paid online and it has also become popular among customers who pursue their hobbies.

Uber Business Model and Strategy:

We can consider this giant as a pioneer of the term called sharing economy, the truth is that Uber can be one of the first into the on-demand economy, when you talk about a pure sharing economy is where the individuals can exchange goods and services between them.

I have something to give you and you have something requested, then the technology acts as an intermediary. Uber takes as a competitive advantage people who want to provide services with people that demand city transport solutions.

Below you can find the business model canvas detailed and explained covering the following aspects the key partners, key activities, key resources, value propositions, customer relations, channels and customer segments of Uber:

Uber business model and strategy

Step by step:

First/ Key partners. Who does Uber help? What is his customer segment?

  • Passengers those who do cannot own a car.
  • Citizens who need a taxi service.
  • Party people who go to clubs, parties or events.
  • Business Travelers and Tourists.
  • Drivers (people who own a car and want to earn money), why we consider the Drivers as a customers? The main reason comes from the sharing economy concept, in case of Uber the drivers are clients too into the platform more than workers, this people are users into the APP but with another role.

Second/ What’s the value proposition that Uber offers?

  • The smartest way to get around.
  • Customers profit all the advantages of Taxi on Demand, Cash free, Easy to order cab and short wait time, Low price, Cab map tracking.
  • Drivers can obtain additional source of income, flexible work schedules and can work part-time, easy payment procedure, drivers get paid to be online.
  • Digital experience – just one click and ‘voilà‘ everything happens.
  • Two-sided market the platform offers advantages for both drivers and passengers.
  • Self-driving cars technology for upcoming years.
  • UberEATS as a food delivery platform powered by Uber.
  • UberRUSH as an on-demand delivery network that makes getting things in your city more simple.

Tirth/ How does Uber reach his customers? What are his channel strategies?

  • Word of Mouth, as a successful start-up everything starts between the people conversations.
  • Mobile App offered for Android and iOS in several marketplaces.  
  • Uber services (UberX, XL, UberSelect, and Black Car)
  • Websites.
  • PR Public relations.
  • Social media.
  • Moreover, traditional advertising channels like FM radio, Newspapers, Online advertising etc.
  • The company extended his channels footprint, using Uber Rush and Uber EATS.

Fourth/ What kind of customer relationships have Uber with his clients?

  • The company is well known for the quality of the service provided.
  • You can consider a 100% digital mobile experience.
  • Truly Convenience.
  • Highly automated.
  • Self-service.
  • Besides of Review, Rating & Feedback System.
  • Customer Support.

Fifth/ How much revenue it takes? What are the main income sources?

  • Pay per ride charges, usually low than the traditional taxi industry.
  • Surge pricing.
  • Premium Uber brands.

Sixth/ How does Uber do it? What are the main activities develop in his business process?

  • Platform development & maintenance.
  • Marketing and Consumers acquisition.
  • Balanced supply and demand.
  • Hiring Drivers.
  • Drivers Payments.
  • Customer Support.
  • Worldwide footprint extension.
  • R&D research and development including new project developments like self-driving cars, Uber dedicates a large number of resources and money to build innovations, as soon as the technology enable the self-driving approach, the company will add another disruption layer, avoiding the human intervention, that is the next steps in the industry.

The controversy is already open and in upcoming years, the transportation will be not the same, the property will give away to a monthly subscriptions o pay per use models and Uber will be one of the main actors.

Seventh/ What does Uber needs? What are the main resources needed?

  • Uber Platform.
  • Pricing Algorithm.
  • Routing Algorithm.
  • Automation.
  • Artificial Intelligence (AI).
  • Self-driving technology.
  • Salient Features.
  • Skilled Drivers who own vehicles.
  • Staff.
  • Offices.

Eighth/ Who is helping Uber? What are the main partners of the company?

  • Drivers who own cars, in this case they play a double role, first of all as a clients into the Application and on the other hand they are the main partner added to the offer, critical at this time.
  • If Uber does not have voluntary workers added to the platform, the company has nothing to bring.
  • Payment Processors, as a third party providers of the solution.
  • To be honest behind the scene of the major innovation platform from the last years are biggest traditional banks like Goldman Sachs, Morgan Stanley, and BlackRock, besides of many angel investors like Google Ventures, Baidu, and Toyota.
  • TomTom mapping data, a strategic technology partner from the early stage of the company.
  • The Early adopters that used the app in at the beginning of the launching.
  • It has a partnership with public transit agencies.
  • Volvo partners with Uber on self-driving cars.
  • It has collaborations with Dream Drive.
  • Uber partnered with Blade to offer “UberCHOPPER” helicopter rides from New York City to The Hamptons.
  • The company partnered with Airbus to test UberCopter.

Ninth/ What are the company cost structure?

  • Salaries to permanent employees. Marketing, programmers, architects, administrators, and so on.
  • Payment to drivers. As a truly brokerage uber pays low salaries to the drivers, just in case the drivers do not have to pay a taxi driver license, so in other words, the lack of salary is balanced with the lack of investment, in the middle the technology do the rest.
  • Platform development including servers, storage, operation, support, etc.
  • R&D, a great number of investments are made by the Innovation department, not in all the cases are directly because of the joint-venture structure.
  • Events, Marketing, and Advertising. As any other company to scale to the next level, a huge advertising investment is needed, that is the role for the main banking investors, put the money on advertising to enable the next big step of every start-up through ads.
  • Legal, a non-negligible cost, in many cases the irruption of the company in several countries or cities has supposed a great investment in lawers.
  • Taxes. Like all mortals but less than usual, due to the new technology companies approach that bring new opportunities.

Reader remember that Uber is not a transportation company, is a technology platform company, which is an advantage in all the cases where the Uberzation comes everything changes.

If you want to know more about the sharing economy concept or the on-demand services please visit the following canvas, Airbnb, Doctor on Demand, Canary, Magic, Postmates you can also access to our business model canvas examples here.

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