Uber is considered as the mother of the on-demand economy. Uber’s business model was so efficient that it astonished the entrepreneurs and obliged them to venture in the on-demand startups. Uber is one of those few tech companies that have been valued over $70 Billion. Once it attains liquidity, the revenue will reach sky heights. Uber has already received equity funding of $22.2 billions and it has revolutionized the way people commute nowadays in 785 cities across the world.
The business model of Uber gave birth to the Uber for X business model, where X is any kind of business vertical or niche that can serve the customers’ demands generated through an on-demand application. The famous Uber fox X Business Model has been studied, analyzed, replicated and implemented numerous times by the aspiring entrepreneurs. Here are a few examples of Uber for X model:
- Uber for Laundry
- Uber for Food Delivery
- Uber for Courier
- Uber for Cleaner
- Uber for Doctor
- Uber for Plumber
- Uber for Mechanic
In this article, we will discuss everything from the business model to the success story to the revenue model of the most disruptive on demand startup; Uber.
Success Story of Uber
Uber is not just an ordinary on-demand startup. It is the most successful on-demand business ever built. Its success story is simply phenomenal which cannot be missed. The factors that contributed significantly towards the success of Uber are:
- Uber considered the problem of customers with local taxis
Earlier, people had to scream and wave their hands in order to hail a taxi. Longer wait time, inconvenience and high rates were the three key problems for which no solution was available. Uber looked into this matter and came up with an innovative alternative. It just brought a mobile application that could solve those three main problems of customers related to taxi services.
- Uber was launched at the right time
Uber recognized the ongoing problem of booking a taxi and rolled out a technological solution right when people were desperately waiting for a possible relief by any means. Once the app was launched, people found it extremely convenient to book a ride and it helped them save money. The time was right, not just the riders, even the drivers embraced it and changed the whole concept of booking a taxi.
- Uber was launched at the right place
It is difficult to adapt to a newly launched product or service. On the contrary, the benefit to Uber was the location from where it started. Uber launched its app in San Francisco, a city that is home to tech-savvy people. The cab drivers were professionals who used to work for other cab companies or were self-employed as taxi drivers.
Growth opportunities tapped by Uber
- Party people who go to clubs, parties or events
- Business travelers and tourists
- Cab at the doorstep during bad weather
- City’s nightlife
Global Expansion Scenario
In China, Uber battles with Kuadi Dache and Didi Dache, two taxi-hailing apps backed by Chinese giants Alibaba and Tencent respectively. In India, the cab-hailing app OlaCabs says it has 70% of the market and Uber has 10%. Uber is completing 15 million rides per day (worldwide) with 2 million drivers that means there are 7.5 passengers per driver – on an average. As of March 2018, Uber’s market share in the United States was 73% according to Second Measure, an analytics platform, based on credit card data. Uber internally calculated its market share in the United States to be between 70% and 72%. In March 2018, Uber had 41.8 million users in the United States. In October 2018, Uber received proposals from Wall Street banks valuing the ride-hailing company at as much as $120 billions in an initial public offering, in early 2019.
Uber Business Model
Anyone who has a valid license and access to a car, owns a smartphone and the one who can pass a criminal background check, can become an Uber driver. Riders flag down the driver via a mobile app, which connects to the Uber dispatch and payment platform on the backend. A user’s credit card details are stored on the platform to facilitate the transaction at the end of the ride. Drivers and riders are connected through Uber’s platform.
Uber business model consists of Taxi Driver, Passenger, Fare and Payment, Profits and Growth aspects. Let us explore them here –
- Taxi Driver: Anyone with a driving license and a car can apply for to be an Uber driver in any of the Uber-covered cities. The drivers are provided with all the necessary training and instructions to lock in ride request of the riders through the app. Uber provides a steady income to anyone who has a car that is not being used much and has free time to complete some rides.
- The Passenger: The passengers are the users of the Uber app. The app allows them to book a ride, mark the pickup and drop-off locations, select a car, view estimated arrival time and track the movement of the cab on a map right on their mobile devices.
- Fare and Payment: Uber sets the ride charges and travel fares. They charge premium fare during peak hours and the flat rate for off-peak hours. Passengers can pay through their debit or credit cards, digital wallets, and any other mode of payment that works in their region.
- Profits: Uber usually divides the fare in 80% and 20% ratio in which the 80% of the fare is given to the driver and 20% goes to Uber.
- Growth: Uber does not own any vehicle. That is why all of its earnings are considered as profit. To make way for future needs and accelerate growth, Uber invests considerably in its research and development.
Uber’s Revenue Model
Generally, the fare collected from the rides is the only source of revenue for the cab company, but Uber’s revenue model makes use of other factors as well. As we discussed above, 80% of the fare goes to the cab driver and 20% belongs to Uber. The fare is calculated by the travel time (calculated in minutes), waiting minutes and distance to the destination. Moreover, as per the customer needs and demand, Uber may sometimes charge 1.5X, 2X, 3X or even more for the ride, thereby contributing to the revenue generation. Uber also generates revenue from cancellation fee of rides by the passengers, which is added in their next ride. Other sources of making money include advertising other products and brands while a user is using the app.
Uber has different cab models Like Uber-Share Uber-Moto, Uber-Go, and Uber-X. These variations are designed to fulfill the type and size of cab requirements of the customers. Booking a ride in these types of cabs is same as usual. However, the fare and charges vary significantly.
Uber uses dynamic pricing technique in which the demand of Uber rides plays a very important role. More the demand, more is the fare of the rides. Surge charging comes into play mostly during office hours, bad weather conditions, or when there is a sudden increase in the demand of services. It is a temporary situation in which prices change according to the demand of the service. If demand is high, then the prices are high. If demand is low, then the prices are lower.
In the past few years, Uber has come up with other services as well to facilitate different needs of the commuters. For example –
- UberKIDS: A car with a child safety seat
- UberPETS: For pet transport
- UberWAV: Provides a wheelchair accessible vehicle
- UberMOTO: For transportation by motorcycle
- UberBOAT: A water-taxi service
- UberEATS: Provides meal delivery from participating restaurants within 30 minutes
- UberRUSH: A courier package delivery service and many more on the list
Takeaways from Uber Business Model
Your business should have a minimum ownership model. Uber does not own any cab but still provides over 1 million cab services through the partner network.
Choose a niche that has a prominent problem and come up with a solution. Analyze technology infrastructure needs and the market to target. That is how Uber disrupted the cab industry.
Your initial customers are your brand ambassadors; treat them well as they are important for your business growth. Do not think of capturing the whole economy at once. Instead, try to move forward one step at a time, and do not try to expand unless you have enough resources. Opportunities are the ones that you create for yourself, look for varied niches and try to explore every option it has and see whether you can work on it or not. Treat your workforce with respect and they will stay loyal to you. Uber calls its drivers their Partners and gives them 80% of the total fare.
The Growth of Uber Business Model
Uber will remain one everlasting on-demand business model, unless some other startups start offering the same services in a more convenient way. Uber is more of a future-oriented business model; they are expanding by covering more number of cities. The On-Demand economy is going to flourish with time and so is Uber. Every aspect is considered with the equal amount of importance. There is no doubt that time changes and so does the requirement. However, the most important part is customer convenience, in which Uber is quite a master. It means Uber is not going anywhere, at least not for the coming years and they would try to beat all its competitors.
