How Uber works and makes Money: Business and Revenue model of Uber

Updated On: December 21, 2022

Updated By: appsrhino

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Introduction

As a pioneer in the ride-sharing industry, Uber has disrupted traditional transportation and established itself as a household name.

With its innovative business model and user-friendly app, it's no surprise that the company has experienced tremendous success over the years. 

This blog will delve into the factors contributing to Uber's success and examine how its business model sets it apart from competitors. 

Whether you're a budding entrepreneur looking for inspiration or simply curious about the company's inner workings, this blog has something for you.

Uber: An Introduction

Since its inception, Uber Technologies Inc. has ruled the world by becoming the largest global taxi technology company that operates the Uber App. It offers a nonstop 24/7 on-demand taxi-hailing service that is easily accessible via smartphones. Its headquarters are in San Francisco, California, U.S.A. Despite not owning a single vehicle, it is the largest business in the world, with a valuation of more than $50 billion and funds of $10 billion.

  • Founders – Garrett Camp, Oscar Salazar, Travis Kalanick
  • Founding Year – March 2009
  • Headquarters – San Francisco Bay Area, U.S.A.
  • Legal Name – Uber Technologies Inc. (Crunchbase)
  • Total Funding – $24.2B (In 22 funding rounds as of Oct 2018, Crunchbase)
  • Major Investors – SoftBank Vision Fund, Tencent Holdings, Toyota Motor Corporation, and others.
  • Current Valuation – $120B (Source – Bloomberg)

How does uber work?

How does uber work?

To hail an Uber, you'll need a smartphone with GPS, internet access, and the Uber app installed. Then, enter your destination in the app, and the platform will find an available driver based on both locations. As soon as you take the car, the driver will use the app's navigation system to take you to your desired destination.

Different vehicle categories are available depending on the city you intend to use the app. As a result, there are some differences in the rates for each category. An Uber algorithm determines the trip's value by considering the distance traveled, elapsed time, and the fuel used.

Different payment methods are available depending on where you use the app. There is also a rating system, a key feature of Uber. The rider assesses the driver, and the driver assesses the passenger. As a result, everyone can assess each other's level of confidence. 

Uber Business Model- A closer look

The Uber business model, like any other, encompasses many things. There is a lot to learn from the uber business model for entrepreneurs like you who are thinking of stepping foot into the industry. Let's take a closer look.

1. Key Elements

Uber's business model comprises three major components:

2. Drivers 

Becoming an Uber driver is not a herculean task; you only need a driver's license and a car to apply. The Uber offices conduct a shortlisting process, after which the drivers are enlisted and given Uber phones to connect with passengers.

3. Passengers

Users must first register on the app with their smartphone in order to book their respective on-demand services. Uber provides the driver's information and the estimated fare to be paid at the destination. Additionally, passengers can track the progress of their booked rides.

4. Payment And Fare

The cost of a ride is directly proportional to the type of vehicle, distance traveled, and peak hours. The estimated fare is provided to users when they book a ride. However, fares may rise during peak hours and fall during off-peak hours. For users' convenience, various payment methods such as debit cards, credit cards, and wallets such as Paytm (in India) are available.

Uber's Value Proposition

The convenience of not having to search for a taxi — the taxi comes to you — is the most valuable value proposition for customers. Cars are available 24 hours a day, seven days a week, and you can track their movements.

Furthermore, the fares are generally less than those charged by regular taxi drivers, and the rider can get an estimate of the cost of the ride before calling the driver. 

It is a source of income, a job that does not require experience, flexible working schedules, and easy access to passengers for drivers. Not to mention that the passenger informs the app of the destination, which prevents misunderstandings when dealing with people who do not speak the same language, which is a win-win situation for both parties.

Customer Relationship

The customer relationship has three components: the customer, the driver, and the regulators. 

Uber's primary focus is on the customer. If the company lacks credibility with the end user, there is no reason for it to establish a relationship with the other two. Transparency about time and prices, as well as trust in security and privacy, are critical here. 

Uber's second-largest customer is the company's driver. Because the driver is not an employee and their vehicle is not Uber's property. Despite several lawsuits worldwide, the company must offer them attractive working and payment conditions to keep its business running. 

Regarding regulators, Uber seeks compliance and responsibility within the law, within a threshold that allows it to obey market laws.

Uber Revenue Model- Explained!

Uber makes money by taking a percentage of each ride from the drivers. However, a thorough examination reveals that Uber's revenue model is more complex than trip commissions.

1. Commissions on Trips

Uber provides a steady stream of ride requests for its drivers (also known as partners) to accept, fulfill, and earn money. The passenger pays Uber for the ride using the app (or in cash later) while making a reservation. Uber then transfers the amount to the partner's (driver's) account after deducting a fee for acting as a broker (digital broker, if you want to say so).

Depending on the market, commission rates can range from 15% to 30%.

2. Surge in pricing 

Dynamic pricing/surge pricing is a novel concept popularized by Uber. It is now being adopted in other industries, such as food delivery.

When there is a greater demand for cabs than can be served at the time (for example, at the airport after a flight arrives), the fare increases based on a surge price calculation algorithm.

Some drivers move to the surge zone to earn more money (which increases supply), while some passengers choose to wait (reduces demand). It allows Uber to manage the demand-supply mismatch better.

Drivers earn more, Uber earns more, and customers spend more money (but get urgent rides).

3. Premium or XL Rides

Uber provides various ride options, ranging from low-cost hatchbacks to luxury sedans and SUVs. The profit margin for premium rides is much higher, allowing Uber to make more money.

4. Cancellation Fee

If a passenger cancels a ride after a certain amount of time, say five minutes, they are charged a fee.

5. Drivers' Leasing

Uber has a vehicle leasing program in many target countries to help new drivers get on board faster. Drivers must pay an upfront security deposit for the vehicle, and payments are automatically deducted weekly from the driver's earnings.

6. Advertising/Brand Partnerships

Uber is a well-known app with millions of users. This makes it a good choice for brand promotions. 

The current app interface promotes a feed-style layout for easy content consumption. It may eventually become a significant revenue source by becoming a channel for sponsored content.

Conclusion

The fact that users rarely compare prices on their mobile before ordering a ride demonstrates the success of Uber's business model. They simply install the Uber app and enter their destination. 

Furthermore, the company has received a very positive response from the general public, particularly in areas with high unemployment, because it provides a new opportunity to many people who are currently unemployed.

Any entrepreneur can learn a lot from Uber's business model. For example, you do not need much money to start a business. Uber does not own a car and provides over 1 million daily rides. 

More than that, its founders identified a problem in an industry and set out to solve it. As a result, they were able to transform the taxi industry.

Finally, here are two of the most important entrepreneurship classes you can take: 

  1. Treat your employees as partners, and 
  2. Take it one step at a time. 

Uber began with cars and has since expanded to include bikes, boats, and even helicopters!

Want to start with your uber-like app development process? Contact us today! AppsRhino


 

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