Posted on: | Posted by: Charles Coleman

How Uber works and Make money: Uber Business Model & Revenue model

Introduction to Uber

Uber is the undisputed king of the sharing economy. Besides pioneering the change in the transportation market, Uber developed a technology platform with various customer groups. Uber offers services like the ride, drive, eat, business, freight, health, Uber air, advanced technologies group. Uber business model is an inspiration for entrepreneurs. Founded in 2009, uber launched their website in 2010, and today uber is almost ubiquitous, i.e. present in more than 65 countries, and over 600+ cities. Uber business model canvas elucidates the processes behind the success of uber. Uber’s business targets the creation of value propositions. Uber business model canvas explicitly demonstrates the cost structure, customer segments, key partners, key activities and a lot more.

Uber Founding Team, Funds Raised and Uber’s Journey so far

Uber was founded under the name of UberCab by Garrett Camp and Travis Kalanick. Having spent $800 by hiring a private car to get to his friends on New Year’s eve, Camp thought, he tried to figure out an economical way that an average joe can afford. Camp envisioned multiple persons sharing a cab would bring down per head cost and thus UberCab was born. Kalanick later joined Camp into this venture.

Uber, from just an idea to the great Uber, a multi-billion dollar global on-demand taxi booking business, Uber has achieved tremendous growth. Uber business model and Uber Business model canvas is something very inspiring for every entrepreneur.

Uber is headquartered in San Francisco, California, U.S. Uber CEO is Dara Khosrowshahi, he succeeded Travis Kalanick in August 2017. Uber is worth $82 Billion. Uber’s services are enjoyed by 75million+ globally. Negotiating with investors, the Uber received a funding of $24.7 billion. There are 3 million drivers registered with Uber accounting for daily of 1.5 million trips.

uber funds

Uber’s upcurve

How Uber Business Model works in simple five steps

The Uber Business Model enjoys a rich client base from its ride services. Uber capitalizes on these client bases to expand their services across various business domains. The primary ride business works as:

Using the Uber app, the rider books an Uber and is picked from the location that is shared.

Uber driver’s details are all accessible to the rider.

The rider can book a cab as per his needs, e.g. UberX, UberXL etc.

Payment at the end of a journey can be either cash or cashless, i.e. through the card.

The rider can provide his/her journey’s feedback from the Uber app.

Uber Business Model – How Uber Works?

Uber has a two-sided marketplace business model. There are two primary sides of Uber Business Model:

Uber Business Model

Taxi Drivers: Drivers form the supply side of this two-sided market of the Uber business model. Drivers bring to Uber:

Self-managed Vehicle

Driving experience in the region

Know-how of the region

Uber provides to drivers:

Better income

Lower idle time for new rides

Flexibility to drive

Training

Assistance in getting vehicle loans

Passengers or Users: Users from the demand side of the two-sided market of the Uber business model. Uber being on-demand transportation service company fulfils all kinds of transportation needs of the Passengers. Customers bring to Uber:

Demand for its services

Rate the drivers

Feedback for the vehicle

Uber Business Model facilitates the customers as:

On-demand cab bookings (Convenient)

Accurate ETAs

Upfront pricing

Cashless trips

Real-time tracking

Reduced wait time

Multiple ride options

Uber business model has made it possible for people to simply tap their phone and have a cab arrives at their location, leaving a lot of young startups looking for an App like Uber.

Uber Business Model Canvas

Uber Business Model Canvas

Uber Business Model Canvas

Uber business model canvas has the following elements:

Key Partners – One of the highlights of the Uber business model is Uber’s partnership with various stakeholders such as with drivers to provide vehicles and share revenue with them, an asset-light model, the Uber Business Model. Apart from these Uber partners with Payment processors, Map API providers and Investors to keep growing.

Key Activities – To make Uber a successful company, Uber Business Model focuses on various tasks such as :

Product development and management

Marketing and customer acquisition

Hiring drivers

Managing driver payouts

Customer support

Key Resources: Uber business model success lies in two resources, i.e. technological platform and skilled drivers. Uber has spent a lot of time and effort nurturing these resources. Uber’s technological platform is quite user-friendly, robust and use advanced technology. Similarly, Uber Business Model incorporates a vast network of skilled drivers who are being trained regularly on how to serve their customers better.

Uber Business Model Value Propositions

Uber’s Value Proposition for Passengers

User can book a cab on tap of a button, can get it at a very reasonable price and right outside their door. User need not keep track of path driver is taking as they have all the trips recorded on map. Uber shows users ETA for the destination.

Uber’s Value Propositions for Drivers

Uber business model allows drivers to choose their work shift and manage their schedule. Uber follows easy payment procedure for drivers and drivers are paid on time through the internet without any hassle of follow-ups or going to the bank to collect payment.

Uber Business Model Customer Relationship

Uber makes use of social media, customer support and review system to stay in touch with its customers.

Uber Business Model Customer Segments

Passengers/Users: Uber targets customers who don’t want to drive or who don’t own a car. Someone who values time more than money such that they need not worry about car parking, filling gas or vehicle maintenance.

Drivers: Uber look for people who love driving and want to earn while driving. Someone who wants to be their own boss and manage their own schedule.

The Uber Business Model Channels

Uber offers its services through the website, mobile app for iOS and Android

Uber’s Cost Structure

Acquiring customers is a challenging task for any company and Uber is no exception. Customer Acquisition Costs (CAC) is key for Uber business model success. It includes sales, marketing & promotion cost is the biggest cost element for Uber. For instance, they spent roughly $3.2 billion in sales & marketing in 2018, of which $1.8 billion is direct media/HR cost to drive customer acquisition. In 2019 first quarter this amount has already crossed $4 billion in the first quarter. Apart from this, there are several other costs that are part of the Uber revenue model :

Infrastructure cost

Research and Development

Platform maintenance

Legal and settlement costs

Insurance costs

Customer support, and more

Uber’s Revenue Model – How Uber Makes Money?

Uber’s revenue model is unique in itself as it is based on a variety of factors. It not only includes the revenue through the customer’s trip commission but also the surge pricing, revenue from cancellation of rides and endorsement of other products on the app. Furthermore, the details of Uber’s Revenue model are as follows:

Trip Commissions: Uber keeps 25% of each fare booked through its app, while its rival Lyft takes 20%. Uber sets different rates for every city. Trip commissions are the major contributors to Uber’s revenue model.

Surge Pricing: Uber increases the rates based on set algorithms which are driven by demand-supply gap. Uber gains extra revenue and makes better profits during peak hours and on special occasions. Surge pricing act as premium earning to Uber’s revenue model.

Premium Rides: Uber started as a simple cab booking business, but after its success, it increased its offerings by including luxury sedans and sports-utility vehicles(SUV).

Cancellation fee: Part of Uber’s revenue also comes from cancellation fee that Uber charges its customers. It helps Uber to keep a check on a number of cancellations.

Leasing to drivers: Uber earns revenue by leasing cars on lease to those who are willing to join Uber as drivers but do not have their own car.

Brand Partnerships/Advertising: Uber leverages its large customer base by charging a fee to other businesses to advertise their services and products.

Watch closely theUber Business Model Canvas – Understand it before you make an app like Uber.

Strengths of Uber Business Model

Asset Light Model

Uber business model is asset-light, and it allows Uber to operate without any need for fixed investment. Uber acts an aggregator of taxis. It has expanded rapidly because there is no fixed investment or infrastructure required.

Ease of Use

Uber business model and user interface are so simple for all its stakeholders such that customers can book a taxi anytime and can get it right outside their door.

Customer Satisfaction

Uber Business Model has always prioritized customer satisfaction and hence is key to the success of Uber Business Model. Uber has understood that it is serving in a totally customer-driven market where competition is increasing.

Dynamic Pricing strategy

Uber Business Model has adopted the dynamic pricing strategy which works on the demand-supply principle of economics. Higher the demand, the higher the price. This becomes really beneficial for the company and the drivers. In peak hours as well as in Nighttime, drivers earn a good amount of money.

Adaptive

Uber Business Model is adaptive very well to business conditions. Because of its international exposure, Uber faces various problems in various regions. Smart marketing strategies have helped Uber to adapt to new markets. New Uber Business Model Verticals – Uber Freight, Uber Eats

Uber Business Model for Uber Eat:

Uber eat benefits from existing Uber user who are willing to pay for delivery of food. Uber eat app displays the latest food images from the best restaurants around. User can order from the Uber app and get the food delivered at the table, against nominal delivery charges.

Uber Business Model for Uber Freight:

UFF (Uber for Freight) is an innovative transportation solution that seeks to match shipper’s load with drivers and trucks through algorithms.

uber business model

Source: Innovative Transportation Solutions: Uber for Freight, By: Leah Davis & Joseph Lucido

UFF empowers shippers and carriers to communicate with each other without human intervention. If the shipper agrees to a spot price, an algorithm will match a carrier to the shipper based on load requirements on the basis of size, weight, classification, destination, route, carrier qualifications and certifications. As the carrier accepts the load, the driver picks up the load and delivers it to the receiver.

Uber Business Model for Health:

Healthcare organizations are associating with Uber to facilitate patients with a reliable way to get to their appointments scheduled. An Uber trip in time helps a patient get an appointment they would otherwise miss.

How and Why Uber became so successful

Uber business model treated drivers as its partners by incentivising them to work hard and earn more Uber’s user interface is very simple such that even a baby can book a cab

A sharp focus on solving customer problems and offering a solid value proposition, i.e. cab right at your doorstep at a very reasonable price.

Offering absolute convenience to its users such that customers can book a cab any time of the day anywhere in the city.

Uber business model has its inherent advantage for rapid expansion.

Problems Uber still faces

Safety and Trust Issues: Even though Uber is providing regular training to its driver-partners, it is still not able to curb the bad or rude driver behaviour cases. Uber has taken steps such as police verification of drivers, capturing their national identity details but such cases still exist and keep popping up from time to time, thus raising questions on Uber business model.

Lawsuits: Uber business model treats all it’s drivers as partners and not employees. There are many who demands employee benefits should be given to drivers. This has lead to a lot of lawsuits being filed against Uber in various courts across the world. Some also feel Uber drivers need a Taxi driving license without which Uber should not be allowed to operate. But these both these concerns are against Ubers asset-light business model which is driven by partnerships.

Future of Uber Business Model

Uber has opted for the asset-light business model as it doesn’t own any taxi. This model allows Uber to generate higher earnings with little investment in infrastructure, which provides flexibility to expand. Uber has a vast number of opportunities ahead, ranging from new cities to new segments such as Uber Freight, Uber Eats. Uber business model is asset-light and allows it to expand rapidly in different cities as well as segments. But rapid expansion comes at a cost, even though Uber is expanding but a profitable business model is still far fetched idea for Uber.

Takeaways from Uber Business Model

Opt for asset-light business model. Uber does not own any cab but still provides over 1 million rides a day through its cab network.

Consider your workforce as your partners. Uber calls its drivers as partners and works on revenue sharing basis with them.

Believe in your business model and treat your customers well, growth will follow.

Study an industry, find a problem which if solved on the scale can disrupt an industry

Expanded slowly, Uber started with cabs. Once the Uber business model was proved for cabs, it expanded to other segments such as Helicopters, boats, bikes, etc.

Create a revenue model that benefits all stakeholders so that they feel attached to it. Uber created value for customers, drivers and for itself.

Use technology to build scale in your business model. Uber business model was scalable as it uses technology to automate the processes.

Conclusion

Since inception, Uber has revolutionized on-demand transportation service or taxi booking service by providing a very easy and convenient way to commute. Uber business model – A business model where businesses reach out to serve customers at their location. This business model has become so successful that it has been adopted by many startups for various other domains looking for solutions for Uber-like App based on Uber for X model.

If you are inspired by Uber business model and are aspiring to follow the footsteps then one such platform that can fulfill your dreams is AppsRhino. Truly professionals, state of the art technology, best on-demand apps platform.

Thanks for reading.