Uber Business Model – Ride-hailing made easy

Garret Camp came with the visionary idea of a ride-hailing company that would allow the users to call a cab to their location and go about their destination. The idea might have sounded absurd back in 2009, but Uber has come a long way since then. It would not be wrong to say that Uber has revolutionized the idea of hailing a cab. As of now, Uber is the largest multinational ride hailing company. Uber business model has evolved over the years. The business model is a particular area of interest of many individuals. It has also been criticized as well. We will dive deeper into details regarding the business model in the next paragraphs.

Uber disrupted the taxi industry when it finally took off in different parts of the world. The company made it a breeze to get a cab. The app would use your location to connect you with a driver and the driver would pick you from your location. You no longer had to frantically wave at a cab for it to stop so you could get a ride.

How did Uber start and how does it work?

Uber was a joint venture of Garret Camp and Travis Kalanick. The pair brought their friends on board to build an application that would allow the users to book rides to and fro around the city. The application used the location of the user and their internet connection to book rides.

Moreover, the app uses robust algorithms to pick the closest possible available drivers to the user. After the driver accepts the ride, they can use GPS to get to the location of the customer. The app allows the user to select from a range of different ride options. You can either order a standard ride or the more luxurious ones. Different ride options have different fares. Some ride options are exclusive to specific countries. For example, Uber Moto is only available in Pakistan, India and Dominic Republic.

The app has an algorithm working in the background that calculates the fare that user needs to pay at the end of the trip. The algorithm considers things such as the distance between the source and destination, the time taken to travel, fuel consumed etc. Fare is calculated at the end of the ride and the customer can pay using several different options. Cash and credit cards are the more popular payment options among users.

The drivers and customers then rate each other on the basis of their experience. It is a five-star rating system where 1 star is poor and 5 stars is excellent.

The Uber Business Model

Uber’s business model is an amalgamation of the aggregator and partnership business model. In an aggregator business model, the company provides a platform for two parties so that they can get in touch with each other. Similarly, that’s what Uber does. There are drivers that want to render their services and there are customers who want to go from one place to another.

Both parties use the platform to fulfill their needs. You could say that Uber assists the two parties to achieve their goals. In return, Uber makes money off the driver and customer. The fare calculated at the end of the ride has a percentage that goes to Uber.

Moreover, Uber drivers are partners of the company, not employees. This means that the drivers get to choose their work schedule and the company has minimal control over them. While this model gives more autonomy to the drivers, it is often criticized too. As the drivers are partners of the business and not employees, Uber is not legally bound to pay for their insurance and other similar amenities. Various drivers have filed complaints regarding this policy and there are cases being fought in different courts.

Why was Uber able to disrupt the Taxi Industry?

Over the years, the number of people using ride-hailing apps has increased. Conventional taxis are still there but the amount of customers are gradually decreasing with every passing year. Uber was able to disrupt the taxi industry because it was able to provide services that the conventional taxi industry could not.

Uber does not refuse any ride requests unless the driver cannot reach the location in time or there are no cars available at that moment. Customers can file complaints regarding their rides to Uber, something that you cannot do after a taxi ride. Furthermore, the rating system makes for better service. The app also notifies how long it will take the cab to reach them.

You can also call the driver after you book a ride. The app shares all the details of the driver including car details and location of the driver. Lastly, the app has a wide range of car options to choose from. If you have more than 4 passengers, you can opt for a larger car size option.

How Does the Uber Business Model Make Money?

Uber does not own any fleet of cars. It has an aggregator business model. This means that Uber has collected cars to provide ride hailing as a service to customers through their brand.  The ride-hailing company partners with drivers who use their personal vehicles to provide services to the customers. Uber provides them customers and standard rates are applied to each ride using the algorithm. Uber charges about 20% to 25% commission depending on the fare paid by the customer.

uber business model

Also, Uber is known for hiking their prices when the need for cars increase. In cases of bad weather, traffic congestion or holidays, Uber charges a higher rate to their customers. This dynamic pricing model helps to sustain the company.

Furthermore, Uber collaborates with different companies for different promotional purposes. Uber has a huge customer-base. Different companies see this potential and collaborate with Uber in hopes of driving up their sales or achieving brand recognition. These companies pay exorbitant sums to Uber for different marketing campaigns. PepsiCo, Spotify, Hilton, and BMW etc. are just some of the few companies that have collaborated with Uber in the past.

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