Nov 8, 2020

Business model of Uber | Case study of Uber Business Model

 The business model of Uber

Business model of Uber
The business model for Uber- Source-Freepik.com

Uber is an American company based in San Francisco launched in 2009 as Ubercab by Garett Camp. Uber provides an on-demand taxi service to its users via mobile application. Uber doesn't own any taxi or employs any driver it just connects passengers to the taxi driver for a ride. Presently Uber is operating in 65 countries and more than 700 cities across the globe.

On one occasion, Camp and his friends spent 800$ on hiring a private driver, he wants to reduce the cost of direct transportation, At that time he got an idea of Uber so that, they can share the expenditure of direct transportation.

Uber connects passengers to taxi cab drivers via the mobile application, taxi drivers must be using their own car and they have to give 20% of the total fare to Uber as a commission for every ride.

Uber is expanding its business, now we can call an ice cream truck for ice cream or even a helicopter for a ride via Uber in some countries. Uber offers various services such as food delivery from Uber Eats and Uber Freight, it's not just a cab hiring service.

The business model of Uber 

Uber Business model
Uber Business model- Source-freepik.com


Timeline of Uber

  • March 2009 Uber was founded.
  • July 2010 Uber starts its operations in San Fransisco.
  • February 2011 Uber raises 11 million dollars in series A.
  • May 2011 Uber starts in New York.
  • December 2011 Uber raises 37 million dollars in series B.
  • July 2012 Uber launched Uber-X in London.
  • August 2013 Uber raises 258 Million in series C and starts its operations in South Africa and India.
  • June 2014 Uber raises 1.2 Billion dollars in Series D.
  • July 2014 Uber launched in China and Nigeria.
  • August 2014 Uber launched Uber-Pool.
  • December 2014 Uber raises 600 Million dollars in series E.
  • January 2015 Uber Launched Uber-Cargo and raises 1.6 billion dollars.
  • February 2015 Uber generate another 1 billion dollars.
  • July 2015 Uber raises $1B in series F funding.
  • August 2015 raises $100M in private equity funding.
  • September 2015 another $1.2B in private equity funding.
  • January 2016 $2B in private equity.
  • December 2017 Uber valuation becomes $22.2B.
  • May 2019 Uber IPO valuation $82.4B.

 

"Uber is doubling its revenue in 6 months, now let us understand the various activities of Uber business model"

 

1-Commission on Trip

Uber sends frequent ride requests to its drivers (partners) and to increase the demand the price fluctuation is handled by the Uber algorithm if the demand is more the fares go high. From the new guidelines, the drivers will get 90% of the fare and Uber will get 10% of the fare. 
Uber commission model- Source Freepik.com

Uber roughly earns a commission of 20% for providing the platform to the riders and drivers also they offer various discounts to the riders based on the occasions or festivals. based on different factors they charge between 10-30% of the ride.

2-Uber's Surge Pricing 

Dynamic pricing of fares as per the situation is an important factor of the Uber business model. Surge pricing is an algorithm used by Uber. this algorithm increaseses the fares if the demand is increased or reduces the fares if demand is low to attract more customers.
surge pricing of Uber
Surge pricing algorithm of Uber Source-Freepik.com

Some drivers moves to surge regions, where demand is high to earn more, some went to low surge regions to get more ride requests. Uber partner with different organizations to provide the offers to its users and they will earn by sponsorship of this organizations.

From this model of surge pricing Uber is earning more money, Partners(drivers) earn more money and customer get ride on urgent requierment.

3-Vehicles Segments and Fares

Uber has different options of vehicles segments as per the customer requirements. from mini hatchback to premium SUV they will offer all types of vehicles at different pricing.
vehicles segments
Vehicles Segment and Fares- Source Freepik.com

Also there is ride cancellation fees, if customer cancel the ride under certain time frame then he or she will have to pay the cancellation charges, which will be transferred to the partner bank account and some portion to the Uber as a commisiion.

4-Various Businesses 

Uber not only provides taxi services they offers boats, helicopter and other vehicles on demand. they have penetereted into various businesses one is Uber Eats as per the prediction they will have 27% market share by 2022. presently the market share is 24%.

Different Businesses
Various Business Penetreration Uber- Source Freepik


Uber Freight is a free app which provides freight on demand. By just one click shippers can hire the loads they want to haul. Uber provides upfront pricing and carriers always know how much they will get paid.

Uber also come up with motorcycle taxi service and the first they implemented it in Paris. also you can ask request ice cream truck via Uber app in few cities.

Growth of Uber over the last few years
Growth of Uber source-Google


We can see from the above graph the growth of Uber is very optimistic and because of the various penetration in the business this organization will be grow with more rapid pace.


Strenth of Uber Business Model

  • Fast and easy to use mobile application.
  • GPS tracking, before arriving of the cab till you reach your destination.
  • No need to wait for taxi and waive your hand.
  • Lower price as compare to traditional taxis.
  • Offers and discounts on various occasions.
  • They does not own any vehcile.

Conclusion

Uber is using the potential of internet and mobile devices, in a most appropriate manner, as they don't even have any invventories and they are earning the huge profit, they gave market share of 27% by 2022 as per prediction that means they are growing and growing with rapid pace. They not only provide the cab services but they also have various other businesses and its important to increase the verticle of business for rapid growth in any economy.

Thank you for reading this long and wishing you good day, if you have any thing to ask, comment section is yours. Cheers!!!

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