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How Uber Works? Insights into Business and Revenue Model

  • Published on : December 21, 2017

  • Read Time : 7 min

  • Views : 5k

How Uber Works? Insights into Business and Revenue Model

Uber services are like a fad in the world of technology. One of the most common things we have noticed is that people are scrambling to spot the left-out Uber services, which is still to be tapped in the marketplace.

Uber’s strengths are not just in the terms of providing cheap rides but the on-demand transportation service has captured the market in building a large and powerful logistics business.

Uber’s business model which is the highest-valued private technology company so far operates in about 270 cities and more than 60 countries worldwide, and as of this June, Uber completed 5 billion total trips.

What Draws The Strengths of This Billionaire Company?

1. Revenue Generation

The soaring need of on-demand rides has triggered a rising need of this big fish in the market. What draws the strength of this the global ridesharing leader? Let’s distill the facts:

2. Brand Equity

Uber is currently valued at over $68 Billion and is slated to progress even more downright. Due to the high valuation of brand, Uber is incessantly attracting investors.

3. Low Fixed Investments

Uber does not require high fixed investment due to its aggregation policy which becomes the main reason behind its rapid expansion.

4. Dynamic Pricing strategy

Uber works on dynamic pricing strategy that is in peak hours, midnight and bad weather the company raises its prize. This becomes extremely beneficial for the company and drivers to earn a good amount of money.

5. Emphasis on Customer Satisfaction

Uber places itself a notch higher to provide better customer satisfaction and enhanced user experience.

6. Growth Rate

uber_growth_chart

Source: Business insider

Other than this, Uber wins in:

  • Verified drivers and Cars
  • An unlimited fleet of vehicle
  • No full-time drivers, as it does not hire the drivers
  • A very little competition. But the major competitor is Lyft
  • Lower prices compared to traditional taxi operators

How Uber Makes Money?

  1. Trip Commissions: Uber takes a 15-30% commission on each ride, connecting passengers with drivers.
  2. Surge Pricing: Dynamic pricing boosts fares during high-demand periods, increasing revenue.
  3. Premium Rides: High profit margins from luxury rides contribute significantly to Uber’s earnings.
  4. Cancellation Fee: Charges are applied for passenger ride cancellations after a specified timeframe.
  5. Leasing to Drivers: Uber’s leasing program aids new drivers, with payments deducted from earnings.
  6. Brand Partnerships/Advertising: Uber’s app serves as an ad platform with, potential for significant sponsored content revenue.

Uber’s Interesting Facts

  • Uber service is available in 83 countries and over 674 cities worldwide
  • Uber fulfills 40 million rides monthly and has over 77% of US ride-hailing market
  • Total number of rides by 2016 – 2 billion
  • Uber gross revenue 2016 – $20 billion
  • Uber driver’s average income – $364 / month
  • Venture capital raised – $11.5 billion
  • Uber net revenue 2016 – $6.5 billion
  • Uber valuation in 2017 – $69 billion
  • In the US, Uber has over 160,000 active drivers, receiving $656.8m of payments during Q4 2014
  • The top two reasons for drivers to choose Uber are higher income (91%) and work-day flexibility (87%)
  • It’s largest competitor Lyft generates a fraction of net revenue ($700 million) compared to Uber ($6.5 billion)
  • However, Uber has given Lyft a boost – generating greater engagement on the app

Uber’s Business Model Canvas

uber_taxi_app

Uber’s Valuation

uber-valuation

Source: CBInsights

In 2013 Uber valuation was $3.9 billion now it jumps to $68 billion in 2017.

Apart from this the business verticals of Uber are expanding rapidly:

Uber is doing more than just ridesharing. They’re using technology to make sure drivers are used in the best way across different services, which could bring in a lot of money.

Uber Eats: In 2016, Uber cleverly moved into the food delivery business. They’re using their large number of drivers to tap into this growing market.

Uber Freight: Uber Freight, launched in 2017, is changing the trucking industry. It easily connects people who need to ship goods with truckers, aiming to make a lot of money in the freight matching business.

The Uber Facts – Founders, Funders, and Facts

  • Uber was originally called UberCab.
  • In the beginning, you could only use the app to book high-end black cars.
  • Garrett Camp, Oscar Salazar, and Travis Kalanick are the creators of Uber.
  • Uber started in March 2009.
  • It’s based in the lively area of San Francisco Bay.
  • The official name is Uber Technologies Inc., as stated by CrunchBase.
  • They managed to raise a huge $24.2 billion from 22 funding rounds by October 2018, according to CrunchBase.
  • Big companies like SoftBank Vision Fund, Tencent Holdings, and Toyota Motor Corporation have invested in Uber.
  • Right now, Uber is worth a massive $120 billion, according to Bloomberg.

These facts give us an idea of how Uber works and how it makes money.

Uber’s Weaknesses

1. Privacy Concerns

The CEO less company still continues to serve up fresh embarrassments of privacy policy. The so-called ‘God view’ real-time interface allows Uber employees to spy on users’ rides.

2. Low Barriers to Entry

Apps like Uber prevailing in corners of the world are the direct outcome of low barriers to entry by the ride-hailing company Uber. Eventually, the company has started facing competition from multiple fronts.

3. Drivers Earns less

Despite Uber being the biggest startup company on the planet, it does not serve much to its key workers viz. Uber Drivers.

This chart compiled by Earnest.com compares the average income of Uber workers from Airbnb, TaskRabbit, Etsy, Lyft and several other companies.

average-income-of-uber-workers

Source: Earnest.com

Key Takeaways

Start with small ownership model: Choose any industry and jot down the most common problem it has. Find a solution and come to us with your business idea and disrupt the existing business model through our technological infrastructure. Think like a brainchild and take baby steps. Don’t rush to include everything in the first go!

Solve Real Problems: Use tech to fix real issues, like Uber transformed transportation.

Continuous Innovation: Keep improving and adopting new tech, just like Uber did.

Prioritize Scalability: Plan for easy growth into new areas, similar to Uber’s approach.

Low Overhead Operation: Start lean, consider third-party tech help for cost-effective beginnings.

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