What Is Uber’s Business Model? How Uber Works? How Does Uber Make Money? What Is Uber’s Business Strategy? Why Is Uber so Successful?
These are some of the major questions any budding entrepreneur in the on-demand startup space would be curious about, before working on his/her own “Uber for X” business model.
And, rightly so.
Uber’s business model has turned out to be so successful and popular that it has fuelled a new startup economy, the “on-demand economy”.
Having a deeper understanding of Uber’s on-demand business model can play a pivotal role in modeling your own on-demand startup business idea.
As a leading on-demand startup technology development partner, we want to share this knowledge with you through this comprehensive blog post.
Uber’s Business Model – How Uber Works?
Uber is no longer just the on-demand cab hailing service we used to know. It has dipped its toes into other territories as well – from Uber Eats (on-demand food delivery) to Uber Freight (on-demand trucking).
For the matter of simplicity, in this blog, we will focus on Uber’s core business of ridesharing – its business model and how it makes money?
To put it in simple words,
Uber works as a digital aggregator app platform, connecting passengers who need a ride from point A to point B with drivers that are willing to serve them.
“Passengers” generate the demand, “Drivers” supply the demand and “Uber” acts as the marketplace/facilitator to make this all happen seamlessly on a mobile platform.
Kool, right?
Through its model, Uber has been able to generate strong value propositions for both passengers and drivers to get onboard on its platform and create disruption in the taxi/cab industry.
Uber’s Value Proposition for Passengers
- On-demand cab bookings (Convenient)
- Real-time tracking
- Accurate ETAs
- Cashless rides
- Lower wait time for a ride
- Upfront pricing
- Multiple ride options
Uber’s Value Propositions for Drivers
- Flexibility to drive on their own terms
- Better income
- Lower idle time to get new rides
- Training sessions
- Assistance in getting vehicle loans
- Better trip allocation
Digging Deep Into Uber’s Revenue Sources – How Uber Makes Money?
At a high level, Uber makes money by taking a cut on each ride (shared or individual) from the drivers. However, as we do a detailed analysis we will found that Uber’s revenue model is more complex than just trip commissions.
Trip Commissions
Uber provides the drivers on its platform (also called as partners) with a robust supply of ride requests to accept, fulfill, and make income. While making a booking, the passenger pays Uber for the ride through the app. Uber then transfers the payment to the partner’s account after taking some amount of commission for doing the job of a broker (digital broker if you want to say so).
The commission rates may vary from 15-30 % depending on the market.
Surge Pricing
Dynamic pricing/ surge pricing is a novel concept that has been popularized by Uber and being adopted in other verticals as well, such as food delivery.
Whenever there is a higher demand for cabs than what can be served at that moment (for example, at the airport after a flight lands), the fare goes up based on a surge price calculation algorithm.
Some drivers move to the surge region to earn extra (increases supply) and some passengers opt to wait to get a ride (reduces demand). This way Uber is able to manage the demand-supply mismatch situation better.
Drivers make more money, Uber makes more money and customers spend more money (but get urgent rides).
Key Takeaways for Budding Entrepreneurs From Uber’s Business Model Analysis
Uber got a lot right in its journey towards becoming a pioneer in the on-demand industry today. It has seen its fair share of challenges over the period and been able to maneuver through most of them successfully.
It is a great testament of a tech startup that achieved success with a novel business model and smart execution.
Read More About Uber Business Model Here.
