Uber's business model

Uber’s Business Model: The Best Guide For 2022

Khyati Hooda
By Khyati Hooda 9 Min Read

Uber is a global company that connects drivers to passengers to offer cheaper transportation and an additional source of income. It’s a technological platform that has revolutionized urban transportation and given taxi companies headaches. Dara Khosrowshahi, CEO of Uber, claims, “Uber accounts for less than 1% of all miles driven globally.” Still, you know this company well because you have already used its services or most likely installed the app on your smartphone. Uber’s business model is a very lucrative method to make money from the online taxi service.

The Beginning

Uber, the company that provides ride-hailing services and operates in 633 cities worldwide, started in 2008. Founders Travis Kalanick and Garrett Camp attended an annual tech conference (LeWeb) when they realized how hard it was to get a cab one night during their stay at LeWeb. 

They began thinking of ways to quickly request a ride through your phone, which led them to develop Uber as we know it today.

Camp kept thinking about the idea for UberCab and, back to San Francisco, bought the domain ubercab.com. In 2009 Camp was CEO of StumbleUpon, which he had sold two years earlier- in 2008 – to eBay for $75 million (by the way, Kalanick also had been a part of this old company). 

Still working on the side projects mentioned above, Camp began working on UberCab.

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Camp convinced Kalanick to join UberCab in 2009, and the official launch took place in 2010. The company multiplied- one year later, it would be launched internationally -in Paris. From 2009 on, Uber raised several funds and was worth over $51 billion by 2015.

Uber is an innovative company that provides on-demand, urban transportation. It operates in more than 900 cities worldwide and has over $70 billion. Let’s dive deeper into uber’s business model. 

How does the business model of Uber operate?

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Uber cab service is one of the essential services of Uber’s business model. You need to use your smartphone with GPS, internet capabilities, and the Uber app to get a ride with Uber. Once in the app, enter your destination before it locates an available driver based on their location. Uber’s business model makes sure it keeps the customer review in focus. 

There are different categories of cars in the app, depending on where you’re using it. There are some differences in rates for each type. The value is calculated by an Uber algorithm considering your distance traveled, elapsed time, and fuel usage. You can also pay with cash.

Besides, there is a rating system, an essential feature of Uber. The rider evaluates the driver, and the driver also considers the passenger.

A Breakdown Of Uber’s Business Model

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The business model of Uber has many advantages over other taxi companies. For one, it is user-friendly and rarely goes down. 

Today, most people have cell phones with the internet, so they can ask for a car without walking even one step from wherever. And when requesting Uber’s app, users receive plenty of information about drivers and their vehicles. 

It includes information such as license plate number, name, and photo of the driver who will come to you at your exact location at the time specified by you in advance. You can even grade within the app, and the ranking system depends on how much experience that driver has had with us.

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The Value Proposition of Uber

The most significant value proposition for customers is not looking for a taxi wherever they are. Cars are available 24/7, and their route can be tracked. 

In addition, the fares in this service generally end up being lower than those that other taxi drivers charge, and riders can estimate how much the ride will cost before calling them. 

It is an additional source of income (or even a main one), a job without experience requirements or schedules with flexible hours. It also makes access to passengers easy on both sides. 

It eliminates misunderstandings when we talk about people who do not speak the same language, which is always a positive point regardless of your side.

Customer Segments of Uber

Uber has two customer segments: riders and drivers. Riders are people who either don’t have a car, need to travel outside of their city of residence, or want a way to get around without driving themselves. 

Drivers are those we mentioned before; anyone without a job that needs extra money and a new gig may start by signing up for Uber.

Customer Relationships of Uber

The customer relationship comprises three parts: customer, driver, and regulators. Uber’s focus is predominantly on the customer. If it has no credibility with customers, there is little need to create a relationship with drivers or regulators. 

Transparency in regards to price and time and security is critical here. As for the drivers, they are not employed by Uber, so their vehicle isn’t the company’s property either- which means that they legally deserve attractive working conditions for them to maintain business running smoothly. 

Regulators ensure that both parties abide by rules within a threshold, allowing other laws to be obeyed.

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The cost structure of Uber

To maintain the Uber platform and promote it, its marketing strategy is an essential part of the cost structure. 

One should also include legal costs, credit card fees, and insurance, among other factors necessary for customer support and research & development investments.

Channels of Uber

Word of mouth has been the most prominent channel for reaching customers in those ten years. In addition to this, social media is another widely-used distribution channel and app store where riders download their Uber apps.

How does Uber make money?

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Uber’s business model is based on commissioning, and this is, therefore, its core revenue stream. The total value of each ride includes the driver’s payment- which you can typically expect to be around 75% to 80%. But when it comes to short rides, due to the higher fees and minimum fare- the company commission can reach 50%.

Uber also earns money outside of its app with marketing partnerships. These are campaigns run through the Uber app and once in person during the ride. Uber has been expanding their service offering. Probably the most famous one lately is Uber Eats.

This is a food delivery service with the same characteristic as the transportation app – connecting restaurants to customers through an online platform and providing this service using partner deliverers. The revenue streams, in this case, are advertising, delivery fees, and sharing revenues with restaurants. All these values ​​and percentages vary according to where operations occur.

That’s it! That’s Uber’s business model.

Conclusion

Uber has had a profound effect on the proliferation of the on-demand industry. Thanks to Uber, hundreds of startups in this space have been launched, and more will undoubtedly come.  We hope this case study on Uber’s business model helped you get an insight into the company.

The focus here is not just transportation; it’s also logistics (like AirBnB). We hope our analysis helps upcoming entrepreneurs who want to create their brands in this same market.

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Posted by Khyati Hooda
Khyati is an entrepreneur, marketing consultant and growth hacker. She helps sustainable revenue growth through marketing for SaaS and subscription companies. Her expertise lies in building scalable customer acquisition strategies and implementing effective digital marketing campaigns that drive high-quality, low-cost leads for startups. Khyati has managed over $50M in marketing budgets across various industries including technology, finance, education, retail, consumer goods and more - successfully delivering over 15x ROI for her clients.
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