New technologies create opportunities for start-ups to exploit the new demands resulting from the dynamic consumer behavior and expectations. For instance, Uber has only been in the market for less than a decade, but their idea has completely transformed the taxi sector.
In fact, the Uber idea has inspired most of every other taxi management system we have today. This post discusses this on-demand business model from the inception of the idea to its implementation.
Taxi Industry Before and After Uber
The taxi business has been around for over a century, but it has remained almost the same over the years. Passengers had to deal with many challenges when booking a taxi including exorbitant charges, unprofessional drivers, safety issues, and time wastage among others. On the other hand, resources management was a big problem for operators, leading to high cost of operation. Uber developed a new idea to address these issues for both the customers and taxi owners.
The company introduced a more convenient alternative to traditional taxi at any time from and from any location. This eliminated the hassle of having to shout, and wave at taxi drivers or having to call private taxi services to book a ride. Not to mention the time waste and security that forced cautious customers to go for public transportation systems. Today with Uber or any other Uber-like Taxi App, you can easily connect to available cabs near you, and track your taxi on a map for a more accurate arrival time.
Uber Business Model Overview
The Uber business model is an on-demand business structure that enables travelers to access instant taxi services from a tap of a smartphone. Uber provides a digital marketplace platform that links riders that need the service with available drivers near their pick-up location. In the Uber business system, the passengers generate the demand, the drivers or car owners supply the demand, while Uber facilitates the interactions on a mobile marketplace platform.
Uber founders, Garrett Camp, Oscar Salazar and Travis Kalanick, started the business in 2009 with the idea of a taxi booking software for timeshare limo services that customers could order from a mobile app. Today, this disruptive solution serves over 200 global cities in 70 countries. Through its model, Uber has generated unique value to its customers, attracting billions of investments. Today, Uber has expanded its operations to other sectors in the on-demand economy is currently valued at approximately $120 billion.
How does the model work?
Surprisingly, the Uber Company does not own cars or hire drivers. It only uses an advanced mobile taxi management system to connect passengers in need of, and willing to pay for a ride and taxi drivers or vehicle owners willing to offer the services. It enables customers to identify and book a ride with the nearest available drivers, get fare estimates, and track the driver location from a mobile app. The drivers’ app, on the other hand, allows the driver to view customer request, accept or cancel the request.
Key Elements of the Uber Business Model
The Uber model of business comprises of several elements that are connected together create a profitable system. The model is built around:
This includes any passenger who wants to move from one point to the other within a city. The model generates value various sets of customers including:
- Those who don’t own a car.
- People looking for a cost-effective ride.
- People who cannot drive themselves.
- Luxury and VIP travelers.
- Passengers in need of an instant ride.
Partners are other businesses or individuals that work together deliver unique value to the customers. They comprise of:
- Uber Drivers – Full-time taxi drivers and other car owners willing to offer the services to make extra income. Uber boosts of over 100,000 collaborate drivers worldwide.
- Technology collaborates – Such as the Map API providers, payments processors and so on.
- Investors – Provide funding product development, research and marketing to help generate more revenue.
The Uber Product
The Uber app is the main product, which users can download free from app stores, register and start accessing the Uber services. The app is extremely user-friendly, and allows driver tracking, user rating and choosing from standard, extra space to luxury cabs.
- Uber taxi booking software – Uber Pool, UberX and UberBlack.
- Special Uber for kids and Uber for senior citizens.
- Merchant delivery services – Uber Eats.
- All-round transportation package – Uber flight, boat, helicopter and motorcycle trips.
The main source revenue for Uber by taking a share of what the driver earns for every individual or shared trip. However, the income generation model is more than this and comprise of:
- Trip Commissions – Uber acts as a digital broker that finds customers for the drivers helping them to make more income. In return, the company gets a commission from the driver earnings at the rate of 15 to 30% depending on the market.
- Surge Pricing – Uber uses an advanced algorithm to vary trip fares based on the situation. This has been an effective tool to match demand and supply in the model. Drivers earn more when demand is high which means higher revenues for Uber as well.
- Premium rides – The profits margins for Uber Premium are higher than the standard ride.
- Car leasing program – Uber provides a car loan/ leasing program to its registered drivers who need to pay an upfront deposit and weekly payment to Uber.
- Sponsored Content on the Uber app – The extensive active user-base makes it a good platform for brand promotion.
- Cancellation fees – Amount charged to customers when they cancel a trip after 5 minutes of booking.
The Uber idea has revolutionized the taxi industry, resulting in other Uber-like Taxi App model variations that focus more on the customers. Today, many taxi management system providers, as well as other entities in the on-demand economy, have adopted the Uber model. To ensure sustainability, Uber is focusing on adding more value to its taxi booking software with new products such as Uber Eats, Uber Flights, among other on-demand services.