How does Uber Business Model Work and Makes Money?

What is Uber?

Uber is a smartphone-based on-demand taxi aggregator that allows you to book a cab from point A to point B, pre-calculating the fare, forecasting the time of arrival, and providing the option to share the fare with co-riders, all with a few taps on the app. When the creators couldn’t find a taxi on a freezing winter evening the organization shook the whole cab business. It began with a simple question: “What if you could order a ride from your phone?”

Uber Business Model:

Uber popularized the idea of the aggregator business model. Rather than creating and designing the offering on your own, this business model entails forming alliances and allowing the partners to operate under the name. Uber, to put it simply, does not own any automobiles. It gathers or aggregates cab drivers who own and operate their own cabs but work under the Uber banner. While the partners deliver the actual transportation, Uber ensures that the service requirements are followed – the cabs arrive on schedule, are clean, follow the correct route, and maintain the customer’s safety. Since it was the first, this business model is also known as the Uber for X business model.

How does Uber Work?

Uber has a two-pronged business strategy. One factor focuses on bringing as many taxi partners on board as possible to have a streamlined service to the end-user, while the other focuses on promoting Uber as a perfect ride-hailing platform to consumers who can book a cab with a few taps on their mobile. From the perspective of the end-user, here’s how Uber works:

1. Application:

The customer joins the point A and points B information in the application, which is the first touch point. They also evaluate and select ride choices based on vehicle size, price, and expected drop-off time; they select the alternative that best meets their needs, and they confirm the pickup.

2. The background Algorithm:

This is the offering’s foundation. The application algorithm notifies all nearby available drivers of the order, which they may approve or reject at their discretion. Uber, on the other hand, would not reveal the details about the destination to the drivers until they consider the lift, to avoid prejudice. The passenger is told of the driver and the time it will take for the driver to arrive at the destination point until the ride has been approved.

3. Payment:

Uber’s payment strategy varies depending on the region in which it works. Payments are normally removed after the journey is finished, as the case may be. Cash, a debit card connected to the app, credit cards, bank transfers, and wallets are all options.

4. Social Validation:

Both the passenger and the driver are allowed to score each other at the end of each journey. When the other party books or accepts the journey, this ranking, along with other scores they get from other passengers and drivers, is shown to them.

Furthermore, the social authentication scheme aids the company in keeping tabs on its drivers and ensuring that they are adhering to the company’s expectations to keep the rider happy. A passenger who does not adhere to the terms of service is therefore barred, to keep the commitment given to the drivers.

How Uber Makes Money?

Uber seems to be somewhat similar to any other cab operator at first sight. In fact, though, it operates and earns money in a somewhat different way than traditional ride-hailing firms. It does not own the money earned by rides because it does not hire the drivers.

1. Commission Based Business:

In reality, Uber’s business model is commission-based, with the company charging a 20-25 percent fee on all fares for the usage of its brand and services by the driver. Simply put, Uber connects passengers with drivers, offers payment solutions, a good app with maps, directions, and ETA, and charges 20-25 percent of the trip rate plus other fees for the service. Furthermore, it is not up to drivers to determine how much they can charge for a bus. For various types of rides/offerings, Uber uses standardized pricing per kilometer/mile. For example, depending on the kind of Uber you chose, a 4.5 km journey in New Delhi will cost anything from 21 to 380 rupees.

2. Promotional Partnerships:

Because of its large customer base, Uber is a massive draw for larger retailers searching for alliances as part of their marketing campaigns. Uber’s business model involves revenue provided by promotional relationships in addition to fees from drivers. Pepsi, Hilton, BMW, Starwood, Spotify, and other companies have partnered with the firm in the past. These partnerships end in a win-win scenario for both parties involved, as-

  • Customers benefit from marketing campaigns run by other brands (Uber passengers in select cities were treated to free trips in the BMW 7 Series to promote the new car)

  • Uber gets the money.

  • Brands get the audience.

Future of Uber:

While having a genuinely innovative market strategy, the company’s sales model is yet to prove sustainable. Gross bookings in 2019 totaled $65 billion, up from $50 billion the previous year. This results in $16.25 billion in net sales (25 percent of total bookings) in 2019. Uber is also losing money. However, given current dynamics and the demand for on-demand services, the business is certain to be sustainable in the future. Know more about Uber clone taxi app by clicking here.

Also read: How to Develop and Launch An on-demand Taxi Booking App like Riide in the USA, UK, and Canada?

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