Last Updated: May 15, 2024
Uber Business Model
Published On: May 15, 2024

Summary: This blog is a short guide to help entrepreneurs and startup owners understand Uber’s business model. It discusses how Uber shaped its journey and the features that make it a profitable business venture. It will also give them clarity on how they can start developing an app like Uber of their own.

Launched as UberCab in 2009, the first-of-its-kind online platform for booking cabs brought a global revolution. It shaped the way people commuted and became the pioneer of a new transportation industry.

The Uber business model combines GPS location services with a smartphone app to connect drivers and riders. Real-time tracking for online taxi bookings overhauled the traditional taxi industry, which is projected to grow to USD 64.7 billion by 2028.

It also opened up the possibility for entrepreneurs to venture into the on-demand service economy and mobility-as-a-service (MaaS). In this blog, we’ll explain how this business model can turn out to be a lucrative investment.

The Journey of Uber

In 2008, the would-be founders of Uber, Travis Kalanick and Garrett Camp, were attending a tech conference in Paris. However, when they were returning, they found themselves at a crossroads. The problem was quite simple – they weren’t able to get a cab when they needed the most.

It got them thinking of an idea that could change the world of transportation in the next decade—what if people could get a cab through their smartphones?

The idea got stuck with Garrett Camp, who decided to buy the domain UberCab.com. Travis had to sell Red Swoosh to Akamai Technologies for USD 19 million, and Garrett decided to lose his CEO status for StumbleUpon by selling it to eBay for USD 75 million.

By 2015, Uber’s business model had grown to USD 51 million, making it the most valuable startup in the world. Fast-forward to 2024, and Uber now operates in more than 10,000 global cities and is worth USD 70 billion.

Uber’s Struggles

After a few months of its launch in 2010, Uber’s strategy involved recruiting drivers in new markets through its ambassadors and promotions. To garner more support, Uber disregarded legal threats from the government and other taxi companies, which led to a few hurdles.

At first, Uber positioned itself with a luxurious business proposition. It started its taxi fares as 1.5 times higher than traditional taxis, which resulted in many cultural and legal differences in various markets and regions.

At its first IPO, Uber’s valuation of USD 73.6 Billion fell short of the USD 76 Billion mark during the last fundraising round. The stock experienced a further decline of 7.6% on the first day of trading, putting the investors at a loss of USD 617 Million.

It also faced tough competition from Grab, which was still focusing its strategy around cash transactions, which Uber only welcomed in 2015. In 2017, Uber’s business model also faced controversies regarding its price-surging policies. It charged three to six times the normal fares on big events like New Year’s.

Uber Stats and Facts

Here are some of the interesting facts about Uber:

  1. After Travis Kalanick resigned in 2017, Dara Khosrowshahi, who was the former CEO of Expedia, took over as Uber’s current CEO.
  2. Uber’s major owners are a group of institutional investors, namely Morgan Stanley, FMR, and the Vanguard Group.
  3. The current investors are Tencent Holdings, SoftBank Vision Fund, and Toyota Motor Corporation.
  4. Around 20 shareholders jointly own Uber, amounting to 71.80%, while the insiders have a partnership of 30.21%.
  5. Originally, the Uber app had only one option: hailing a black luxury car.
  6. Uber has expanded its business to Uber Freight, Uber Eats, and Uber Direct, in addition to its taxi booking services.
  7. Uber introduced UberONE in Madrid in 2016 and in Dubai in 2017, which uses only electric cars.

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How Does Uber Works?

Uber is a taxi-hailing company that caters to the mobility as a service (MaaS) industry, and it works on the concept of offering a one-stop solution for public transportation. MaaS allows passengers to book a ride from point A to point B from a single interface. Here’s how it works:

How Does Uber Works

1. User Registration

Registration allows users to create an account with personal information and payment details once they download the app & agree to terms. After that, they are all set to book rides, track them, and make payments once they verify their numbers to ensure safety and security.

2. Location Sharing

The USP of Uber’s business model is a location-sharing technology that uses GPS on smartphones. The app allows customers to input their pickup and drop-off locations to help drivers locate them accurately. Once they request a ride, the app will match the customer with the nearest available driver for a convenient commute.

3. Driver Matching

Uber’s driver matching algorithm lowers riders’ wait times and increases drivers’ business. The algorithm analyzes traffic congestion, overpasses, and other factors that affect geographic locations. With thousands of people logging on to the platform every second, Uber matches riders with the best drivers.

Ride Confirmation

When a user requests a ride via the Uber app, it sends notifications to all the nearby drivers. The batched matching algorithm evaluates riders and drivers in one batch to pair them to reduce wait time for everyone and keep things moving.

  • Ride Execution

Once a driver accepts the ride, the user receives confirmation details, including the driver’s name, vehicle info, and estimated arrival time. When the driver comes to the pickup location, both the identities of the driver and passenger are verified through a One-time Password (OTP) to start the ride to a destination as instructed through the app.

  • Payment Processing

Uber processes payments through its app, linking users’ credit cards, wallets, and other methods. After a ride, the app displays the total fare amount, deducting fees and driver earnings. Uber then deposits earnings into drivers’ accounts after deducting its commission.

What is The Business Model of Uber?

While Uber has expanded its segments from ride-hailing to freight, food, groceries, and courier deliveries, its core business remains online taxi booking services. Here’s how the model works:

  • Passengers who are looking for rides generate demand.
  • Drivers who are willing to pick them up from pickup locations and drive them to destinations generate supply.
  • Uber app platform is the marketplace that facilitates this exchange.

This business model enables Uber to provide value propositions to both its customers and drivers through the following:

1. On-demand Transportation Service

Connecting riders with drivers is a convenient way to popularize on-demand transportation, reducing wait times and providing flexibility. Users can enjoy ease of access, real-time tracking, and a range of vehicle options. Drivers benefit from flexible work opportunities and access to a large customer base, creating mutual value.

2. Revenue Generation

Uber’s business model has been fairly successful in generating revenue by expanding its services to over 900 metropolitan cities, making it one of the largest ride-hailing service providers in the world. Its revenue generation is fueled by commission-based fees from drivers, alongside dynamic pricing and subscription models.

3. Partnership With Drivers

Uber has taken the initiative to encourage more drivers to join and remain active on the app by offering various incentives and discounts. It has helped many drivers stay active and retain their positions through sign-up bonuses, referrals, and guaranteed earnings.

4. Global Expansion

Uber has invested heavily in expanding to new markets by focusing on its marketing strategies, recruitment efforts, and infrastructure.

For this, it forged alliances with local businesses and integrated its services into existing apps. Some examples include partnering with fitness studios for rides to and from fitness centers and connecting Spotify within the Uber app for personalized music.

5. Technology Infrastructure

Uber continues to invest massively in new technological innovations, mainly in autonomous vehicles and flying taxis. While these developments are still in its infancy, they could become major disruptors in the coming years.

6. Marketplace Facilitation

Uber works as a marketplace to facilitate transportation services between its riders and drivers by balancing the busiest times with surge pricing, upfront pricing, and route-based pricing. This gives the drivers more confidence, making transportation affordable and available in more places.

How Uber Makes Money?

Uber makes money by taking a commission cut from the drivers for each individual or shared ride. However, Uber’s business model for revenue generation includes more layers. Let’s understand them:

Commissions on Trip

When passengers book a ride, they pay the driver through the app in cash or online. This amount goes to Uber’s account and is transferred to the driver’s account once Uber takes its commission, which usually varies from 15% to 30%.

Surge Pricing

Whenever there is an imbalance in the demand for taxis, for example, in airports when a flight lands, the prices of cabs go higher based on the surge pricing algorithm. Drivers who want to earn extra money move to that region, and riders choose to wait till the price drops.

Other than the above, it offers premium rides at a higher fare, a cancellation fee when a passenger cancels the ride, and leasing to onboard more drivers in some countries.

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How Much Does it Cost to Develop an App Like Uber?

The entire process of developing an app like Uber can cost around USD 20,000 to USD 40,000 for one platform. If you are looking to develop a feature-rich Uber clone app with advanced features rather than an MVP, the cost can increase from USD 80,000 to USD 1,20,000.

Development hours and hourly costs will also vary depending on the taxi app development company you choose to build your Uber-like app.

Partnering with Moon Technolabs can help you reduce your development costs from USD 30 per hour to USD 40 per hour. The development costs also include maintenance and post-launch support, which can increase up to 15% of the total costs.

Conclusion

Uber’s success can be seen in the number of startups that followed its on-demand services business model. With its tremendous growth over the past decade and earning a revenue of USD 37.2 billion in 2023, an increase of 16% from 2022, the business model is only going to flourish in the coming years.

Uber still has a huge customer base that it can tap into, generating significant revenues by partnering with other companies. With a lot of scope in technology for introducing new algorithms for driver selection, building an app like Uber offers a range of new services and features and expansion into new markets.

FAQs

Uber’s business strategy focuses on three distinct industrial segments: delivery services, Mobility as a Service (MaaS), and Freight services. All three segments are powered by real-time routing and navigation algorithms for booking, tracking, and documenting instant data and GPS functions. Uber's ambitious aim is to expand its worldwide presence, prioritizing expansion over earning immediate profits, a strategy that underlines its global significance.

Uber's heavy reliance on its drivers often creates risks for the company when drivers decide to leave for better opportunities. Other challenges include a lack of profitability despite having a large user base. External factors like economic downturns, changes in regulations, heavy investments in new technologies, and intense competition from names like Grab and Lyft also impact Uber's long-term growth.

Uber Direct's business model is a unique combination of its existing models for delivery and logistics. Business owners can seamlessly integrate it into their existing website or online platform and set options for delivery and customer fees. Similar to Uber Eats and ride-booking business models, Uber Direct allows a customer to place an order on the website to complete the delivery of items.

Uber's business model is a multi-sided platform that touches digital app aggregators and on-demand ride-hailing. Though its marketplace has grown its services to Uber Eats, Uber Freight, and Uber Direct, the on-demand economy model is still at its core. In this model, passengers generate demand, drivers are suppliers (of the demand), and Uber acts as a facilitator to make that service exchange through a mobile app.
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Jayanti Katariya

Jayanti Katariya is the CEO of Moon Technolabs, a fast-growing IT solutions provider, with 18+ years of experience in the industry. Passionate about developing creative apps from a young age, he pursued an engineering degree to further this interest. Under his leadership, Moon Technolabs has helped numerous brands establish their online presence and he has also launched an invoicing software that assists businesses to streamline their financial operations.

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