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Table of Content
Table of Content
Blog 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.
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.
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.
Here are some of the interesting facts about Uber:
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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:
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.
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.
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.
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.
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.
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.
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:
This business model enables Uber to provide value propositions to both its customers and drivers through the following:
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.
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.
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.
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.
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.
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.
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:
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%.
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.
Shape your next idea modeled on Uber’s success and reach new markets and sectors.
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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.
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.
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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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