Business Model Uber – Today we’re talking about Uber, the ride-sharing company, and putting their business model on the business model canvas. So, there is the Uber business model, a short video presentation and an analysis of the Uber business model based on the nine segments of Alexander Osterwalder’s business model.
Uber is a ride-sharing company. It has disrupted the taxi industry by using technology to allow people with cars and spare time to drive people who don’t want to drive but have money.
Business Model Uber
Basically every city had two or three taxi companies, but because of the way they worked, they couldn’t go beyond a limited geographic area. Uber changed all that and that’s what we’re going to look at now.
Uber Business Model
Uber’s business model has 2 customer groups. It has passengers and it has drivers. In a traditional taxi business model, the customer segment is purely passengers and drivers are part of the company.
What most distinguishes Uber passengers from traditional taxi passengers is that they need a smartphone and a credit or debit card. Without these, they cannot use the platform.
Uber’s other customer segments are drivers. Instead of hiring drivers and having a capital-heavy company, Uber uses freelance drivers – causing many legal battles around the world.
Here, Uber has reached far beyond the traditional source of recruitment for taxi drivers. They made driving accessible to everyone with a smartphone, a smart car and a smart look. Like anyone who wants to make some money whenever they want.
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Next on Uber’s business model we have the value proposition. The core of the business is the value proposition that speaks
In a traditional taxi business, the number of taxis is determined by the trips available over time to support that number of taxis and drivers. If demand increases, there is no excess capacity. And if there is low demand during a period? Drivers are slow to exit the market and payments for all drivers suffer due to oversupply.
Uber’s value proposition. Note that the site is very focused on getting drivers to sign up – the person shown is a good proxy for the customer segment that Uber wants to recruit as drivers
So Uber’s value proposition is like a market, but if it were that simple, it wouldn’t have the same disruptive effect. What enables it to fulfill the above promise is that it can match supply with demand.
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Using real-time metrics, it can see what demand is like and then when demand starts to exceed available capacity to reduce demand by introducing surge pricing (but taxi fares are partially price inelastic so this is a minor effect) increasing prices where demand is greatest. At the same time, increased prices encourage more drivers to work and thus increase supply.
Uber can do this because the drivers are owner-operators. It does not own the assets and therefore can flex capacity within minutes, whereas a traditional taxi company takes months or years to achieve the same results (in the case of New York taxi medallions almost never).
The technology enables this value proposition and at the same time also makes it possible to address traditional pain points at minimal additional cost. If you don’t have any money, no problem. Uber charges your card. In fact, the entire system is cashless, making it safer for both drivers and passengers.
It also provides transparency by identifying both driver and passenger and their positions to each other – and by showing exactly where the taxi is at all times. The uncertainty – and thus the anxiety – decreases for both
Uber Business Model And How Does Uber Make Money?
The only time I’ve spoken to anyone at Uber was when I bumped into the local Uber country manager at a launch event. For everyone else, it’s a fully automated process as far as the passenger is concerned. The old carriers are removed and the passenger’s phone automatically identifies the pick-up point.
For the drivers, there is a more hands-on role, mainly around quality assurance and making sure that the drivers meet the minimum quality requirements that Uber expects. And preferably they don’t pull guns on their passengers
Let’s take a look at Uber’s marketing strategy and channels it used in its early days. Uber began using many different channels as it grew, but early on the focus was on moving from city to city to get enough drivers and users to sign up. They also wanted to get them using the app so there was a strong enough market to make it work.
Increasingly, with a market in each city, the channels go through the mobile app. As for Uber’s marketing strategy, it was purely email and word of mouth! This was extremely important in overcoming adoption fear and crossing the early adopter – and PR – chasm.
Building Feedback Loops Into Your Business Model
One of Uber’s huge strengths has been the amount of money it has raised which has given it a huge amount of earned media which in turn has driven passenger and driver growth.
The revenue in Uber’s business model is quite simple. Uber moves the traditional taxi meter from the car to its servers – tracking via GPS technology on the phone – and then charges the passenger based on miles traveled and whatever surge multiplier is in effect. If the passenger uses a different Uber brand, the same process applies but with different pricing.
Uber has three key resources without which it all falls apart. First, it has a platform. This connects Uber to drivers and passengers and both to each other.
It is a necessary but not a sufficient requirement. Then it has the algorithms that do the heavy lifting (sorry couldn’t resist). These are the pricing and routing algorithms.
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Pricing algorithms are used to balance supply and demand in the market. It also helps ensure there is always enough capacity to meet demand – fulfilling its core value proposition.
The routing algorithm focuses on ensuring that the customer’s waiting time is as short as possible. Implicitly, it reduces the dead time for drivers either waiting for or driving to a new job.
An important part of Uber’s business model is then to develop the platform. Its key activities are as follows:
It also needs to do significant marketing at a global and local level to drive driver/passenger adoption and ensure an adequate supply of drivers. Churn is apparently a problem.
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Uber still has the same problems as traditional taxi companies. It serves parties in unaffiliated geographic markets. Singapore, London, Frankfurt. Each has specific characteristics and requirements. So marketing to users in each city and ensuring there is the right level of driver support for user growth is critical to fulfilling its value proposition.
The main key partner is the drivers who own all their cars. That saves Uber from having to contract with a leasing company for hundreds of thousands of cars. It has the payment processors and map data providers.
Often missed are the local authorities. In many cities, there are legal actions against Uber. Taxi companies are fighting to protect their businesses and persuade the “authorities” to put up barriers to entry against Uber. This is often characterized as resilient. But in the long term, regulation is seen as important and Uber will need to address these issues. So they are long-term partners, even if they are not right now
There are salaries for the software engineers, the sales and marketing teams and the country and city managers.
Uber Business Model & Statistics
And then there are the driver’s payments. Uber gets paid upfront and keeps the money before paying drivers each week to ensure payments are valid.
“Big” business is civilization. I stay in the wilderness and guide entrepreneurs and startups on their journey to becoming “big”. Uber’s business model is considered to be one of the best business strategies running in the world today. It’s the sole reason why Uber’s revenue model has become a multi-stream entity with double-digit billions in a single year.
But every billion dollar company started somewhere small and gradually grew from there. Uber is the poster child example of this American dream, and Uber’s business plan is the source of its victory.
The credit for this company’s success goes to Uber’s impeccable financial model and business strategy. If you don’t believe me, I will present a lot of relevant Uber statistics throughout the blog to support my claims about the robust Uber business model.
Uber Buisness Model In Detail & How Does Uber Make Money?
But before you learn about Uber’s business strategies and financial model, you need a little crash course on Uber’s history.
Uber’s revenue year after year is proof that their business strategy is among the best in the world, but let’s study Uber’s strategy and planning in more detail.
We will answer all these questions and a few more in this blog on Uber Business Model Canvas & Strategies. Uber started as a simple concept and a single question: What if you could request a ride from your phone?
What started as a simple thought quickly escalated into a global passenger transportation brand and a leading two-way marketplace
Business Model Canvas For Software Company Or Tech Startup
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