Uber Business Model Problems Analysis & Conclusions
Uber is the company that brought disruption in the taxi business. There were many other similar startups but it was uber’s team that showed the power of the uber’s business model.
Uber is now valued at more than 70 billion USD. Uber’s business model case study has encouraged other entrepreneurs to use the business model in other verticals like food, labor, grocery and so on. Uber’s business model case study has now been followed by dozens of on-demand startups who have become successful in their own way.
How Uber Makes Money?
Uber has different kind of cars for different kind of users. Like traditional cab companies, users pay at the end of the ride. #Uber makes a percentage ( 20%) on each ride Click To Tweet. One of the biggest innovations in Uber’s business model is the increase in fare according to the demand. This helps makes money for uber as well as the drivers make more when the demand is at peak.
Uber also has a pending patent on this surging price technology. #Uber gross bookings in 2016 were 20 billion USD. However, the revenue was 6.5 billion USD and net losses were 2.8 billion USD. Click To Tweet The main reason uber is losing that much amount of money is not a problem in Uber’s business model. It’s mainly the uber’s investor want it to become the biggest ride sharing service in the world and they are spending all that money to grow.
Users can request cabs by simply entering their location
They can select the type of cab they are looking for.
They can also select cab sharing if available. This allows uber to match with other users who are may be going on the same route to combine their rides into one.
Drivers are matched by the system and the request is sent to the nearest drivers.
The drivers who accept is shown to the user.
The user gets an ETA of arrival as well as real time location of the driver.
The driver gets direction to the user so he can reach the exact location.
Once the driver reaches the location, the user is sent a notification of arrival.
Once the ride is complete, the driver marks the trip as complete.
Ride fare is calculated and also shown to the user in real time as well as the driver.
Final fare is charged to the user on his credit card.
User can leave a review of the driver once the ride is complete.
Check infographic on how on-demand apps work here
The Real Innovation in Uber’s Business Model
Uber’s business model innovation is the platform it provided to encourage peer to peer transactions. Uber connects those looking for the service to those willing to provide the service.
The seamless experience of booking a ride to seamless transaction makes this business model work wonders. The user doesn’t need to call or wait for a cab or use voice cleaning gums to call a cab.
This innovation allows uber to mostly offer less fares as compared to traditional cab drivers. However, the price is not the main reason for uber’s success. It’s the convenience. Users always prefer quality, convenience, the simplicity of using the app over price. However, the price factor combined with the quality is really the best combination uber has. This is only achievable because of Uber’s business model and how it enables the peer to peer connection.
For drivers, it’s really bringing additional income and they can really provide the service when they are available. They can be doing other jobs or studying and uber has provided many with a source of income.
Uber’s Growth Model
Uber’s initial growth can mainly be attributed to the seamless experience it gave to the users from finding the cab to credit card payments. Both these were a big problem for users. This resulted in a good word of mouth for them. So the initial traction can be attributed to user experience of the ride and word of mouth based on that.
Uber’s launching pad was silicon valley where there was a huge problem with the taxi service. The users who were completely fed up highly recommended uber to their friends.
Uber also become super active on all tech events. The attendees who were mostly highly connected and they ultimately wrote about uber on their blogs, social media. This helped uber gain tremendous attention. Uber even got attention from famed investors like Marc Andreessen who called it a killer experience. Uber also focused on providing good service during holidays, weather needs, around popular restaurants and games.
Free Rides & Intense City Launches
Uber now offers free rides for weeks when launching in new cities. This together with a wow experience gives uber an immediate word of mouth. They also try to understand local culture and focus promotions accordingly.
What is Uber Disrupting?
Uber is traditionally linked to disrupting the cab industry. However, #Uber is changing the concept of owning a car Click To Tweet even. It is one of the biggest threat to the auto industry. When the driverless cars come in picture and the rates drop by a big percentage, what is the need of owning a car?
Uber is also even used for delivery good and it’s disrupting that industry as well. Uber’s entry into driverless trucks and freight system is looking to disrupt the huge freight industry as well. Uber eat already has 40k restaurants participating in it.
Criticism of Uber’s Business Model
When Uber’s CEO Travis was fired, there was a lot of criticism on Uber’s business model and points were raised if uber’s business model is the problem. However, it was more uber’s culture that was the real cause of the problems and not the uber’s business model. A lot of people question why uber is not making any money and the simple reason for that is that uber is constantly expanding into other countries and wants to be the number one in every country.
Uber’s investors are completely fine with uber’s business model. If they stop spending money on growth, they can make the company profitable tomorrow but they really want to focus on growth. The only issue some investors of uber has is with going public or not.
Uber’s Business Model Problems
The biggest problem with uber is not again its business model. It’s the toxic culture that uber had. The sexual harassment cases, dirty tricks, and discrimination can all be traced back to uber’s culture rather than its business model.
The biggest problem that uber may have in future is drivers getting organized against uber and laws around permanent employment. Uber uses the term partners and contractors rather than employees for its drivers. Uber had an uneasy relationship with its drivers who are mainly considered contractors. Uber spent 100 million USD to settle a lawsuit with its drivers in California.
Uber also faces lawsuits from drivers and whatever industry is fearful of it when they enter a new city or a country. Sometimes the press and the politicians use those fears to give really bad press to uber. This is definitely one of the biggest problems uber has to face.
What has uber experimented with?
Uber does different experiments with its business model which sometimes are there to try out new areas and sometimes for the press. Here is what uber has experimented with so far
On-demand ice cream
On-demand helicopter service
On-demand roses on Valentine day
These are mostly for marketing purposes but allow uber to test its areas of growth Other Uber Products
Uber has launched other products like ubereats, uber cargo, and uber fresh
UberEATS is an online meal ordering and delivery platform. It partners with restaurants in dozens of cities around the world. Ordering can be done on their website or with a smartphone/tablet application UberEats currently has 40,000 restaurant partners.
UberRUSH is an on-demand delivery network that makes getting things in your city more convenient, affordable, and reliable than picking it up yourself. UberRush uses bicycle delivery partners in crowded cities to delivery. Right now it’s in NewYork only and it has a 3-mile delivery limit on all trips.
Uber Freight is a free app that matches carriers with shippers. Just tap a button and instantly book the loads you want to haul.
Uber Customer Segments
Ideal uber customers are people who don’t own a car or who don’t like driving themselves.
Uber has a huge customer base and it has launched some services specific to some of its segments like uber for kids. Uber is also known to have customized its service for different user demographics especially for kids and senior citizens.
Uber for Kids
A unique service dedicated to parents who want to book uber for kids in a safe environment. The drivers for uber for kids are verified by even more steps and training by uber.
Uber for Senior Citizen
Uber is offering features for senior citizens by increasing mobility options. Stats show that in some areas 40% of uber users are senior citizens.
Uber offers different kinds of cars for its different customer segments.
Current Uber Statistics
Valuation: Over 70 billion USD
Funding so far (2017): 11.6 billion USD
Total Number of Rides: 2 billion
Number of Cities: 450 cities
Average Number of Daily rides: 1 million
Average Number of Drivers added per month: 50k
Uber’s revenue in 2016: 6.5 billion USD
Uber’s loss in 2016: 2.8 billion USD
Find more stats here
March 2009: Founded
July 2010: Goes Live in San Francisco
Feb 2011: Uber Raises 11 million USD – Series A
May 2011: Uber goes live in New York
Dec 2011: Uber Raises 37 million USD in Series B round and also launches in Paris
July 2012: Uber launches in London and Launches UberX
Aug 2013: Uber raises 258 million USD and launches in India, S. Africa
June 2014: Uber raises 1.2 billion USD in a series D round.
July 2014: Uber officially launches in China, Laos, and Africa
Aug 2014: Uber announces uberpool ride sharing platform
Dec 2014: Uber raises 600 million USD in series E
Jan 2015: Uber raises 1.6 billion USD and launches uber cargo.
Feb 2015: Uber raises 1 billion USD series E funding
July 2015: Uber raises 1 billion USD series F funding
Aug 2015: Uber raises 100 million USD private equity funding
Sep 2015: Another 1.2 billion USD raised in private equity funding.
Dec 2015: Uber launches UberEats in a separate standalone app
April 2016: Uber launches in Buenos Aires, Argentina
Aug 2016: Didi buys Uber China
Aug 2016: Uber Launches self-driving cars in Pittsburg
Uber Business Model Analysis & Conclusions
User experience is one of the most important factor in initial word of mouth.
Focus on city to city launches and don’t try to launch globally or all over at once. This will save you from the chicken and egg problem for drivers and users and will also help you solve problems from city to city
If you are focusing on another vertical, don’t copy the uber model as it is but try to find the real problems of users in that vertical.
Don’t try to launch with all features in one go. Try to launch one by one and check what is the user experience and response on each feature.
Try to find unique growth hacks like uber did by targeting tech community. You can try to find similar things in your vertical like your vertical focused events and influencers.
Treat your providers and users like kings. Offer them incentives to keep them loyal so they become your ambassadors.
Don’t try to own the cars or providers yourself. This will increase your cost of doing business. Although this can depend from vertical to vertical.
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