Uber is a digital aggregator application, which connects drivers with passengers so that they can avail ride from point A to point B. Demand is generated by the passengers, while drivers supply them with the ride through the seamless mobile platform of Uber. The important aspects concerning the Uber business model can be key partners, customer relationships, resources, operations, customer segments, distribution channels, value propositions, cost structure and revenue streams. One of the main aspects of Uber business model is a brand partnership or advertising, through which the company attracts audiences and makes them aware of new service offerings. Promotions are an integral part of the business, which can draw strong revenue and profit margins. In this article, all these areas of Uber business model will be elaborated citing references from credible news sites.
Uber Business Model
According to Forbes, Uber Technologies Inc. operates as a digital ride hailing service provider. The company offers multi-modal transportation and food delivery, by connecting carriers and shippers, which forms the foundation of Uber business model. The various operational segments of Uber are Uber Eats, Other Bets, ATG, and Freight. The Rides segment provides transportation facilities to the passengers who require vehicles. The Uber Eats segment helps consumers to discover food from any restaurant and order a meal. The freight segment connects carriers with the shippers through proprietary technology and brand awareness. The other segments are concerned with the designing and commercialisation of autonomous vehicles and ridesharing technologies. This business model plays a key strength in Uber SWOT analysis.
Uber Business Model Canvas
Let us now dig a little deeper into the Uber business model canvas. The Uber business model consists of various segments, that is, key partners, resources, customer relationships, key activities, distribution channels, customer segments, value propositions, cost of business and revenue streams. The key partners of the business are the drivers, API providers and other investors. Customer relationships define feedbacks and customer support, through meetings and communications with the customers. Key resources can be technology, network & analytical experts, brand name, data and algorithms. Key activities include adding drivers, riders, features and expansion to new cities. The main targeted segments are people without a personal car, who need quick rides.
At the core of the Uber business model, the company tries to create value for the passengers through on-demand cab bookings at a convenient time and places, which aligns with Uber’s mission statement. Through real-time tracking, the passengers can understand the exact location of the car and estimate the arrival time. Cashless riding is available and customers get varied choices while selecting a ride. Trip commissions, ranging between 15-30% are taken before transferring the payment to the partner. This commission is the primary sources of revenue in the Uber business model. Uber follows a surge pricing strategy, according to which the fare is relatively proportional to the demand. At peak hours, the prices go up following the algorithm of dynamic pricing. This technique helps in balancing the demand and supply sides.
An important strategy applied by Uber is a rapid expansion of the business to new verticals. The company has opened other branches such as Uber Eats, which is engaged in delivering on-demand food to the customers. The company has diversified into this area to utilise its large fleet of drivers. Uber Eats was launched in 2016 as a separate mobile application and gained popularity within few months. The company also penetrated the segment of trucks, when it launched its trucking application in 2017. Innovation is recognised as one of the pillars of success in the Uber business model.
According to Statista, Uber has established strategies for maximising its profit margins and carry out an intricate process in the dynamically competitive business environment. After Uber entered the transport industry, the traditional taxis and cabs have been under tremendous pressure to retain their market position. Within a decade, Uber has become a prominent transport option, boasting 110 million users monthly in the United States in 2019, boldly facing some of the tough Uber competitor. The company constantly co-evolved so that it can always be in its position. Currently, Uber operates in more than 69 countries, generating a revenue of 14 billion US dollars in 2019. In the second quarter of 2020, the revenue dropped by 10.22 billion.
The sudden decline in revenue can be attributed to the pandemic crisis. Due to the devastating effects of the pandemic, the volume of passengers fell by 80%. Economist says that the leader of Uber finds it very difficult to align his approaches with real-time experiences. The food delivery business became its saviour in the short term. The company urged riders to stay home and offered financial incentives to the drivers. The company also discarded redundant products, locations and people from its business portfolio. Uber listed its name in the stock market and was valued at around $70 billion.
In response to the COVID-19 pandemic, the company formed a working group in Asia, which was named as a global COVID-19 task force. Uber also suspended the UberPool ride-sharing option as strangers must not be cooped up together in back seats amid this pandemic. The company also helped drivers who were diagnosed with the disease and also reduced independent restaurant delivery charges. Millions of free rides were given to the health care workers. Through these activities, the company incurred a temporary loss and a drop-down in the sales figure in the second quarter of 2020. However, it was able to earn the trust and reliability of the customers.
Other areas of importance
According to Fortune, Uber has enthusiastically added new delivery products to Uber Eats, when it displayed the signs of growth and development. Uber approached Grubhub, which was a publicly traded firm, for an acquisition. In April, the company announced a direct delivery service for the retailers through Uber Direct. The courier service of Uber, that is, Uber Connect was focused on delivering goods within 30 minutes to few hours after the confirmation of the order. Uber’s slow movement into grocery delivery services will help the company in the rushing of the negative impacts of the pandemic. It is likely to strengthen the Uber business model.
Uber is affected by fierce competition in the market. However, the rising unemployment and low demand for the dining businesses will provide new opportunities for Uber for enhancing its e-commerce business. The company will no longer need to subsidize its drivers or restaurants. The CEO planned to rationalise the portfolio, for coping with the changes of the surrounding environment. The company does not aim for quick returns from the customers, rather it wants to focus on the long-term gains. For this reason, the company has dramatically lowered its costs, by cutting down customer support positions.
Overall, the Uber business model is platform-based in nature, by offering the best transport and food services to the people. The company uses a partnership model, where independent contractors or freelancers are hired for the trips and after the completion of each trip, Uber takes a partial commission from the partner. Profit-making is not the sole objective of the company. Instead, it wants to strengthen its relationship with the customers. The company targets all age groups, who can create free, registered Uber accounts on their mobile phones. Thus, the company generates revenue streams and leverages cost and profit to achieve a break-even point in the business.
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