uber Business Model – How does uber make money

Things have changed a lot in the past decade. The world is no longer the way it was before ten years ago. Due to the rapid development in technology many things have become easy for people. You don’t have to move a muscle to get the things you want. A person can just sit inside their home and get all the things they want. All you need is a mobile phone and an internet connection. If you have both then you have all the information and necessary tools at your fingertips. You can buy anything you want from the internet. Not only that you can order food from anywhere. But one of the best things that happened because of this technology is the ability to book taxis, flights, and train tickets. Nobody would have thought that one day they will be able to book a cab using a mobile application.

Do you even remember how you had to get a taxi? You have to go out onto the streets to wave and shout at taxis until one stopped for you. People didn’t even know when or if they could get a taxi sometimes. Another problem with those taxis was that you could not find one if it was late at night. More often than not people, especially women used to get scared if they didn’t find a taxi at night. This used to happen because these taxis were owned by the drivers themselves and did not work under anyone. So they worked for as long as they wanted. But the current generation services are nothing like that. They are available 24/7 and are easy to book. The most popular among these services is definitely Uber. 

Let’s look at its business model of Uber to understand how it became successful.

What is Uber?

Most of the people in the current generation are well aware of Uber. Uber is a ride-sharing application. This application has been the favorite of many people today as it allows them to book a taxi at any time and place. People loved it because they no longer had to wait on the side of the road to get a taxi or get rejected by a taxi driver. This transportation company was founded by Garrett Camp in 2009 after he sold his startup for 17 million dollars. He got the idea when he had to spend a lot of money to hire a driver. Garrett thought about what would be an efficient way to reduce the costs of hiring a driver. After that, he understood that sharing the cost with others made it much more affordable. When it was first launched it was called Ubercab.

The application officially started its services in 2011 in San Francisco. It was at this time the name was changed to Uber. During its initial days, people could only hire a luxury black car. But Uber changed its policy when it started its services in Chicago. From that time people could hire an Uber or a regular taxi using its application. It has gained massive popularity once it started its UberX services. UberX gave the opportunity to become drivers for Uber even if they had non-luxury vehicles. People could become uber drivers using their personal vehicles. All they had to do was go through a background check and keep their cars in good condition. After that, it launched UberPool which gained huge popularity and allowed it to go global. It didn’t stop after that and went onto launch UberEats which is a food delivery service that is gaining popularity.

Business model of Uber

Uber has changed since the day it was founded. Now Uber is no longer an on-demand ride-sharing service. This is because it has ventured into several different streams which is a great thing. But since it is widely known for its ride-sharing service this article will mainly focus on that part of its business model. Uber follows an aggregator business model. It has to provide a ride for a customer so that they can reach a certain destination from their current location. All of this involves two types of people which is the passengers and drivers. So you have to look at what it offers to both passengers and drivers to attract them. 

Let’s look at the passengers first as they are ones who create demand for these services.

Passengers

Uber is a platform that can be used by all people irrespective of their age. Be it a college student or an old man it is easy for anyone to use. The great thing about using Uber is that it is cheaper to book a cab through Uber than getting a regular taxi. The other great thing about Uber is that you can use it to book a cab in any country it is operating. If you go for a vacation to some other country you don’t have to hassle with the cab drivers over there. You can simply book an Uber. This will also save you from getting scammed. What this goes to show is the advantage provided passengers have when they know the prices upfront. This was not possible before when Uber didn’t exist.

Not just that you don’t have to keep looking at your watch to see when your ride is going to show up. Uber gives you the accurate time of arrival of the cab. It not only allows you to book a cab but also allows you to cancel it at the last moment if you don’t want it. Uber provides a real-time tracking feature that allows you to look at the exact position of your ride.  When you book a ride your ride will get accepted by the drivers that are near to you. This means that you don’t have to wait for a long time. Another great thing is that you can choose the vehicle in which you want to travel. Apart from that, the cashless rides make it an even greater experience. 

Drivers

Drivers are one of the main reasons why Uber has been so successful. But there is a reason for this that many people don’t know. Uber says that it doesn’t hire the drivers rather it partners with them. If a company hires an employee, the employee has to do everything that the company asks them to do. But Uber is nothing like that. Since it doesn’t own the cars it doesn’t impose any strict rules on its drivers. They only have to comply with a few things like keeping their car in good condition and providing them a copy of the vehicle’s registration documents. By looking at the liberty that these drivers have it is not an exaggeration when Uber says it partners with them. 

When drivers partner up with Uber they get lots of advantages. They don’t have to keep driving around until they spot a person who needs a taxi. Drivers don’t have to compete with other drivers. They can just sit in their taxi and wait for a ride request to show up on their mobile phone. Drivers don’t have a boss but they are working for this company that provides on-demand rise services. So they don’t have to take orders to keep working. They can work according to their own terms. Drivers can earn a lot more money if they partner up with Uber as it constantly gives about the people who request rides. The other great thing Uber does is that it helps its drivers to get vehicle loans. 

Now it’s time for the topic you have been waiting for which is how Uber makes money. Let’s find out.

How Uber Makes Money?

The main reason for its success is the prices it offers. Uber partners with the drivers in a city and comes up with the minimum price that a passenger can pay to get to their destinations. All the drivers get passengers through the Uber app for the price it sets for a ride. But there are several ways in which Uber makes money. 

Commissions 

As mentioned earlier the drivers get passengers through the application provided by Uber. When a request for a ride pops up the driver has complete freedom to accept or reject the ride. The passengers have to pay through the Uber app for the ride. When the payment is done Uber deducts a small percentage of the total amount as its commission. Usually Uber charges anywhere from 20% to 30% as its commission. After that, the payment is deposited into the driver’s account. But the prices for the rides are not always cheap. Uber increases the prices for a ride if the demand is very high. This something that it has adopted from the food delivery services. 

When there are a large number of people who are requesting rides from a certain location the pricing algorithm increases the prices. Apart from that Uber also makes money through premium rides. When someone requests a luxury vehicle the fare is high depending on the type of the vehicle. The higher the price the more money Uber makes.

Leasing Vehicles

Many people don’t know this but Uber has a program that leases vehicles to drivers in certain countries. The drivers have to pay a fixed amount before they could lease a vehicle. Once they get the vehicle they can pay the lease using their earnings. The money is automatically deducted by Uber from their earnings.

Cancellation fee

Not many people don’t this but Uber charges a cancellation fee from the passengers. There is a certain time limit in which you can cancel your ride without getting charged. But once the threshold exceeds you have to pay a cancellation fee if you want to cancel the ride. 

Conclusion

This is the business model of Uber. It follows an aggregator business model just like the business model of Airbnb. But the services these two companies offer are completely different. Uber also makes money from UberEats which is its food delivery service. Its business model is similar to the business models of Swiggy and Deliveroo. Check out the business models of those companies to understand how it works.

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