Ammama Gill, Author at Cabstartup

Author: Ammama Gill

How UBER makes money? (Hint: It doesn’t!)

The ride-hailing giant, Uber with a net worth of US $100 billion, took the transportation industry by storm after first setting foot into the marketplace. Since then, it has evolved to make headways into many diverse fields like Uber Eats for food delivery services and Uber Freights for the trucking industry.

The previous article helped us gain insights into how Uber works. Now, let’s look into the business aspects of the company to understand how Uber makes money.

One of the fastest-growing, controversial companies to ever emerge from Silicon Valley, Uber is apparently struggling to stay afloat in an otherwise steady marketplace. Contradictory to common belief, the modern mobility giant is heavily dependent on investor funding. The business revenue that it generates is not sufficient to cover the costs, therefore, it requires investors to bridge the gap.

Why is UBER an attractive ground for investors?

Not every marketplace allows businesses to grow. UBER learned this the hard way while exploring China. Even with many big names failing to survive in the region, UBER took its chances – it created a separate unit for China, collaborating with the local tech giant Baidu back in 2013. The company faced challenges from the beginning, and soon after investing millions of dollars, they saw their business model failing – it just wasn’t made for the Chinese market. Therefore, after a few short years into the country, with substantial losses in terms of money and reputation, UBER China was sold to its biggest competitor – Didi. UBER, however, still has a 19% stake in Didi. Whether it was a well-crafted, strategic move or a humiliating defeat is still open to debate.

So, the question is, why a startup, founded in 2009, still turbulent more than a decade down the road, is an attractive ground for investors?
Here’s why:

  • Big stakeholders in the game make it to the executive board at Uber. Now, this is critical for businesses because it gives them the power to influence important decisions of a leading ride-hailing company. This is how the founding CEO of UBER, Travis Kalanick was voted out and had to step down from his role in 2017.
  • Purchasing equity for a company like Uber helps businesses stay part of the organization even after leaving the company due to any reason or a turn of events, like what happened in the case of Travis Kalanick.

Uber’s sustainability plan

Becoming self-sustainable for a company like Uber is essential to its success.

So, how does Uber plan to do it?

To understand that better, let’s briefly look at how UBER makes money with the existing system.

Fare for each ride is divided among three stakeholders. The exact ratio varies from region to region. Generally, however, the driver and the owner take 70% of the share, with the remaining 30% going to UBER.
The existing percentage of share that UBER has is not sufficient enough for it to pay the bills. Therefore, it is working on plans to achieve sustainability in the future.

So, how does UBER make money?

Autonomous Vehicles

UBER’s CEO Khosrowshahi intends to get the startup profitable by the year-end 2021. One of the biggest keys to attaining profitability for the transport giant is by UBER establishing its influence in the world of autonomous vehicles. Even though the program has been under execution since 2015, under the then-CEO Travis Kalanick, with plans to launch a pool of self-driving vehicles by 2020 but, this had its share of disruptions including a test vehicle drive that led to a fatal accident.

This created hurdles for the company since UBER began losing trust among the masses therefore, it recently sold its self-driving unit to a startup, Aurora. This seems like a strategic move by UBER because they don’t want to lose their influence on the world of autonomous vehicles. Reality will, however, soon unveil itself a few years down the road.

Abandoning Private Vehicles ownership

Since UBER works by collaborating with the vehicle owners, a substantial amount of the fare goes to them. This significantly reduces the profit margin for UBER therefore, it has planned to abandon private vehicle ownership by introducing its very own vehicles.

Electric Cars

As part of the clean air initiative, UBER has decided to completely switch to electric vehicles in the US, Canada, and Europe by 2030 and in the rest of the world by 2040. One of the major hurdles in making this switch is cost. Therefore, to encourage drivers to change vehicles, Uber drivers owning a hybrid vehicle will charge 50p extra for each trip, and for those running completely electric vehicles, this additional charge will be $1.50. This is already operational in several US and Canadian cities.

UBER’s M&A (Merger and Acquisition)

UBER is the most dominant ride-hailing company world-wide.

Ever wondered why? It’s because they don’t let competition stay in the market for long – they acquire it.

In the recent past, UBER completed the acquisition of Postmates Inc. for $2.65B in the US, which is a food and grocery delivery company. It has its food delivery service, UberEats. Both of them will run side-by-side supported by a combined, more efficient delivery network.

UBER also acquired the Dubai-based ride-hailing service, Careem for $3.10B. It is now entirely-owned by Uber, preserving its brand name. Careem’s co-founder, Mudassir Sheikha will continue leading the business, reporting to an executive board consisting of 3 members from Uber and 2 from Careem. Both the businesses will be operating in the regions as independent brands, offering their services.

Apart from this, there is an entire array of diverse businesses that UBER has acquired or plans to do so. By adopting this strategy in the marketplace, UBER is no more limited to the ride-hailing industry. It is making a mark across the globe in a multitude of industries.

The way forward

The main focus for UBER to date is to attain self-sustainability. There, however, have been talks regarding the startup’s plan to introduce deliveries via drones and flying UBER as taxi services.

The buzz around drone deliveries has subsided so far, but in 2019, there had been talks regarding UBER’s plan on launching drones for food and other delivery services especially in the densely populated cities to reduce delivery time and cost.

UBER elevate does, however, meet once yearly to discuss its progress regarding their flying UBER venture. Like most businesses across the world, UBER had its fair share of hits due to the global pandemic which forced it to take a step back from its dream of flying high into the air. Therefore, Joby Aviation of California will take over UBER elevate after an intricate deal in which UBER will invest $75 million in the startup. This, similar to the autonomous vehicle unit, seems like a long term strategy by UBER.

One of the fastest, controversial companies of its times, UBER has made a significant impact upon the ride-hailing industry. It continues to do so, expanding across the globe, offering market-appropriate services in a multitude of diverse fields. Struggling to stay influential in a significant portion of the world, UBER has learned from its mistakes in China, and other regions, trying to make intelligent, strategic moves to strengthen its roots within the industry.

If you are looking to explore the ride-hailing industry, reach out to us and let our experts help you out!

By Ammama Gill 0 Comments

How UBER works: Under the hood

Uber is a ridesharing software solution that completely revolutionized the dynamics of the traditional taxi industry. Established in 2009, the company rapidly gained popularity as an attractive transport alternative to conventional taxi services by offering a seamless user experience at an affordable price point.

CNBC ranked Uber as the second most disruptive company of 2018. Though it has since fallen off the list, Uber still dominates the transport market significantly.

Over the years, it has expanded exponentially, making headways into many diverse fields, introducing UberPool for ride-sharing services, offering peer-to-peer rides through UberPop, and establishing luxury travel options like UberLux. Uber is also working to develop flying taxis for fast travel.

In this article, we will gain insights into how Uber works, understanding the challenges it faces and Uber’s strategies to build a workaround for them.

Uber system design

Uber’s application is designed to look simple. But, when a rider requests a ride, an entire intricately connected backend ecosystem activates to deliver a smooth experience for its users.

Like most web-based applications, Uber started as a monolithic system architecture with a few application servers and a database. The initial system worked fine for providing services within a few cities, but, as its presence within the world swelled, Uber shifted to a service-oriented architecture, consisting of numerous services.

Basic Algorithm

The dispatch system design of Uber acts as a real-time marketplace where it matches the demands with the supply using smartphones.

How does Uber work
So, the entire system has three broadly categorized services:

  • The Demand Service
  • The Supply Service
  • The DISCO service

In the subsequent sections, we will talk about all these services briefly.

The Demand Service

When a rider books a ride, it gets connected to the demand service of Uber, accessing the GPS location of the rider to track the pickup point along with other specifications that the rider has requested for in the particular ride. This demand then matches with a cab within the supply pool.

The Supply Service

All the active drivers registered with Uber, periodically send their geolocation to the Supply Service with other details like the status of the drivers, for future reference. This way, whenever demand arises, the supply service has the latest information and can match with an appropriate supply.

Now that we understand the basic working of these two services, we will move on to the matching service, known as DISCO in Uber.

DISCO (Dispatch Optimization)

DISCO or Dispatch Optimization is where a series of events are activated in real-time to match demands with the supplies.

Efficient location tracking is pivotal for applications like Uber. Therefore, to enhance system output, Uber uses Google’s S2 library, which divides the entire system into small, equal-sized cells. These cells are labeled uniquely for ease of identification.

When demand arises, DISCO matches all the available supplies within the vicinity of the rider’s cell ID, matching the best possible cab with the rider based on the existing roadmap. This is critical because the road infrastructure and the traffic conditions determine the ETAs of the driver candidates. The supply service then matches the best driver available for the trip.

The DISCO algorithm aims to decrease the trip ETA by reducing:

  • Overall wait time
  • Driving time and distance

Uber’s challenge – Providing a seamless user experience

Now, since we have formed a basic understanding of how to design Uber backend, let’s look at the various technical challenges a real-time system faces and the workarounds Uber has found for them.

Dispatch systems like Uber are required to provide an uninterrupted and seamless user-experience. Matt Ranney, chief systems architect for Uber says:

“Another challenge is that Uber cannot afford a system failure. Ever. If a Uber customer cannot get a Uber car, then they will switch to another app. There is no brand loyalty. The systems must always work.”

To enhance system performance, Uber chooses technologies that are steady and can deliver results rapidly. It ensures that the entire infrastructure works independently of each other by carrying out extensive testing. So that, even with partial systems crashing, there is no down-time.

Scaling the dispatch system

Dispatch system-based applications like Uber require effective, scalable architectures to accommodate fast information processing in real-time. Uber addresses these challenges by using various standard technologies combined with their in-house solutions.

The dispatch system is written in Node.js, a platform built for real-time distributed systems. It has an asynchronous and event-based framework that aids the sending and the receiving of messages over WebSockets. But, according to the system architecture at Uber, Node.js and Python have performance issues therefore, Uber might switch to IO.js, a branch of Node.js, further enhancing system performance.

Uber also needed a mechanism to scale and distribute the data to multiple servers, for which it uses its RingPop technology, similar to Riak and Amazon’s Dynamo. Uber’s RingPop solution also manages cluster membership using SWIM (Scalable Weakly-consistent, Infection-style Process Group Membership Protocol).

Uber has also modified its communication channel, calling it the TChannel which is similar to Twitter’s MUX but, since Uber supports more languages compared to Twitter, it had to transform the standard RPC communication protocol to adjust to its requirements.

According to Ranney, Uber is also replacing HTTP and JSON with Thrift.

“We are even looking to replace HTTP+JSON, a typical REST API, with Thrift, as our tests are showing that it is 20 times faster. We need all the speed we can get.”

The use of these modified technologies significantly aids in improving system performance at Uber, a key factor to its success.

Data management

Real-time applications like Uber have a significant dependency on reliable data access at all times. Traditional database system architectures may act as a single point of failure for the entire system. Therefore, Uber uses Big Data stores as the infrastructure for its technologies, using tools like Redis and Postgres.

Uber considers smartphones portable minicomputers, using driver’s applications to distribute data. This way, the pressure of data replication across servers is relieved. As mentioned earlier, all the drivers check in with the supply service periodically, to receive an encrypted digest in return. If at some point, the driver does not receive a reply, it automatically connects to the backup server.

To handle these periodic driver updates, Uber works with a Kafka Cluster which logs all the incoming data traffic. This information is then sent to different worker nodes and persisted to the database asynchronously.

The way forward

Uber system design continues to evolve to match the rising user demands. It has made its mark on the transportation industry, revolutionizing the dynamics of the existing infrastructure completely.

The key to its success is performance, therefore, this is how Uber works to expand its ecosystem, providing a swift user experience. Uber’s model has set the bar high for enterprises that aim to produce fast, distributed, and scalable services for its consumers.

If you need a dispatch system similar to Uber, contact us and let our experts help you out!

By Ammama Gill 0 Comments
Send a Message
Get Demo