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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 Makes Money?

As one of the fastest-growing and most controversial startups, people want to know how uber makes money and what challenges they are facing to get the guideline for their taxi startup success.

In an industry where keeping the cost down is the key to scaling growth. Uber has been comfortable acquiring drivers and providing an incentive to users. Even though most people know Uber as a ride-hailing company, Uber Eats is the most profitable and fastest-growing part, which is a relatively new meal delivery app.

How Uber Works?

The two-sided marketplace is one of the fundamental internet business models. A group of buyers and a group of sellers, connect via a technological intermediary like a website or mobile app and collect a fee from each transaction.

These platforms are more comfortable, faster, and more effective than the traditional method of connecting those buyers and sellers. The main advantage of Uber’s two-sided marketplace has been its efficiency. Uber network has grown larger and has become more valuable. It is experiencing growth which means faster pickup times, more drivers on the road, and potentially lower prices for riders. It receives more revenue and is the ideal business.

The core value of this marketplace is reliability. In the traditional taxi business, there is inadequate supply allocation for drivers. Traditional cabs only have a passenger in the car 30-50% of the time. They depend on taxi stands, centralized dispatchers, or being hailed from the street. They have no other way to go next.

On the other hand, With Uber, users request rides directly through the app. It allows better supply allocation for drivers. The nearest driver is dispatched to their location, and they can be hailed again immediately after the drop-off.

Better Supply Allocation for Drivers:

Uber drivers have passengers in their cars more often means less time and money is wasted.
In the Uber model, drivers and riders can find each other more quickly and reliably. Uber meet fluctuating levels of demand with an optimal level of supply. At times of low supply, the company makes sure that drivers are on the road and passengers are getting picked up.

In addition to increasing the supply to high-demand areas, surge pricing controls the customer demand as people who are unwilling to pay a higher price to find another means of transportation while some will pay for the surge.

Surge pricing provides a financial incentive for drivers to change location. Drivers receive a text informing them that surge pricing has been turned on in a specific area.

Since then, Uber’s business model has retained the same underlying dynamics. Its one of the most significant initiatives is Uber eats, which aim to increase driver utilization even further.

E-Book 3 snippet for CabStartup- Best kept uber secret

The Commodification of Ride-Sharing:

Uber has little valuable IP and local companies. Therefore, there is a high chance to gain a ride-sharing monopoly in their areas. Uber has spent hundreds of millions fighting well-capitalized local competitors, trying to drive their revenues down and cost up.

As the company approaches its projected IPO in 2019, profitability has become an increasing concern for investors. As a result, Uber is increasing its core markets while also expanding its offering beyond just car rides to incorporate bikes, scooters, and public transportation options into its platform.

Driver Acquisition & Retention:

The cost of acquiring drivers has been one of the most expensive parts of running Uber since its inception. In Uber’s early years, new drivers got sign-up bonuses as high as $2,000 or $5,000 just for completing a few rides on the app.

Today, referral bonuses have largely been eliminated, but Uber still spends hundreds of millions of dollars per quarter marketing itself to new drivers, paying out on other incentives, and financing driver vehicles.

Customer Acquisition & Retention:

Uber’s share of the US ride-hailing market is at 70% and climbing.
Still, Uber’s natural referral mechanics and incentive programs, combined with the average spend of an Uber user, have allowed the company to expand its user base at relatively low cost quickly. And even with increased competition from Lyft, there is little indication that Uber’s customer acquisition costs have gone up significantly.

Uber’s natural referral mechanics and incentive programs have enabled the company to expand its user base quickly.

Competition:

Uber has dealt with the competition since its launch. Drivers can easily drive for two or three ride-hailing services because they are contractors, not employees.

Uber Forecasting the Future:

Uber Eats is the fastest growing meal delivery service in the US. Uber Eats is today the most profitable part of Uber. Now, most of the entrepreneurs prefer using the on-demand platform as it is a cost-effective and efficient solution that brings efficiency to the business.

We provide on-demand software solutions that are customizable according to your business needs. If you want to get an on-demand solution, Sign Up today.

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