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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

Success Factors of Rideshare Business Model and Future Forecasts

Note: This article was updated on January 13, 2020

No other sector has revolutionized as much as urban transportation in these first two decades of 21st century. Many innovative businesses emerged taking the leverage of smart technologies. Rideshare business model is becoming one of the most successful models besides on-demand taxi and bike taxi services.

This article explains rideshare business model and explores the reasons for its success.

What is Rideshare Business Model?

Over 80% of vehicles in metropolitan roads around the world have a single passenger. This problem is creating a massive inefficiency because each of these vehicle drivers is consuming road space of entire vehicle.

Moreover, this problem persists in traditional taxis too whose number of passengers is mostly not more than one at a given time. Consequently, the contemporary century-old traffic model is becoming unsustainable.

Public transit systems (PTS) including rapid buses and subway trains are only a small part of solution. A commuter cannot book a seat or estimate the arrival time without traveling to stations. Most PTS offer the facility of phone call or website.

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However, smartphone apps present the most effective solution with remarkable user experience, unlike websites.

A commuter can book a seat with rideshare app while at home and find the nearest pickup point. Public transport vehicles only stop at prefixed routes. In contrast, rideshare apps allow dynamic stations. The vehicle stops at locations of riders’ choice while remaining inside the radius of operation.

Why is Rideshare Transport Model Successful?

Growing traffic congestion is not the only challenge addressed by rideshare businesses. They are also ensuring low-cost solution to commuters with better profit margins for service provider.

Excessive Utilization

One drawback of taxi business is the fact that drivers remain idle most of the time. This problem burns excessive fuel and consumes more time without returning enough.

Cloud-based rideshare model ensures that more people use single vehicle. This way, per passenger cost drops down. More people traveling in the same ride enable each rider to distribute cost.

In essence, drivers are not getting a lesser amount of money per ride. Instead, the increased utilization enables them to allow passengers pay significantly less.

Research indicates that rideshare services earn substantially more per hour of operations than taxi services. Thus, rideshare business plan is successful in perspective of passengers, drivers, and service providers.

Empowering Both Passengers and Drivers

Like one of the features in Uber business model, most rideshare apps enable ratings for both passengers and drivers. This dual-rating and feedback facility improves user experience. The facility develops a sense of understanding among the two stakeholders.

Any effective rideshare app would act on ratings and feedback. Drivers with poor ratings either face permanent or temporary termination. Those with decent ratings get bonuses.

Similarly, the apps also penalize passengers with low ratings. Usually, the regulators lower the number of promotional offers to such customers. In intense cases, customers may also face closure of their account.

Advanced Booking Rideshare software

As mentioned earlier, booking a seat through smartphone is mostly unavailable in public transit systems. Rideshare model allows passengers to reserve a seat in the vehicle of their choice. This feature reduces the pickup time and allows passengers to prepare in time accordingly.

The cost of traveling during peak traffic hours often goes extremely high. Thus, seeking a taxi is rarely an option for commuters.

Since the stops are dynamic, rideshare vehicles can far cover more areas than traditional public transport system. Sharing model also allows changing areas of operations instead of sticking to the same radius.

Tracking and Time Estimation

Customers have the facility to get the estimated arrival time of vehicles. They can also view the route of vehicles to find the nearest pickup point.

Rideshare is unable to pick riders at their doorstep unless the pickup location falls on driver’s route. However, it ensures to reduce the walk time as compared to public transport. Customers prefer walking few steps out of their homes instead of paying many times more by acquiring a taxi.

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Smartphone Payment Facility

The inconvenience of keeping hard cash or credit card is a thing of past. Now both of these payment methods are merely options. Customers mostly use the in-app wallet which allows filling balance ahead of ride or paying later.

Like other features, this facility saves time and ensures that passengers have less number of things to care about.

Safety and Dispute Settlement

One of the most notable facilities is the security of passengers. Unlike taxi rides, shared mobility allows monitoring staff to track rides for surveillance. Any efficient rideshare app provides the ability to store data of customers and drivers. Admins can access this data for accountability purposes.

Furthermore, the apps also allow settling disputes in a highly effective way. Traditional taxis do not save minute details in record of rides. In contrast, shared apps keep track of the areas traversed and conversation between driver and rider.

However, the apps need to ensure data security and avoid breaching privacy unless a dispute settlement requires so.

Forecasting the Forthcoming

Some vehicle manufacturers are designing vehicle interior, particularly for ridesharing businesses. Such cars and vans will feature seats with increased security features.

Besides, level four autonomous vehicles are kicking off the commercial operations. Alphabet’s Waymo is one of the first rideshare services featuring autonomous vans.

Many companies are planning to offer hopped rides in the upcoming times. These rides will enable passengers to reach the destination by hopping more than one vehicle under same booking.

You can be the upcoming prodigy in rideshare industry. We are here to help you with our cloud-based rideshare system. Take your time with the free trial to test the system’s efficiency. We will get back to you once the trial is over.

By Shahrukh Satti 0 Comments
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