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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 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

London ride-hailing market wide open amid Uber ban

Transport for London (TfL) – the authority responsible for transport regulations in London – refused to renew license of Uber this past Monday. Consequently, a massive ride-hailing market in the metropolitan, currently dominated by Uber, is set to become an open field for new operators to jump in.

London makes up the biggest market for Uber on the east of Atlantic and fifth biggest in the world with its 3.5 million users. One of the company’s executives in August 2018 stated the number of registered Uber drivers at 45,000 in London.

Uber applied for five-year long license in 2017 to operate in the city but the application was turned down stating lack of fitness of software and vehicles. Instead, the company was able to get an 18-month long license. This renewed license was scheduled to expire in past September but the TfL extended it for another two months.

Get ahead of your potential competitors and grab the opportunity created by Uber’s imminent exit from London. Here is a guide to starting an on-demand taxi business.

Causes of ban as stated by the TfL

Row between TfL and Uber began in 2017 when regulator highlighted loopholes in safety measures. The TfL refused to renew license but London Magistrate decided partially in favor of Uber in 2018 allowing ride sharing prodigy to continue operation. A two-month long grace period ended past Monday after the 18-month long license expired in September this year.

Following are the reasons that, according to the TfL, are primary causes of banning Uber:

  1. Unauthorised drivers using accounts of registered drivers. Transport for London claims unauthorised drivers completed 14,000 trips.
  2. Many of the suspended drivers are still operating with new accounts. Uber, though guaranteed earlier, did not work on developing the mechanism that would have identified unverified users.
  3. Some drivers did not have right insurance. An appropriate insurance plan is mandatory for every private hire and rideshare driver in London.

Also read: Rideshare software solutions for multiple business models

The untold causes and impact on ride-hailing

The TfL is reiterating on these causes for over two years. However, there are some unstated reasons as well that might have impacted the decision. Following are the most likely causes other than the ones stated above.

  1. London Mayor hinted at making ride-hailing reforms last year in the wake of court’s decision to grant 18-month license. The current mayor is critical of Uber even before he took the charge and believes that the absence of limitation on the number of drivers is causing traffic congestion in the city.
  2. Environmental bodies are calling on Uber to reconsider its vehicle eligibility by making electric cars and HEVs essential. Statistics indicate that air pollution increased by manifolds since Uber arrived in the city in 2012.
  3. Local taxi association in London repeatedly called for a ban on Uber since they believed that the playing field was not level. The mayor explicitly stated his plan of providing level ground for both established business owners and new entrants.

Although Uber was banned two years back for more or less the same reasons as stated on Monday by TfL, yet they are less likely to get another acquittal. The company managed to satisfy the court last time by reshuffling the top executives. The extension was renewed again two months back on conditions that the ride sharing company would demonstrate strict measures against drivers’ violation.

Also read: Guide to acquiring taxi management software

However, they are not expected to be able to pacify judges this time around because they city has now other ride-sharing options as well. Uber also revealed a plan of making London operations entirely based on electric vehicles. The company is yet to demonstrate its progress in this regard.

Opportunities for entrepreneurs and taxi companies

London Free Press in 2018 reported Uber taking half of the total trips conducted by all private ride-hailing operators. This implies an enormous market share is up for grab as Uber is forced to halt operations after three weeks of license expiry date.

New players are already flexing their muscles to fill the major part in the impending void. Indian ride-hailing provider Ola announced to launch service in the next few weeks while Bolt from Estonia is aiming to expand operations.

However, the market share of Uber is so big in the UK capital that multiple small and large operators can jump in to replace the San Francisco based ride-hailing giant.

Take a look at our success stories from ride-hailing market.

Although it is still debatable whether Uber is able to make its way back in London any time soon, yet we believe that the company’s business would not be the same even if it manages to return. The regulators have all eyes on this ride-hailing company that has so far failed to implement a fair deal of surveillance system.

Uber-London-Ban

Today, a number of new and established operators are aiming to fill in the void. The city administration is all set to provide opportunities to new entrepreneurs and existing taxi business owners. Thus, the Magistrate is less likely to show flexibility this time around.

If you are aiming to launch a ride-hailing service that would partially or entirely replace Uber, it is recommended that you start the pre-launch ride-hailing marketing as soon as possible. Create the hype and spread the proposed name of your startup.

Meanwhile, you can work on developing the requisite infrastructure including mobile apps and admin panels. Using this approach, you would be able to launch your ride-hailing startup in less than month.

Place the hook right now to catch ride-hailing fish

Uber ban is unfortunate for the company and its loyal users. However, the ban is a blessing for entrepreneurs and taxi company owners as they would be able to establish. Consolidate their businesses in the absence of their top competitor.

CabStartup enables ride-hailing startups to establish, expand and sustain businesses around the world. You can re brand our ride-hailing platform with the design of your choice and customise it with additional features. The platform includes native mobile apps for customers as well as drivers. Besides, it also includes an admin panel for administrative tasks.

Our cloud based on-demand ride-hailing software solution is enriched with insightful dashboards and a range of features that assist your drivers and passengers. The dashboards share valuable business reports that enable you to identify areas of improvement.

We would help you prevent the problems that outlawed Uber. CabStartup can integrate the feature upon request that triggers facial or fingerprint recognition of driver before starting a ride. This feature would turn down any unverified driver from conducting a trip.

Another suggestion is to register hybrid and electric vehicles only to promote electric car taxi. Since you will be accessing third-party vehicles. The cost of operation would be the same as that with combustion engine vehicles.

Test CabStartup free of charges for two weeks trial period. Contact us to share your ride-hailing business plan and our experts would take you from there.

By Shahrukh Satti 0 Comments
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