Uber Business Model Overview

Brief Summary

Ride-for-Hire Marketplace

        In the US, taxicab and limousine services are regulated by the states and cities in which they operate. The motive of regulation is to ensure that services are safe, reliable, and affordable. And both owners and drivers have equal benefits. Taxicabs is reached by being hailed on the street while limousine services can be booked by prearrangements to protect taxicabs from direct competition from limousine services.

        A medallion system is introduced as quality guarantee in many cities. Yet, the supply of medallions are so limited that drives up the price of them enormously. The problem arises here the drivers need medallions to make a living and they may not break even until halfway through their shift. So, there is no doubt why drivers are impatient, rude, tend to drive fast and take poor care of the cabs.

        In London, taxi drivers must have a license that can be acquired by the knowledge exam. For instance, they must memorise the city’s street maps. The same process is applied in Austria, Finland, Germany and Hungary as well. In other cities such as Paris and Milan, there is a problem of insufficient supply of cabs compared to demands.

Stakeholders’ pain points in traditional Ride-for-Hire Service

Customers

        Taxicabs can be difficult to find in certain areas as many drivers avoid areas with few passengers, plus, during peak times like rush hour, special events or holidays, there can be a shortage of cabs, long wait times. Sometimes, they have booked but cab doesn’t show up or show up late as drivers don't know the directions. Some customers often experience rude, impatient drivers with recklessly driven, dirty and poorly maintained cars.

Drivers

        There are many legal issues regarding laws and regulations in order to be an authorised driver in many cities in the sense of the difficulty to get that legalised licensing and the huge amount of money required for the license and also, the quality guarantee like medallions. In some aforementioned countries, they must even take an exam to get licensing, they must be able to remember the directions. Thus, They must work really hard to break even resulting in low wages and they cannot choose the shifts and times they want to work in. Moreover, there are some cases of robbery in taxicabs by riders.

Uber’s Business Model

        Uber takes the stakeholders’ pain points into account and develop a smartphone application that effectively solve of the pain points and connect customers with drivers immediately on a fingertip.

Shortage of cab / Long wait times

        The app shows customers the cars’ location and the cars will arrive in few minutes after being hailed. and Surge Pricing is introduced by Uber to encourage more supply at period of peak demands. Uber adjusts fares depending on the state of demand.

Rude, impatient Drivers / Recklessly driven, dirty and poorly maintained cars

        This problem is successfully solved as Uber allows drivers to use their own cars so they must drive carefully and take a good care of their cars. Moreover, they can work in flexible hours and get higher profits as they don’t have to pay for exam, licensing or any quality guarantee. Uber also has ratings for both driver and rider to maintain the quality of service and the behaviours of riders.

Robbery by riders issue

        Drivers no need to carry large amount of money on hands as the fare and a tip is charged to customers’ credit cards directly.

City Directions / Lost Drivers

        Uber service provides a GPS in the application. So, even neither the drivers nor the customers know the directions, they are able to get to the destinations in time.

Expansion Strategy

        At first, uber explicitly targeted members of tech community sponsoring local tech and venture capital events providing free rides to attendees. Uber spends zero dollar on marketing. This demographic are the ones who rapidly spread the news via word of mouth and social networks. The growth is driven substantially with a word of mouth because the app is so simple to use that easily encourage customers to try it out. After that, Uber drives further growth by expanding in the cities with lots of restaurants and nightlife, holidays and events, suitable weather and many sporting events.