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Uber is one of the most successful and well-established ride hailing service provider in the world. The company is headquartered in the US, but it has expanded its operations across 900 cities in 80 nations. The company has captured the highest market share in its domestic market and has also achieved increasingly higher revenue. It has attracted substantial investments and has also earned significantly high brand valuation. Its business model has allowed the company to offer great value to its stakeholders. Ever since its inception in the year 2009, several other companies have also adopted the same business model, as it has proved to be highly successful in attracting customers and investors. In this article we have discussed about how Uber works, by digging deeper into its business model. It can be really helpful for you in your marketing case study on Uber, and will also give you a clear understanding on how ride hailing companies like Uber function and make money.

Uber Business Model

Uber offers passengers to hire for cab rides through its smartphone application, with great ease of use. Before we delve deeper into the actual business model of the company, let us first look at its stakeholders and how the value offered to them.

The business model of Uber involves two key stakeholders, which are the passengers and the drivers for hire. The ride hailing It brings the passengers and cab drivers close together, using modern information and telecommunication technologies. The passengers receive value in the form of convenience and the cab drivers receive value in the form of revenue from the ride fares. Before you start writing your college essay let us look into how these stakeholders become a part of the business model of Uber.

As mentioned previously, Uber offers an online platform which allows passenger to hail car rides, by bringing the passenger and the cab drivers closer together. The company partners with multiple cab drivers in a region. The drivers need to register themselves with Uber and need to go through a series of background checks. Every partner driver is now given access to their own Uber driver account, which can be accessed through a dedicated application. This application interface also become their sole platform to connect with potential passengers.

Whenever a passenger needs to travel from one place to another, he/she can open the Uber application from their smartphone and call for a ride. The centralized system of Uber searches for all the available drivers in the area or nearby areas of the passenger, by tracking the location of the vehicle. After finding the nearest driver, the system automatically sends a notification to the driver for the availability of a potential passenger. Once the driver accepts the ride, he can then track the location of the passenger and reach them to pick them up. The driver then transports the passenger to their desired location. This approach makes it much easier for passengers to hire cabs, with great convenience and assurance. Moreover, the passenger can also call a cab to practically any location, which makes the overall experience of the ride even better. From the perspective of the cab drivers, Uber allows them to find more passengers, than they would otherwise find. This as a result it enables them to cater to more passengers, thereby increasing their revenue generation.

The drivers, passengers and the support executives in Uber, are all connect together by a centralized system, which seamlessly brings all the entities together.

How Uber Makes Money

In the previous section, we have established how Uber operates with its stakeholders and how each of them benefits from the venture. Now let us shed some light on how the company makes money.
For each ride that the driver makes, Uber take a specific commission from the drivers, which adds to its revenue stream. Apart from commission per ride, the company also earns money from surge pricing or dynamic pricing, higher rates for premium rides, additional fees for cancellation of rides by passengers, brand partnership and advertising, and fleet leasing. All of these add up to the overall revenue of the company and allows Uber to become financially stable.

Uber partners with drivers for hire, enables them to earn more money from its business model. Currently, Uber collaborates with three types of partners:

  • Diver cum Owner
  • Driver under partner
  • Non-driving partner

A driver cum partner is someone who owns their own vehicle and drives it themselves. A diver under partner is someone who drives a vehicle which is owned by another individual (non-driving partner). Finally, a non-driving partner also known as fleet partner how owns their own vehicles but do not drive them and also manages at least one driver. Uber has different business contracts with each of them. By this time, you should be able to prepare your paper without asking for any writer help. Now let us look into some other interesting aspects of Uber’s operation.

The Liquidity Network Effect

The business model of Uber benefits from the liquidity network effect, where the company is able to offer better value as the network of drivers expands. It begins with creating an increasing supply of drivers for hire. As the supply increases over time in a particular market location, the passengers can benefit from more availabilityof rides close to their location. This also reduces their waiting times. More availability of drivers leads to better search experience, which in turn attracts more passengers. The core objective is to increase the number of available drivers per hour for more potential earning.

The liquidity network thus has a snowballing effect on the business. Once the driver base starts to grow, it attracts more passengers to the Uber platform, which in turn attract more drivers to partner with the company, and it goes on. This indicates that the success of the company relies on its relationship with its partner drivers.

Summing It All Up

The business model of Uber of relies on bringing its key stakeholders, the drivers and the passengers together by using its online mobile platform. It offers value to the passengers in terms of convenience and it benefits the drivers by enabling them to commence more rides in a day, thus helping them to earn more income. In the process, the company earns its own revenue by taking a commission from the drivers and other additional fees from the passenger. The growth of the business relies on the liquidity network effect, where the company benefits from expanding its driver supply, which has a snowballing effect on all the stakeholders.

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