The days where the opening scene of a movie was a person in New York aggressively waving at a yellow taxi are gone.
It’s not relatable anymore because all the people are calling taxis on their apps.
One of the cheaper solutions out there is definitely calling an Uber.
No matter where you are from, you must know about Uber and how they have done something new and cost-effective with local transportation.
Uber disrupted the industry in 2009 as a ridesharing company that was both one of the fastest-growing startups and the most controversial ones.
If you’re always wondering how Uber makes money, keep reading because in this post I will explain that and much more about Uber.
What is Uber?
Uber is a ride-sharing company that got quite successful in the world operating in more than 85 countries throughout the world.
The beginnings of the company date back to 2009 and since then Uber has been improving and broadening its involvement in different industries.
Nowadays, Uber has a smartphone application that allows people to book a cab ride fairly easily.
The only things that you need to book a cab ride are a smart device and an internet connection. The whole Uber concept is made in a way in which it utilizes time, proximity, and routes.
The process happens in a few steps and they are the following:
- Open the app: you have to specify your location in the box titled “Where to?”. Additional options can be chosen for each car ride like the size of the vehicle, the price range, the estimated dropoff time. After you go through all the choices, simply confirm the pickup.
- You get matched with a driver: your request can be seen by nearby drivers and some of them will accept the ride request. After it is accepted, you will get a notification telling you how much time it will take the driver to reach your location.
- You are picked up: when the driver arrives at your destination, you both verify your names to make sure that both sides are correct. Then, the ride starts.
- You arrive at your destination: the rider takes you to your specified destination, and to make sure that it’s the right destination the driver can choose to receive turn-by-turn directions.
- Both sides leave ratings and reviews: once your ride is done, both sides can rate each other with 1 to 5 stars. If you were really satisfied with your ride, you can give the driver compliments and tip them through the app.
The amount of money you would have to pay for your rides is a result of an algorithmic procedure that considers different factors such as time spent, distance traveled, fuel used, etc.
Additionally, there is surge pricing that helps in these algorithms.
Another option that Uber offers is its UberPool feature that allows you to share rides with other people from a close-by destination like you.
This is great for everybody since both the users and the company save money for fuel and other charges.
It is also very handy when it comes to increased demand and there are a smaller number of available rides in a certain busy location.
Target audience and substitution of taxis
The platform is used by basically all social groups that have knowledge in using apps. Young adults are using the app to go to college, and work, as well as older adults, to pool as a form of public transport.
The best thing about Uber is that sometimes it can provide a cheaper option than using your own car.
Another group that uses Uber a lot is tourists who need rides from one touristic attraction to another. They also use it for going to and from airports, stations, even cities.
Basically, Uber is targeting everybody that can use an app, and need a cheaper ride.
Because of those reasons, Uber has succeeded in replacing a lot of taxies out there.
Other reasons include:
- Refusals are unlikely. The cases in which refusals happen are either when the driver can’t make it on time, or no cars are free at the moment.
- You can choose the type of car. If you are a group of 6, you can find a vehicle that will fit all of you inside.
- UberPool feature. This feature makes the rides extra cheap since you are sharing the ride with other people.
- The review and rating system. Give a kind of security that everyone would be on their best behavior because it’s in their interest.
- Defined time. You know in what time the ride will be at your door.
- You can contact the driver. You know all the details, the car details, the contact number, etc.
- The route can be altered by your request
How does Uber make money?
Uber’s net revenue per quarter rose from $1.4 million to $2.97 billion in the period of 2012 to 2018.
This means that Uber is making big money, even despite its high costs for:
- Acquiring new drivers through marketing, bonuses, referrals, other incentives
- High driver churn
- Acquiring new riders through marketing, giving money for downloading the app, etc
- Cost for their incredible expansions
- Costs connected to regulations in different countries.
1. Fee from riders
This feature is now called UberX and it’s the standard option on Uber app.
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The average rates that riders pay for rides are computed based on the distance, time, time of day, personal profile, etc.
The riders pay a base rate that varies, and it’s based on their personal distance and time.
Around 75-80% of the fees that the riders pay are going to the drivers, and the rest of them are going to Uber.
With these earnings, Uber takes care of taxes, credit card fees, marketing, sales, insurance, and other costs.
Whatever is left, is their profit.
2. Uber Pool
The Uber Pool is a feature that is used by many users because it gives them discounted rides.
Additionally, this feature is also more financially powerful for Uber because even though the users separately pay lower fares, together it can be 2-4x more for each carpool.
The driver just goes on a route and stops and picks additional riders. On one carpooled route, there might be three different fares, but the driver earns money for driving the whole route.
The driver would drive that route anyway, additional people are just additional fees.
It works better for users, it works better for Uber, and it works better for drivers because they are idle for shorter periods.
3. Uber Eats
Uber Eats is a food delivery app that might be the most profitable unit of their company.
In 2018, it generated $7.9 billion in gross bookings which made Uber the largest meal delivery service worldwide with the exception of China.
The reason that this unit is so profitable is that it is using the already existing network of Uber drivers to provide value added service to the customers.
More than 220,000 restaurants in more than 500 cities are delivering through Uber Eats via the local drivers through their standard app.
More than 16% of Uber’s active users got food delivery through Uber Eats in the last quarter of 2018.
4. Uber Black
Uber Black is a premium transport service offered by Uber, which is a marginal percentage of the revenue.
Luxury transport doesn’t quite fit in the overall model of Uber, and the demand is not high for it.
Additionally, the expenses for driving for this unit are quite higher than the standard UberX because the vehicles used for it are quite more expensive to be bought or leased.
Also, ensuring and maintaining luxurious vehicles brings higher expenses as well.
Since the biggest problem is demand, the prices are falling all the time and today it’s quite cheaper to use this unit even if you are not financially advantaged.
5. Uber Freight
Uber Freight is an app that is used for matching carriers with shippers, providing an advanced platform for logistics.
This unit was launched in 2017 and since then it has expanded a lot throughout the U.S and in some other countries as well such as Germany and the Netherlands.
Thousands of shippers and half a million truck drivers are using the platform for easier shipping process.
The way it usually is, shipping companies go through freight brokers that act as the middle man.
These “Middle Men” match the companies with truckers for a certain commission.
Uber Freight takes out the middle man and connects the shipping companies with the truck drivers.
The drivers get a list of available jobs with all the details connected to them like route, what they’re shipping, how much is it paid, etc.
When they make the delivery, they can find the next job on the app.
In the future, Uber will pay attention to their New Mobility organization that will include electric bikes, scooters, transit, and other possibilities.
Uber has always been good at predicting the future needs of the customers and making affordable, out of the box decisions when it comes to developing new units.
They are always expanding in one way or another, and we can only wait and see what the future holds for this disruption-liking company.
Did you find this article helpful? If so, you should check out these other posts on how other giants make money:
Leave a comment letting me know which other company you’re curious about learning.