Uber's Business Model: What Your Company Can Learn

Uber driver using app on their phone dennizn / Deposit Photos

This article is part of our Business Strategies series, an insight and analysis into the makeup and model of some of the world's most successful startups.

Contrary to what we were all warned of as children ("never get into a stranger's car!"), Uber – the San Francisco-based rideshare giant – has made billions of dollars by widely enabling this very practice.

Used globally by an estimated 110m people every month, Uber – much like fellow tech disrupter Google – has become a verb in itself; a key indicator of its societal and cultural impact all over the world. But how has the company achieved such prominence? And what challenges is it facing as we move into the 2020s? To paint a fuller picture of its success, we've taken a close look and analysis at Uber's business model and what you, as a business owner, can learn from it.

Vital Information

Uber's business strategy can be summarised by its mission and vision statements:

Transportation as reliable as running water, everywhere for everyone.

Uber Mission Statement

We welcome people from all backgrounds who seek the opportunity to help build a future where everyone and everything can move independently. If you have the curiosity, passion, and collaborative spirit, work with us, and let's move the world forward, together.

Uber Vision Statement

Artists rendition of new Uber headquarters in San FranciscoSHoP ArchitectsMockup rendition of the new Uber headquarters in the Mission Bay area of San Francisco


Key Details

  • Founded: March 2009
  • Founders: Gavin Camp and Travis Kalanick
  • Headquarters: San Francisco, California, USA
  • Current CEO: Dara Khosrowshahi
  • Global Employees: Approx. 22,300 (2018)
  • Type: Public (floated May 2019)
  • Initial Funding: $1.25m (First Round Capital)
  • Key Products / Services: Peer-to-peer logistics, including ridesharing, food delivery, healthcare and freight

History

Founded in 2009 by Garrett Camp and Travis Kalanick under the guise of 'UberCab', the company's origins were rooted in the two co-founders' personal experiences. On New Year's Eve of the previous year, Camp – a computer programmer and the co-founder of StumbleUpon – had allegedly spent $800 on a private car service, inspiring him to determine a more affordable way of arranging public transport.

After conducting extensive market research (the duo hired neuroscientists and other technical experts to determine the project's viability), the first paid Uber ride was undertaken in July 2010 in San Francisco. Various iterations of the original product (such as UberX, UberBLACK and UberPOOL) soon followed, with the company expanding into food delivery (Uber Eats) in 2014. 

Business Model

Defined as a platform-based business model, Uber – at its core – acts as a matchmaker for those seeking a service, and those providing it. Most famously, this takes the guise of vehicular transport; users register either as drivers or as customers, with Uber acting as the platform through which these two groups can then access each other based on their location.

In terms of generating revenue, the company takes a commission of around 20% to 25% from each ride that takes place; drivers – and the vehicles that they use – do not belong to the company as assets, and are employed only as independent contractors, or freelancers. Indeed, under this partnership model, drivers must provide their own vehicle (or rent one through an approved partner), as well as their own insurance costs, although passengers have the opportunity to tip their driver independently.

Uber's leadership has also been keen to identify other potential uses for its platform, with Uber Eats arguably the most popular 'off-shoot' of the company's brand. Launching initially in Chicago, Los Angeles and New York City, Uber Eats allows users to also act as food delivery drivers from partnered restaurants. The platform follows roughly the same revenue model, with drivers earning cash through delivery fees, drop-off fees, miles travelled and tips, with Uber again taking a commission of between 15% and 30%.

Perhaps most remarkably, however, is that Uber is not currently a profit-making venture – and not just because of its recent IPO troubles, either. CEO Dara Khosrowshahi has, like his predecessor, argued consistently that Uber has the potential to be profitable year in year out, arguing that the company is the "Amazon of transportation" (and that a market worth $12 trillion is there for the taking), but a lot – not least the six core assumptions that Travis Kalanick was relying on – will have to change to make these promises viable. The majority of Uber's income goes towards its drivers, after all, and squeezing them even further – given already existing criticisms in this area – is a huge risk that would cause further friction.

A graph detailing UberStatista


What is perhaps more concerning for Uber in the long term is the idea that the ridesharing model itself is not sustainable (none of its major competitors are in profit, although it could be too early in the day for a conclusive takeaway). Ridesharing, however, is only projected to grow in the coming decade, so it remains to be seen if Khosrowshahi's faith is well-placed.

Value 

One of the critical components of Uber's growth so far is that, by targeting all age groups and individuals of various socioeconomic statuses, it is available in many different areas; all users need is the app and a free, registered account. This accessibility and ease-of-use mean that whether consumers use the ridesharing service regularly, or just for one-off necessities (such as when visiting another city), there is the benefit of convenience over trying to arrange a taxi or alternative means of transport. Among younger, more tech-savvy generations, in particular, other advantages over traditional taxi services include an estimated time of arrival at your destination, as well as a GPS-linked real-time map of where precisely potential rideshares are located.

Graph depicting UberGlobal Web Index

As a globally established brand, it also – despite numerous operating controversies – commands the trust of its users. Indeed, the company has been quick to address any perceived safety issues, with a reviewal rating system for both parties in place, as well as the ability to see your driver's photo and license plate before the journey starts. Passengers also have the opportunity to share their trip information with friends or family as an added safety precaution.

Partners

Uniquely, Uber's primary partners are its own customers, as it relies on its service providers to operate; however, there are other agencies and stakeholders that significantly affect the company's ability to function, too.

Perhaps the most high-profile are the transport licensing authorities of the jurisdictions in which Uber offers its services – key relationships that have to be carefully managed. For instance, it has already been banned twice from London – one of the company's biggest markets – with the related controversies having a knock-on effect on the company's poor stock showings.

In addition, Uber has partnerships with car rental (and, in some locations, electric car rental) firms, while through its other products, the company partners with restaurants and food outlets, freight and trucking firms, and healthcare providers. It also runs cashback reward programmes in conjunction with certain financial payment providers, too.

Key Figures

Following the operational departures of Camp and Kalanick (Camp remains a board member, while Kalanick resigned as CEO in 2017 and sold off the majority of his shares in December 2019), Uber is now under the operational control of former Expedia CEO, Dara Khosrowshahi.

CEO: Dara Khosrowshahi (2017-present)

Uber CEO Dara KhosrowshahiCNN

With a leadership style that could be deemed a combination of transformational and democratic, Khosrowshahi is nothing if not different; he has been publically described as the polar opposite of his predecessor, who – to the increasing detriment of the company – was far more aggressive and autocratic in his approach.

Termed a "listener" by senior Uber executives, the Tehran-born Brown alumnus described the situation he inherited as "messy", spending much of his first year consulting with employees, engineers and drivers who had grown disillusioned with the increasingly "toxic" culture at the company. He has since been responsible for leading Uber's IPO, as well as attracting significant investment and accelerating product diversification.

CFO: Nelson Chai (2018-present)

Nelson Chai, the CFO of UberManan Vatsyayana/Agence France-Presse

An experienced former investment banker and financial executive, Chai was appointed as the company's CFO specifically for his IPO-heavy background; hand-picked by Khosrowshahi, he is also an important ally in Uber's notoriously volatile boardroom.

Despite significant initial losses on the company's aforementioned new ventures, Chai, along with his boss, has been keen to allay fears and is responsible for managing the expectations of the company's shareholders accordingly.

CTO: Thuận Phạm (2013-present)

Thuan Pham, CTO of Uberkhoahocphattrien

A talented MIT graduate and former HP engineer, Phạm was allegedly interviewed for 30 hours over the span of two weeks before being hired as Uber's CTO in 2013.

Responsible for scaling the company's technological infrastructure to keep pace with the growth of its real-time consumer demand, Phạm has enabled Uber to go from handling 30,000 rides a day to 14 million per day, creating a resilient and robust architecture that continues to thrive.

Branding

Interestingly, Uber has changed its branding five times within the last ten years; indeed, early iterations of the company's visual identity are almost unrecognisable from its current guise. However, this frequent preference for an aesthetic rebirth can perhaps be attributed to the garish and outspoken branding of its primary competitor, Lyft.

Uber's third logo – the classic "Taxi-style" look – was well-received, even if its next version – a "bits and atoms" approach – was misguided and wide of the mark. It's most recent implementation, though, is a contemporary classic that signified the end of the Kalanick era, and is likely here to stay for the foreseeable future.

Collection of UberEli SchiffProgression of Uber branding since 2010

Competition

As with all disruptors, competition soon follows, and Uber has been no exception. Zimride, Wingz, Juno, and the aforementioned Lyft are a small selection of examples, and that's not to mention the traditional local taxi services and public transportation providers that it competes with. In recent years, there have also been a wide array of food delivery providers to contend with, including DoorDash, Grubhub, SkipTheDishes, and Postmates.

A list of the most downloaded ride sharing apps in October 2019Sensor Tower

While, historically, Uber's primary competitor strategy has been single-minded in nature (a reflection, perhaps, of Kalanick's "Rambo-esque" leadership approach), the company has also benefited from knowing its limits. Facing fierce competition in China, it sold its operations there to home-grown firm DiDi, while it has also acquired or merged with other transport providers in Asia and the Middle East.

Given the criticisms the company has attracted in recent years, ranging from its employment and pricing practices to increased traffic congestion and serious safety concerns, it's clear that the company has a lot to improve upon. Under Kalanick's leadership, the company was also accused of conducting numerous sabotage procedures against the likes of Lyft and Gett, including ordering and then cancelling rides in order to render drivers unavailable.

Company Culture

Under Kalanick's leadership, Uber's company's culture was heavily criticised and scrutinised, leading to his eventual resignation. Former engineer Susan Fowler published an explosive blog post of the company's practices during this period, comparing the cut-throat culture as akin to "an episode of Game of Thrones", while also claiming that sexual harassment, blackmail and backstabbing were rampant.

Acknowledging the damage that this culture was having (chief among them a retention crisis), new CEO Khosrowshahi has since taken on the responsibility of changing the company for the better, working steadily to rectify these issues. Yet while a 2018 piece in Vanity Fair argued that improvements were being made – especially in regards to the more toxic elements of the Kalanick reign – a "reckless competitive streak" still exists. Given the company's substantial financial losses and single-minded focus on the success of its newer product lines, it remains to be seen just how transformative Khosrowshahi's efforts have been.

--- 

Despite a tumultuous company culture and a resulting dip in popularity – both in terms of reputation and stock price – Uber's internal restructuring and perseverance to remain the top ride and delivery-sharing service has been tenacious. Today, they remain the most popular company of choice in their niche market, while ambitions of growth – and long-term profitably – remain high.

Key Takeaways

  • Simple is better – What initially separated Uber from competing rideshare and taxi services was its easy-to-use app and registration process. Don't neglect the user design aspect of your product and ensure that their point of access is fine-tuned to be accessible.
  • Build to scale – In forming an international ridesharing service that is adaptable to most regions, Uber has been able to spread to 63 countries, reaching an impressive global market. Even in the early days, always identify where your company has the potential to grow.
  • Diversify – Uber's success lies not so much on the end service that it provides, but the platform on which it does so. By identifying that this platform can be adapted and used in a variety of ways, it opens the potential for a wide array of revenue streams. Consider this when looking at your own products or services.
  • Admit your faults – In the wake of being unveiled as a toxic and hostile work environment, Uber not only admitted their mistakes but also set out to remedy them. Consumers will often forgive your wrongdoings if you prove that you have rectified them, and put processes in place that ensures they are not repeated.

What other lessons can we learn from Uber's business strategy, and how can you apply them to your business? Let us know your full range of thoughts and views in the comment section below.