Analysis of How Uber Changes the Way World Moves
Executive Summary ---------------------------------------------------------------------------------- 3
Analysis of the Uber’s Business Model ----------------------------------------------------------- 3
The Revenue-Generation Model of Uber ------------------------------------------------ 5
Value Propositions -------------------------------------------------------------------------- 7
Uber and the Decision-Making Process ----------------------------------------------------------- 8
References --------------------------------------------------------------------------------------------- 10
Executive Summary
Generally functioning in connecting passengers and cab drivers in the shortest amount of time possible, Uber is considered by many to be one of the most groundbreaking innovations of this era where advanced technology is the primary key to serve people in the most efficient way possible. Making a big name in less than a decade, many still question the methodology employed by Uber for it to attain its worldwide recognition and status. This then leads to various analyses of Uber’s business approach and the business model it uses.
This paper will also analyze the business approach employed by Uber and how its use of the two-way business model has enabled it to achieve so much in a span of less than a decade. This paper will tackle the strategies of Uber as well as the model it employs for its revenues and its value propositions.
Analysis of Uber’s Business Model
Generally, Uber makes use of a two sided market that serves both drivers and passengers (Living Economics, no date). Uber serves its two markets by subsidizing one side while charging the other full price for its services (Living Economics, no date). Drivers have the market subsidized by Uber while passengers account for the market that is being charged full price (Living Economics, no date). Viewed this way, Uber may be considered a public good for the drivers and a private good for the consumers (Living Economics, no date). Since drivers pay no price in signing up and being part of the large pool of Uber’s drivers, Uber for them is more like an optional commodity or source of benefit, something they can choose not to utilize if they so wish and thus makes the Uber service a public good on their part (Living Economics, no date). Customers, on the other hand, are being charged for the utilizing the service provided by Uber and oftentimes compete with other riders for the supply of available Uber drivers and vehicles which makes the Uber services a private good for them (Living Economics, no date). Basically, Uber is what makes the demand pool of passengers meet the supply pool of available drivers and vehicles through the use of Internet and a tidy app that can be accessed anytime, anywhere. Still, what makes Uber so much more successful compared to other two-sided business ventures which have been in their industry for a long time but have not achieved success as Uber did within just a short span of time?
Uber’s Marketing Strategy: The Key to Massive Success
The key to the massive success of Uber is said to lie on its extensive campaign and marketing strategies. Uber has mastered a marketing technique that is tailored to suit the conditions of their target regions. Uber depends its marketing strategy to the lifestyle of the people in a region it is targeting. In a region where people is adept at using technology, Uber extensively campaigns via social media, television, and radio (Brown, n. date). In a region where people do not largely use social media and technology, Uber uses print and other forms of advertisements that would familiarize people of its products and services. Uber knows how and whom to project its services. Uber targets regions that suffer greatly from low supply of vehicles for hire. Their first target area, San Francisco, learned about Uber through the company’s extensive campaign. Uber campaigned for itself in a way that genuinely entices clients and soon people who have tried the services would spread the word from one person to another, thus promoting further the company in an evidence-based manner (Brown, n. date). Uber benefits largely from the customers’ recommendation of their services and that makes the company more of a necessity rather than a luxury (Brown, n. date). Uber also knows how to pitch their product not just to customers but to possible drivers which makes their pool of contractual employees larger and more capable of accommodating increasing number of customers. Marketing is a vital part of Uber’s success and it is certainly one of the main contributors to the company’s growing revenue and investors.
The Revenue-Generation Model of Uber
The method by which Uber generates its revenue undoubtedly plays a significant role in the company’s growth over a short period of time. Just like how an ordinary cab generates income and revenue, Uber’s main and only source of income and revenue is the fare it collects from the customers utilizing their services. So how does Uber become groundbreaking in an industry where no one has succeeded as much as it did? The main answer would be Uber’s capacity to generate 1 million rides a day worldwide (Juggernaut, 2015). Uber’s capacity to generate that much of customer-driver transactions on a daily basis may be attributed to their unique revenue-generating model which has the following parts that deem it successful: (1) Different cab models that offer passengers different options, (2) surge pricing technology, and (3) various Uber ride services (Juggernaut, 2015).
Uber offers an array of cab models that is supposed to cater to the varying needs of customers. For customers wanting to rent black luxury cars, there is the UberBlack (Juggernaut, 2015; Moon, 2015). For those who want to ride an Uber car for the cost of an ordinary cab, there is the UberX whose drivers may be non-professional (Moon, 2015). For those who want to ride a bigger car for the price of an UberX car, Uber offers the UberXL service which makes available larger cars that can fit up to 6 passengers (Moon, 2015). There is also the UberSUV for those willing to be charged extra to ride a luxury car (Moon, 2015). To date, Uber is experimenting on the so-called UberPool which makes a single Uber car available for various passengers who do not mind sharing a car with another random passenger (Moon, 2015). All these Uber variations make Uber a more convenient option for many commuters whose choice of cab service may differ from time to time. This strategy attracts more passengers and thus increases the source of revenue for Uber.
Another unique technique employed by Uber that improves the amount of revenue it generates is the so-called Surge Pricing Technology (Juggernaut, 2015; Moon, 2015). As its name implies, surge pricing is the method of abruptly increasing the price of service whenever the company deems fit (Juggernaut, 2015; Moon, 2015). The surge pricing method implemented by Uber may increase Uber fares from 1.5 times to 7 times the normal rate (Moon, 2015). Surge pricing is often implemented by Uber in times and places where a cab may be hard to summon (Moon, 2015). According to the founders of Uber, surge pricing is implemented to attract Uber drivers to areas where they would normally not go to had not the fares been increased (Moon, 2015). It is a technique they employ to meet a large pool of demand to an otherwise limited supply (Moon, 2015). While there is no clear basis and algorithm for the number of times Uber fares will surge, passengers can expect the surge to happen in times of bad weather, or local commotion and other situations that may make an area inaccessible or unattractive for an Uber driver to pick passengers from and before passengers are charged for an increased fare, the Uber app usually notify them of the impending increase in the price of service to give them ample time to decide whether they still want to hire an Uber car or not given the surge in pricing (Moon, 2015). The surge pricing may not be an attractive event for passengers of Uber but it does encourage drivers to pick up more passengers and also increases the revenue received by the company (Juggernaut, 2015; Moon, 2015).
Other Uber service rides also increases the means through which Uber can maximize its revenue (Juggernaut, 2015). Uber also offers boats, helicopters, and other transportation means that are meant to meet the increasing demand for easy transportation (Juggernaut, 2015). Uber is also experimenting on other ventures that aim to increase convenience for its customers. Uber now has a lunch-delivery service called UberEATS, a food delivery service called UberFRESH and a bicycle courier service called UberRUSH (Moon, 2015). All these are additional sources of revenue for Uber.
Value Propositions
Uber has two set of value propositions: one for its drivers, and another for its passengers. For drivers working with Uber, the company offers them (1) additional source of income, (2) flexible working schedules according to their availability, (3) easy and convenient payment procedure, (4) personal growth for people who drives as a hobby, and (5) online payment that ensures drivers they are getting paid on time, with no special requests for the delivery of their salary (Juggernaut, 2015).
Apart from value propositions for drivers, Uber also has value propositions for customers and these include (1) zero to minimum waiting time needed to summon a private lift, (2) free rides and discounts on certain occasions, (3) fares that are cheaper than regular cab ride, (4) option to choose from various car ride services that could cater to various needs of customers, (5) fixed prices for common destinations like the airport, and (6) convenience afforded by the availability of all services with just a tap of a button (Juggernaut, 2015).
Generally, Uber may be considered to be a business that significantly shares the economy with those whose claims to business establishment are more legal and conforming to the existing laws and regulations (Katz, 2015). Businesses with sharing model are considered by many to be disruptive innovations to existing firms in a certain industry and “have caused confusion under insurance tax, employment, and civil rights statutes” (Katz, 2015, p. 1068). Basically, the sharing economy model refers to any businesses—products or services—that repackages old and existing technology to establish a new market resulting in the disruption of incumbent firms (Katz, 2015). Business with this kind of approach is considered to have a “thinly veiled ruse for avoiding regulation” (Katz, 2015, p. 1070). Given Uber’s repackaging of the old taxi service, it can be considered a business with a sharing model. Uber’s share of the demand for taxi passengers disrupts the ability of incumbent taxi firms to garner enough revenue the way they most likely did before Uber entered the cab-hailing industry.
On the other hand, a significant number of experts on this issue are not agreeing to the idea that Uber is actually a form of disruptive business. These experts look more on the structure of Uber compared to the structure of those whose businesses are actually disruptive to incumbent market and they concluded that (1) Uber did not come from the origins of a disruptive market and (2) quality is what made Uber outstanding in its field, not really the idea that it disrupts the incumbent market or economy (Christensen, Raynor, & McDonald, 2015). These experts argue that Uber is merely bringing an updated version of the game to players without intending to disqualify others.
Conclusively, as long as there is no clear-cut set of regulations that would outline the legality of the operations of Uber, it will remain a competent and innovative business branch that would help people find exactly what they are looking for.
Uber and the Decision-Making Process
The decision-making process exhibited by Uber is undoubtedly groundbreaking albeit beneficial for the company (Katz, 2015). Often making overconfident decisions regarding its ventures, Uber may be risking its current status with a single wrong step (Katz, 2015). The way Uber manages its operations and the challenges it faces shows how the company is confident with its choices. However, such overconfidence may not always be beneficial for the company (Moon, 2015). Given this, Uber still has a long way to maintain its stability in its chosen field of industry. On individual level, Uber serves as a perfect innovation for passengers and drivers who wish to have an easy access to available vehicles and earn extra income respectively. Being able to provide their customers and affiliate drivers the satisfaction they seek makes Uber a successful business and a desirable option to many people (Dietrich, 2010). The decisions taken by Uber have served well their customers and partner drivers individually and being able to provide individual satisfaction is crucial for any business that desires success in the long run (Dietrich, 2010). On the group level, Uber has also shown to be beneficial to the group of people who work with the company. The revenue-generation model of the company has not only served well customers and drivers but also the group of people that make up the company’s manpower. So long as a group of people is satisfied with the operation of a business, that business can be assume success in the long run (Dietrich, 2010). Decision-making in group level works much like the individual except in this level, businesses are aiming for a collective level of satisfaction (Dietrich, 2010). On organizational, however, Uber may not be the best business venture as it supposedly “disrupts” the incumbent or existing firms that have been participating in the industry of taxi for years. The existence of Uber disrupts the existing balance of demand and supply equilibrium between passengers and cab drivers and poses a significant threat on the implementation of existing rules and regulations that generally apply on the operations of Uber Company.
References
Brown, M. (n. date). Uber—What’s Fueling Uber’s Growth Engine. Growth Hackers. Retrieved from https://growthhackers.com/growth-studies/uber
Christensen, C.M., Raynor, M.E., and McDonald, R. (2015). What Is Disruptive Innovation? Harvard Business Review. Retrieved from https://hbr.org/2015/12/what-is-disruptive-innovation
Dietrich, C. (2010). Decision Making: Factors that Influence Decision Making, Heuristics Used, and Decision Outcomes. Inquiries Journal, 2(2), 1-3. Retrieved from http://www.inquiriesjournal.com/articles/180/3/decision-making-factors-that-influence-decision-making-heuristics-used-and-decision-outcomes
Juggernaut. (2015). How Uber Works: Insights into Business & Revenue Model. Retrieved from http://nextjuggernaut.com/blog/howuberworksbusinessmodelrevenueuberinsights/
Katz, V. (2015). Regulating the Sharing Economy. Berkeley Technology Law Journal, 30(4), 1067-1126. Retrieved from http://scholarship.law.berkeley.edu/btlj/vol30/iss4/18
Living Economics. (n. date). Uber as a Two-Sided Market. Retrieved from http://livingeconomics.org/article.asp?docId=463
Moon, Y. (2015). Uber: Changing the Way the World Moves. Harvard Business School. Print.
