How Do Ridesharing Companies Like Uber Make Money?

Uber and similar ridesharing companies make money by charging clients for rides, much like a taxi or other transport-for-hire company.

A ridesharing company is a service that organizes an individual or shared ride, which may occur either on a one-time basis or as a recurring route. Uber, launched by entrepreneur Travis Kalanick, began as a smartphone application. Clients request a ride with an app on their smartphone from their current location. Drivers for this company use GPS or similar navigational technology to locate clients and determine the best route to retrieve these clients and deliver them to their desired destinations. 

Ridesharing Companies Based on a Network Service

A network service is used to arrange the various elements involved in this service. Driver payments and ride matching are instantaneously handled using an optimization algorithm, which is a tool that lists all necessary information and organizes and sorts it accordingly to provide the most efficient use of time and fuel, as well as to make the ride as pleasant as possible for the clients. Real-time ridesharing makes use of seats that are not filled in vehicles, cutting down on the cost of transportation and lowering the use of fuel. It also is noted for being able to cover areas where public transportation is unavailable or limited. As a whole, the ridesharing service is considered to be effective in decreasing vehicle traffic, cutting down on congestion and reducing the impact traffic and fuel consumption has on the environment. All of these factors have made companies such as Uber popular with environmental groups.

How Uber Works

Uber is a premier ridesharing company based in San Francisco. The company's smartphone application allows its clients to view the progress of their reserved vehicles as they approach. Initially, Uber offered only full-sized luxury vehicles. Then, in 2012, it initiated UberX, a program that began offering smaller vehicles at a reduced cost. Finally, the company launched Uber Pool, an actual ridesharing service that significantly saves money for the customers in exchange for sharing the vehicle with another person. (See also: The Story of Uber)

Uber makes its money primarily by charging clients for the rides, although it also derives advertising revenue from its website. Unlike a taxi service, the hiring of the driver and vehicle and the payment for the reserved ride is handled entirely through the Uber app rather than with the driver. The total fare, less any gratuity (Uber doesn't require tipping), is billed directly to the client's credit card.

Uber contends that the prices reflect the service provided, which offers a timely and reliable ride. During times of increased demand, such as holidays or severe weather, Uber institutes surge price fares that attract drivers and increase the company's overall revenue, servicing clients who are in need of transportation that is otherwise unavailable. (For related reading, see: Key Differences Between Uber and Lyft.)