Although it is less than a decade old, Uber has created such a dramatic revolution in the transportation industry that it likely seems to have been around for much longer than that. To be sure, Uber has not enjoyed unalloyed success over the past several years. It has experienced catastrophic losses in several quarters, as well as scandals involving its drivers and even its founder and former CEO Travis Kalanick.
Nonetheless, there's no denying that Uber has upended the traditional world of taxis. One need look no further than the many Uber-inspired companies to have emerged in recent years to recognize this company's success as a disruptor. In this article, we'll explore some aspects of Uber's business model and how it generates revenue.
It's Like a Taxi Company ... Sort Of
On first glance, Uber appears to be very similar to any other taxi company. It employs drivers in an expanding list of metropolitan areas, providing transportation services to users of all kinds. Customers hail cabs exclusively via the Uber app on their smartphones, paying at the end of the ride, while drivers utilize GPS and related technology to find the most efficient routes. The cost of each trip is calculated via algorithms that include factors such as distance traveled and time spent traveling. This payment is the primary source of revenue for Uber, just as it would be for any other taxi company.
However, upon closer inspection it becomes clear that this is where Uber differs from most prior cab companies. Uber does not own its fleet of vehicles; they belong to the individual drivers themselves. Similarly, there have been long-standing debates as to the role the drivers play within the company as well, with many arguing that they are to be considered as independent contractors. Further, Uber specializes its taxi services, catering to different types of individuals with various offerings.
Multiple Cab Models
Uber has worked diligently to avoid generating particular ties with certain types of cars or a certain demographic of customer. Uber X, Uber Black and Uber Pool are all options that customers have when hailing a cab through the app, and these classifications refer to different types of car and varied levels of luxury in the taxi experience, with different price tags attached.
Uber also capitalizes on supply and demand with a concept known as surge pricing. When demand increases in a given area, the algorithm used to estimate rider costs is adjusted as well, with the per mile price increased. The more demand relative to the number of available drivers, the greater the surge in prices.
One other way that Uber is distinct from traditional cab companies is that it has yet to limit the number of cars in its fleet. While local laws stipulate a maximum number of licensed taxis on the road in places like New York City, Uber has so far been free to flood the market. This has perhaps been beneficial for meeting increasing demand, but there is a question as to whether this practice is ideal for supporting Uber's price structure over the long term, according to Forbes.