How does Uber Make Money or How does Uber Work or What is Uber’s Business Model is the question many startup enthusiasts have after Uber kept on disrupting the market with sky high valuations, scams, rude drivers, mammoth amounts of investments and so on… For people with definitive knowledge of the StartUp Scene in the Silicon Valley or other parts of the world this article will still make sense because there are 100’s of revenue lines that Uber has and especially when you are a noob on Business Model of Companies’ front these revenue lines will blow your mind off.
About Uber, Facts, Figures, Founders & Funding
Before we move on to the Business Model of Uber or on How does Uber make money, here are couple of things you should know about Uber:
Uber Technologies Inc. is the name of the company under which Uber App operates. It’s headquartered in San Francisco. Uber is essentially an “On-Demand” Taxi Hailing Service using which people with smartphones to book a trip in a 3rd party private owned vehicle driven by owners or helps of owners of cars. As of Last Valuation the company was operating in 58 countries and 300 cities.
Uber Funding : Appx 10 Billion USD. (as of December 2015).
Uber Founders : Founded in 2009 by Travis Kalanick & Garrett Camp (founder of StumbleUpon).
Uber Valuation : Valuation of Uber as in Dec’ 2015: 68 Billion USD (Larger than GM, Ford, Honda – Uber took five and a half years to leapfrog the valuation of 107 years old GM).
How Does Uber Make Money
Uber makes money of lot of ways, following are the cheasiest ones including (couple of them that I read somewhere and have no proof about or the ones I think it does), read at your own risk!
- Trip Commissions.
- Keeping money recd by customer in bank deposits for a period of 7-10 days (rolling interest is huge for Uber).
- Listing Fee (Basically for the driver to work with them).
- Fleet on Lease (I heard that they might buy couple of 1000’s of cars and just lease it out to the driver for a weekly / daily fee).
- Get the Uber Drivers cars on loans (basically they act as a DSA for Banks and Lending Companies and earn commission in between).
Business Model of Uber
How does Uber Work : Have you ever faced the frustration of looking for a Cab when you don’t have your traditional travel option readily available or you are travelling in a Cab when your Car Broke down and at the end of the trip the driver says I don’t have change 🙂 Bummer isn’t it? Uber removes all hassles from this cumbersome experience and connects with the user right from choosing the preferred car type in their budget, to sending the driver right to your door step, ensuring a smooth ride by the verified driver to taking care of payments by totally avoiding cash and no change tactics of traditional drivers.
How Uber Works (Technically): Open Uber > It auto detects your Location via GPS > Shows Nearby Cars of Various Categories (Black, X, Go etc) > Tap on a Category of Choice > Select Request Uber X/Go/Black etc > Request via Uber’s Servers hits the Driver’s Cell Phone > If driver accepts the ride, you get confirmation message on screen > Driver details sent to you on the app > Click to call with Driver and Co-ordinate > Complete the Ride > Payment Debited from your account
Business and Revenue Model: The most basic outline of Uber’s Revenue Model will be as simple as “X% Commission from the total Fare of the Trip” X depends on the age and maturity of the market e.g. Ranges from 5% – 20% depending on the age of the market i.e. when was the service launched or when did the driver join the team etc. Here is the Exact Break-Up of the Total Revenue Lines the company Uses.
Please Note: There are 2 Apps being used simultaneously while performing the business right at Uber – One is used by the Cab Booking Consumer and the second is used by the Request Completing Driver called User App and Driver App Hereon.
You May also be Interested in: How does Ola Make Money
Uber Revenue Earns from Passenger Trips
Consumers use Uber’s User App to book chauffeur driven cabs because either they don’t own a car or they do not want to use their own car for any reason. When ever consumers book a cab the message pops up at the nearest possible driver using the Driver App via Uber’s Algorithm and if the driver rejects the request, it is instantaneously passed on to the next driver in the queue. Which so ever driver accepts the request is presented with the location and details of the customer to be picked up. Once the driver reaches the destination (after dropping off the customer) he has to mandatorily click on “End Trip” flashing on his device’s screen. Once this is done, the customers account / credit card / wallet is charged with the entire trip fare.
The Trip fare is a combination of:
- Travel Time (In Minutes) : Uber charges Local Currency per Minute of Travel after an initial free X minutes (varries as per the country and type of cab)
- Distance Cost : Uber charges Local Currency Per KM of Travel after an initial fixed fare Distance (varies as per the country and type of cab)
- Waiting Time : In case you made the driver wait additional waiting time charges levied
- Taxes as applicable in that country
The Trip fare once deducted is credited into the driver’s account under the head of the trip number given to you in your bill copy.
Uber deducts the Taxes charged to consumer first, then its commission percentage, then applicable income tax on the balance amount and remits the rest of the amount to the drivers bank account at regular intervals (3-7 Days ).
- Assuming Travel Cost Per Minute : 5 INR (Travel time 40 mins)
- Assuming Travel Cost Per KM : 15 INR
- Assuming Service Tax @ 14.5% (its 15% now, god knows how many more time I will have to edit this 😀 )
- Assuming Total Travel : 30 KM, (First 5 KM @ 100 INR)
- Total Fare : 100+ 40*5 (Assumption 1) + 25*15 (Assumption 5 &2) = 100+200+375 + ST = 675 * 1.145 = 773 INR
- Uber’s Cut – 675 * 20% = 135 INR + 98 (ST – Payable to Govt)
- Driver’s Cut – 773-135-98 = 540 INR Less 10% TDS (As per Indian Govt Laws) = 486 INR
This is the primary revenue line and the basic answer to How does Uber Make Money.
Uber Makes Money from Mode of Travel Trips
Uber has lot of Travel Options as follows:
- Pooled Cars
- Many more to be Added soon
[Edit: Uber Added Bike Taxis as well]
[Edit: Uber Added Shared Taxis as well]
Uber earns Revenue from Car Type Trips
Each Country Uber defines the type of Cars that it will call its Sedans, Compact Cars, SUVs etc. The Per KM Waiting time and Per KM charge along with initial charge varies with the type of car chosen at the time of booking.
Revenue Earned from Passenger Type Trips
In some countries Uber gives options like Uber for Kids, Uber for Senior People, Uber for Single Ladies travelling late at Night etc at varying prices whenever required.
Revenue Earned from “Surge Pricing” Trips
Here is an interesting twist to How does Uber Make Money:
This is the second most contributing revenue line for Uber.
How does Surge Pricing Works
Whenever the demand of cabs nearby a customer(s) outruns that of the supply or the number of cabs nearby the prices shoot up according to a predefined algorithm for the same at the backend. For e.g. If 100 People simultaneously trying to book a cab out of available 10 cabs nearby them at the same location the price would shoot up in multiple of base prices. The multiple can be anything from above 1 to 4-5 etc. In this method the driver gets the standard rate and Uber makes the differential.
From the e.g. in 1st Revenue Line the total fare comes to 773 INR, assuming a surge pricing factor of 2 – the total debit to the customer would be 773 * 2 = 1546 and the driver would make the same amount as before the government would make twice the amount of service tax and Uber would make = 1546 – 540 – 196 (ST) = 810 INR
[Edit to How does Uber Make Money from Surge Pricing : Some Drivers have confirmed that in “some unusual trips” they make higher amounts that they would actually make on the same trip, giving a hint that during surge pricing drivers also make higher amounts]
Hope you now have an immense understanding of the business model of Uber and you are now well adept at answering How does Uber Make Money. Leave your comments in the below section to ask more questions around it, I will try to answer them as and when I have the answers to the same. Also in case you would want a detailed description talk to me using the contact tab.
Disclaimer: The understanding of the model of How does Uber Make Money is of the Author’s himself, neither the company or its affiliates have confirmed the same to the author and the descriptions, stats, facts and figures are either obtained through secondary web research or interrogation of the users / drivers or other resources on the web. Please use your own discretion to use this info when required and by continuing to read you agree to indemnify the author from all liability arising out of using this info on your own.