Garett Camp, a computer programmer and co-founder of StumbleUpon, and Travis Kalanick, an entrepreneur and co-founder of Red Swoosh, founded Ubercab in 2007 with the goal of reducing the cost of hiring a private driver and direct transportation. Their startup soon become Uber Technologies and it is now a diversified mobility-as-a-service company offering ride-hailing, food and grocery delivery, courier, and freight transportation services.
The company has become a household name. It is also a prime example of a market disruptor. It remains one of the pioneers of the mobility-as-a-service industry and one of its largest players. The company has been developing and deploying its technological capabilities and other innovative solutions to maximize its potential. Understanding how Uber operates and generates money requires understanding its business strategy.
Key Elements in the Business Strategy of Uber
Central Business Model: Commission-Based Revenue Strategy By Linking Partners with Customers
The business model of Uber centers on operating an online platform that links together its partner drivers and riders, establishments, and customers. Its ride-hailing service connects drivers and operators of private vehicles with commuters. The same is true for its package delivery and courier services. Its food delivery service called Uber Eats connects customers with restaurants which are also connected with delivery riders.
Revenues are generated via the commission it receives with each booking. Note that the company does not own and operate vehicles nor does it employ drivers and riders. These drivers and riders are classified as independent contractors or freelancers who use Uber as a marketplace for getting customers. The entire business model is essentially similar to other freelancing platforms and even online-enabled businesses such as Airbnb.
Marketing Strategy: From Dynamic Pricing to Sales Promotions to Attract Partners and Customers
Another key element in the business strategy of Uber is its marketing strategy. Its pricing strategy based on dynamic pricing is groundbreaking in the transportation sector. The company sets fares and prices but they are based on local supply and demand, as well as other variables such as weather conditions, at the time of booking. The prices are quoted to the customers in advance. Partners can also see how much they will earn from a particular booking.
The company sets a base price which is determined based on distance and the time it will take from the point of origin to the drop-off location. It uses artificial intelligence and specific machine learning applications to factor in other variables. The prices are more expensive when the demand for its service is high while the supply of partner drivers and riders is low. It is cheaper when the demand is low and supply is high.
Sales promotion is another component of its marketing strategy. Uber runs sales promotions ranging from discounts and reward points to attract and retain its customers. It also partners with banks to offer discounts to specific banking clientele. The company also provides its partner drivers and riders with different monetary incentives. For example, during nighttime or when weather conditions are bad, its partners earn more.
Business Diversification: Expanding Its Service Offerings to Maximize Its Earnings Potential
The company has expanded its business from the provision of ride-hailing services to different services within the mobility-as-a-service market. Remember that it has food and grocery delivery services, package delivery and courier services, and freight transportation services. Its app has become a one-stop online-enabled platform to address the different transportation or mobility needs of its target market and existing customer base.
A key advantage of expanding its service offerings is that it allows it to maximize the earnings potential of its platform. Uber generates revenues outside its flagship ride-hailing service and apart from commuters to include income from food and grocery deliveries and courier and freight transportation services. Remember that its platform has been positioned as a one-stop app for the transportation and movement needs of its customers.
Technology and Innovation: Positioning Uber as a Tech Company with Technological Assets
Uber is a tech company similar to larger tech companies such as Amazon and Apple and other online-enabled businesses such as Netflix and Airbnb. It capitalizes on the digital information age, the expanding popularity of digital services, and the prevalence of digital mobile communications. Remember that the company delivers its services through the application of technological solutions and innovations.
Furthermore, as stated in its mission statement, it considers itself a “tech company that connects the physical and digital worlds to help make movement happen at the tap of a button.” Central to this mission is to reimagine the way the world moves for the better. Its technology has connected and moved people in over 70 countries around the world.
Developing and expanding technological assets and capabilities are critical to the business strategy of Uber. The company has teams of engineers, software developers, and IT professionals to develop and deploy relevant software or applications and hardware resources at the front-end and back-end. It has a research and development team to explore new technologies to improve its services and add further value to its partners and customers.
Market Expansion: Securing Partnerships, Pursuing Acquisitions, and Investing for Expansion
Another critical element in the business strategy of Uber is its partnership or linkages, acquisition pursuits, and investment initiatives. It has partnered with other transportation service providers such as Thames Clipper and Neutron Holdings to expand the modes of transportation it can offer to its customers. The company has also acquired a stake in Grab Holdings to secure and maintain its revenue potential in the Southeast Asian market.
The company has also pursued other acquisitions and investments to expand its capabilities. These include the acquisition of artificial intelligence research company Geometric Intelligence in 2016 and self-driving truck company Ottomoto in 2016. It has also made significant investments in expanding in building further its artificial intelligence capabilities, expanding and improving its servers, and improving its online platform.