What is Ubers Business Model? Can it Last?


(Bick Bhangoo) #1

Some people might ask; “Who cares what Uber’s business model is?.” However, for the drivers, the passenger, and the investors as well as Ubers employees, this is the main question to ask. Since Uber took the world by storm, being one of the largest loss venture capital companies, showing a whopping $1.2 billion loss in the first half of 2016, (https://www.bloomberg.com/news/articles/2016-08-25/uber-loses-at-least-1-2-billion-in-first-half-of-2016) the question becomes highly relevant, and really should be; is Uber’s business model sustainable?

There are four perspectives on this question, they are:

• Ubers Executive
• Ubers Investors
• Ubers Drivers
• Ubers Passengers

Let’s look at each one and then conclude.

Ubers Executive

Ubers founders and the executive team realized that there was a lot of money to be made from transporting people using everyday drivers that were driving to work. It sprung up from the ride-share concept that was already in place as a service between drivers and co-workers. The original plan was to use employed people that wanted to bolster their income by taking on rides along the way to work. This concept became possible through internet application development and was used to start up the Ubers concept. Over time, the concept evolved to include full-time drivers who posed a rather serious threat to taxi drivers. The main issue and reason that Uber was successful at first was the fact that their drivers were not professional and were not needed to be on a professional basis. However, with the increasing number of full-time drivers and with the growing number of competing companies, Uber’s business model continued to evolve and also had to take into account operational losses as their development team continues to create more application upgrades, server strength issues and state and global licensing operational costs. As with all start-ups, the concept overtook reality and generated a lot of income but wasn’t making a profit.

Ubers Investors

Investors don’t look at profitability so much as they look at ROI (return on Investment) many companies can show losses on a continuous basis, but as they are growing and evolving their market value goes up. This continuous market value is ROI. The ability to sell shares and make a profitable exit. There are also long-term investors that intend to stay in Uber for as long as Uber continues to provide an upward swing. These investors are seeking that golden point where the company goes from living off investors income and loans to where they live off generated income and eventually profits.

So far, Uber is still a young company, competition between ride-share companies maintain the edge of development and cause Uber to continuously seek new ways and incentives to promote driving, as well as reducing overheads. When considering the future of the car industry, driverless cars would be the optimum ideal.

Ubers Drivers

Drivers are interested in making money quickly. The more they can make in fewer hours the more they will continue to work for Uber or any other company. It leads Uber to maintain attractive incentives assuring continuous driver loyalty.

The other issue with drivers is the fact that they are the spearhead and face of the company. Customers are passengers; they only see the driver and the car, they do not see the Uber executive or employees. So the driver is the main sales force and marketing executive or Uber.

That is why the driver is an important and integral part of Uber’s success. Investing in the driver and their car is the only way Uber will stay in the market, as more and more companies try to lure Uber’s drivers over to them.

Ubers Passengers

Ubers passengers see drivers and cars, the closest they get to seeing or interacting with Uber on a daily basis is via the Uber app or online. Uber is a brand, as such, it leads the market, however as with all brands and markets, customers tend to be a volatile herd and will follow a herd leader when a situation arises. Herd leaders are the media. The media can make or break a company by shading and color the way articles are written about the companies services. Since Uber was the first and maintains a continuous PR and strong marketing offensive, the media continues to report what it sees as it sees it. Customers continue to use Uber because they continue to get a good service, and this is mainly due to the drivers.

Customers do not care if their rides are subsidized by the investors, (being private do not affect and are not affected by stock market fluctuations), bank loans or what have you. As long as they receive a good quality drive experience, they will continue to use Uber.

Conclusions

Competition and investment in HR are what is making Uber a continuous successful company. Without competition Uber (as would any monopoly) would relax and become complacent. Due to constant competition, Uber must maintain a technological lead, strengthen and invest in its drivers and offer special prices to its customers.

Uber’s business model is correct, it is in constant flux, but it is still producing losses. In the first quarter of 2017, a whopping $708 million was reported, this is down by around $280 from 2016, so there is an upward swing. The question remains will the company be able to survive the slow turnaround and reach that golden moment when they report a no-loss quarter, possible swinging up to profitability? This turnaround remains to seem. A lot of companies do not succeed in surviving the long haul as investors sometimes break their losses if they feel that the investment has lost its charm. What maintains the investors believe in Uber are the $3.4 billion revenues generated by the company. However, when senior executives leave the company, it can have a negative effect on investor morale, on the other side of the coin are collateral apps such as UberEats that is proving to be a better deal that Uber ride-share is driving.