Uber Business Model & Revenue Model to Consider For Own Startup

The Uber business model is worthy of attention simply for its contribution of the term on-demand economy. If a business model emerges into something so grand, it is worth considering for your own startup. After all, there might be quite a few moves you can borrow and tweak to suit your own business. 

Moreover, Uber doesn’t own any cars, doesn’t hire any drivers, and did not even do any marketing at the start. Yet, it solidly grew and keeps on growing today. Today, Uber’s market capitalization is beyond $150 billion. Uber’s business portfolio includes also Uber Eats and Uber Freight. Uber today has around 6 million active drivers worldwide with 150 million riders. So which specific elements ensured such success? Why did so many drivers decide to join? What makes Uber Business Model & Revenue Model stand out? 

For a startup, it is important to review Uber’s early days. This is why this article will focus on its original business model and MVP days. Imitating initial strategies of successful companies is a great way to go. After a while, a company will accumulate its own customer feedback, expertise, and experience to evolve beyond the initial model taken for emulation. Uber’s story is rich with interesting caveats that will help form a strong foundation for any aspiring business owner. Also, it will come in handy when you consider which Startup Services you’ll need. 

Uber History – From Idea to Success

The Startup Timeline

A lot of times, Internet space teems with ideas that big successful digital businesses propelled or skyrocketed to success. Especially if it is a blog post about giants like Uber, Airbnb, MailChimp, or YouTube. Surely, these companies can showcase the trend of adding millions of users a month. But it is now, not when they were a startup. Take a look at Uber’s timeline:

• The business idea was originally conceived in November 2008;
• The company was founded in March 2009;
• The app was launched in June 2010.

This is to highlight the role of quality prototyping and iteration based on customer feedback. And Uber is just an example of such a company. In fact, 2009 was actually a year of prototyping. Sure, it is rather a long time by any today’s estimates. Development processes have evolved. But there is definitely value in a quality prototype.

Also, it would not be a stretch to imagine that prototyping took a whole year because of Uber’s founders. Garrett Camp, Travis Kalanchik, and Oscar Salazar come from tech backgrounds. What tech guy doesn’t love polishing the architecture, processes, and user paths?

Uber and Product Philosophy

Out of three founders, Garrett Camp was a tech guy with a great product focus. He’d had successful startups before Uber. It was StumbleUpon that was bought by eBay. His product philosophy includes finding one valuable user action. For instance, on Uber, you click on a car and it arrives. But also think about Amazon’s ‘Buy Now’, Google’s “Search Bar”, or Facebook’s “Like Button”. With this product philosophy, product effort would be generally focused on making this action as simple and as protected as possible. 

• Its product philosophy is probably why Uber can boast a quite uncommon statistic. 90% of its original vision is implemented in the product of today. 
• In addition, upon launching, and years after, Uber didn’t have any marketing spend. It solely relied on word-of-mouth. 
• Uber initially targeted riders seeking premium rides. First Uber drivers were owners of S-class cars. 
• And more importantly, Uber did not develop all kinds of apps. It was only an app for iPhone at the start. They did allow everyone to install it. However, the ability to order a ride was restricted to special code owners. So it was an invite-only service.

Uber, Technology, and Launch Trivia

• Uber Pool and Autonomous Mobility and Delivery weren’t in Uber’s original vision. These came from the other co-founder – Travis Kalanchik, who was more focused on the technological side of things. 
• However, all three founders come from technological backgrounds. In fact, Uber was founded as Uber Technologies Inc. 
• When Garrett Camp stepped down to an advisory role, Travis Kalanchik became the CEO. It happened early in Uber’s development, in 2010. 
• The motto with which Uber was launched – “Everyone’s a private driver’. It gave rise to the on-demand economy which disrupted many industries throughout the Uber growth.
• Uber did not launch country-wide. 2 years in, they had launched in 16-17 cities. They launched a city at a time.

Uber Business Model Startup Metrics

It is also interesting to analyze the metrics Uber’s business model was focusing on at that time. 

• One metric was hours driven per week. After all, a single ride can vary greatly in time. So they chose hours of riding as a key metric. This is mainly for the driver’s side of things.
• As a customer engagement metric, they chose a percentage of customers who have ridden in the last 30 days. And since they rode, they paid. So, it is a financial metric. For them, 2 years in, it was 50%. Half of the user base was active in the last 30 days. 
• Also, the average spend per customer was about $105 a month. Consequently, engagement and spending per person are basically metrics to evaluate a revenue stream. 
• 6-7 months after their launch, month-over-month growth was 26% kept at this steady rate from month to month. Is it a good number? Well, if you do 26% month-over-month growth for 12 months straight – you end up with a company 16 times bigger than you started with. So, quite impressive for a startup. 
• And again any number is only relevant in context. So, for instance, a few weeks after launch, Uber had 4 rides going on at the same time on Friday night. Uber co-founders were thrilled to see this number. A few years in, this number was in the hundreds of rides in progress at 5 am on Monday. 

Uber and Analytics for the Uber Business Model

Uber being a tech company, analyzing demand became a centerpiece for further growth. They created internal God-view functionality which showed not only rides in progress but also people opening an app. Then, they would tie pricing to demand-supply data. Later, it would significantly shape the Uber revenue model.

 In addition, Uber invested in computational neuroscientists (nuclear physicists) among other things. They actually organized a whole Math department to ensure the lowest pickup times possible with the highest utilization to ensure Uber’s margins. It happened early in the Uber business model. 

Among other things, hiring nuclear physicists helped develop a predicting algorithm for arrival time. It outperformed the Google’s one. 

The bigger the company grew, the deeper Uber went into analytics, tech, processes, and operations. They watched over operations – the average wait time and the marketplace equilibrium. The latter means the balance between the growth of supply and demand. 

Uber analyzed how it influenced the logistics fabric of each city they launched in. After all, Uber Technologies Inc. is a transport company though does not own any fleet or hire drivers. But they hired process managers so that technology could reflect better what was happening within the ride. 

And it is only a few years in, that Uber considered adding a low-cost option: UberX. After introducing it, they analyzed the engagement and it stuck with Uber. Customers actually enjoyed the app more when they got more choices. The customer engagement got deeper. 

Uber Business Model & Revenue Model

The business canvas below shows an overview of the Uber business model. The business model lists the elements that are responsible for value creation, maintenance, and delivery. Then, the Uber revenue model is the element of monetizing this value. And we’ll start with the latter.

Uber Revenue Model: Revenue Streams and Cost Structure

Revenue Streams of the Uber Business Model

• Since Uber only facilitates the transactions between drivers and riders, and also between couriers and customers, its revenue comes from fees paid by drivers and couriers. The commission is 25% on average. Yet, in some markets, it can go as low as 15% and as high as 30%. 
• During surge pricing, when the demand is high for the area and supply is low, Uber doesn’t change the fee it takes. However, it allows Uber to generate higher revenues for these rides during rush hour.
• In terms of Uber Black, which is its premium segment, Uber does charge higher fees for the ride. However, the fare can be on average 6 times higher than a regular ride. 
• Lastly, there are cancellation fees as one more source of revenue. Even if the ride doesn’t take place, Uber charges the rider. It transfers the fee to the driver excluding its commission.

Costs of the Uber Business Model

Here’s the breakdown of costs in the table below and the numbers are in millions. 

From the table, you can see the net income resulting from deducting costs and expenses from revenues. In 2020, Uber closed a year with a loss. In 2023, Uber managed to close the year with income. No matter how big or small a business is, watching over a cost side is crucial. This is why, if you are a startup, the lean methodology is the safest route. According to lean, cuts are made aggressively and costs are incurred only when justified for the nearest result. If you seek cost-efficient result-oriented development, check out these Startup Services.

• The biggest expense of the cost of revenue category is payments to the drivers and couriers for the rides and services. However, this category also includes bank fees, insurance, and payments for data centers. 
• The next biggest spend is sales and marketing. These include all the advertising, promotions, loyalty programs, compensations, and such. If you are a startup at the MVP stage, this category should rarely show up on your balance sheets. Targeting early adopters and MVP-stage growth is often done on the account of word-of-mouth. Which is also what Uber did during their MVP stage. 
• General and administrative are salaries of executive management and non-operations employees. They are the finance department, human resources, and legal. If you are a startup, one of the key things is to delay scaling your team. When you are an MVP, you should carefully watch team size. It should be linked to the number of customers per employee. The exact numbers depend on the business. Administrative staff should be kept to a minimum until the MVP stage is over. 

Value Proposition of the Uber Business Model

The value proposition of the Uber business model has evolved over time. Uber started by offering premium rides. Now, it is a global on-demand marketplace. It offers flexible earning opportunities for drivers of different kinds of cars. You can earn extra money even if you have a scooter, bicycle, or even on foot as a courier. For riders, it offers different ride options with upfront pricing, online tracking, and online payment.

Customer Relationship and Channels

The feedback & rating system is a core part of the Uber app that makes each rider and driver heard. There is also of course customer support and community center. Customer relationships are maintained mainly via an efficient and intuitive platform. 

The value proposition is delivered through apps. Uber has Android and iOS apps separately for drivers/couriers and for riders. And then there is a web app.

Customer Segments of the Uber Business Model

Uber now targets a variety of customer segments including:

•  people who just need a ride 
•  those who want a private premium ride service
• customers who require courier and freight services.

Key Partners

In terms of key partners, they are tech partners and investors. Uber views drivers (and couriers) as their partners also. An Uber driver may be a single-car owner or may own a fleet of cars and operate under the Uber platform.

Key Activities

The key activity for Uber is balancing the demand and supply part of its platform to achieve market equilibrium. This is one reason why marketing & sales expense is so vital. If either side is significantly lower, Uber will be losing revenue. Surge pricing can maintain equilibrium only during peak hours or high-demand conditions like plain or train arrival or weather conditions like heavy rain and such. However, if there is a constant lack of drivers, riders won’t be paying premiums and leave for another platform. Same as drivers will leave if there are not enough riders.

Key Resources of the Uber Business Model

Maintaining the Uber business model heavily relies on two factors: 

1. network effects for growing riders and drivers;
2. technology including machine learning and artificial intelligence for algorithms, to ensure smooth operations.

Other Companies Following Marketplace Business Model

The on-demand economy is booming and there is a huge variety of companies similar to the Uber business model. For instance, eBay and Alibaba follow a marketplace business model ensuring market equilibrium between sellers and buyers. In terms of services, TaskRabbit and Thumtack ensure there is a balance between clients and providers of local services. When it comes to freelance platforms, Upwork, Fiverr, and Freelancer focus their effort on maintaining a marketplace with a sufficient number of clients and freelancers who can fulfill the jobs. You can also check out Top 10 Business Models to consider for your startup to see how marketplace business model fit within others.

FAQ: Uber Business Model & Revenue Model