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Uber's mission is to revolutionize the taxicab industry by providing a platform that connects consumers needing a ride to registered Uber driver-partners in their area. Through this model, they seek to provide a cheaper alternative to traditional taxi companies, and dominate the taxicab market in as many world cities as possible.
In 2009 Travis Kalanick and Garrett Camp founded Ubercab. Both men were tech entrepreneurs who had already enjoyed some success with their earlier ventures. In 2001, Camp had co-founded StumbleUpon, a successful web-content recommendation site, while Kalanick had co-founded peer-to-peer file sharing company RedSwoosh, which was sold to content delivery giants Akamai Technologies in 2007 for $18.7 million.
After quickly managing to raise substantial funding, by the summer of 2010 Ubercab's iPhone app was officially released in beta, and its drivers-partners were offering their services in San Francisco. The company's model appeared to work, and this new player in the taxicab market garnered much media attention and a lot more funding. From then on, Ubercab's growth was meteoric.
In late 2010, Ubercab changed their name to simply “Uber” and released the android version of their app in preparation for their planned rapid expansion. From May 2011, Uber began rolling out its operation in more US cities, while in December of that year, Uber went international, opening in Paris. As 2012 was starting, Uber had already raised $44.5 million in funding.
In the following years, Uber's growth continued exponentially as they expanded into more international markets. By the summer of 2014 they had raised $1.5 billion in venture capital. This figure continued to rise dramatically as Uber demonstrated its capacity to gain footholds in new markets with astonishing speed. A particularly notable injection of funds occurred in June 2016 when the Saudi Arabian sovereign wealth fund invested $3.5 billion in Uber. At the end of 2015, Uber's value was estimated at $62.5 billion, but after their current round of funding, Uber hopes to increase that to as high as $68 billion.
So far Uber has yet to become a publicly traded company. If and when it will do so has been the subject of much media speculation. CEO Travis Kalanick has expressed his intention to go public in the next one to ten years, while also emphasizing that he had no immediate plans to do so.
Uber's business model has proved so successful, that many companies have sought to emulate the key aspects of it. This includes their direct ride-hailing competitors such as Lyft and Grabcar, but also companies in various, unrelated fields, such as holiday rental site AirBnb. Specifically, the concept of using computer platforms to enable direct peer-to-peer transactions between customers and service providers has proved to be a radically disruptive innovation that has changed both the way people consume and work.
Uber's innovative business model has heralded such dramatic changes in how a lot of companies function worldwide, that media pundits have coined the term “uberisation” to describe the far-reaching impact of this business model on certain sectors of the economy. Uber did not invent this model of peer-to-peer service sharing, but they are arguably the most prominent exponents of it globally.
Uber's disruptive business model has not come without controversy, and its practice of using self-employed driver-partners has in some areas met with stiff resistance from certain legislators who fear Uber's practices will result in an erosion of workers' rights. Established taxi companies have also lobbied against Uber in some locales, fearing the disruptive impact Uber will have on their business. Despite the criticisms leveled against it, Uber seems to have no shortage of drivers wishing to partner with them and continues to expand globally at a scintillating rate.
Whatever ones’ opinion of the controversy surrounding its business model, its success is undeniable, as it has not only rapidly transformed Uber into a multi-billion dollar company but has also had a far-reaching impact in inspiring similar business models in other sectors.
Benefits at Uber
Business model of Uber
The passengers comprise the most immediately obvious customer segment. Like many traditional taxi companies, Uber offers cheaper rides to appeal to a mass market, but also premium rides for wealthier consumers.
However, unlike in traditional taxi companies, Uber's driver-partners may also be regarded as customers, rather than employees. Rather than taking a salary, Uber keeps a commission from their takings in exchange for granting them the privilege of using their platform. Being a driver-partner is an attractive prospect for a wide range of people, including those seeking full-time employment, but also those who happen to already have a car and a smart-phone and are looking to earn some extra money in their spare time. This ease of use helps to ensure a regular supply of driver-partners is available.
Uber's value derives in large part from the fact that it is able to offer cheaper rides than traditional taxi companies. Uber's sophisticated algorithmic infrastructure also ensures that Uber drivers often arrive quicker than their traditional rivals.
For drivers, Uber's value proposition is rooted in their ability to provide anyone with a car and a smart-phone the opportunity to earn money while working to their own schedule.
By using sophisticated algorithms, Uber is able to match consumers' demand for lifts to drivers' demand for work. When demand is high, prices surge, encouraging more driver partners to get out and work while the inverse happens outside of peak hours. Enabled by modern smart-phone technology, Uber have essentially invented a system that enables the personal transport market to operate more efficiently. This concept is absolutely vital to Uber's value proposition and also key to understanding why its business model is so radically disruptive.
The channel through which drivers and passengers use Uber's services is through its smart-phone apps. Separate apps exist for drivers and passengers, and versions are offered for all the main mobile operating systems.
Uber has proved adept at social-media marketing and public relations. Sophisticated campaigns are run before Uber opens in new cities to get the public excited about the services they offer. Uber also regularly makes headlines for its rapid growth and its consistently impressive ability to secure massive investment, which also provides it with an additional advertising channel.
Customers' relationships with Uber are highly automated, occurring mostly through the Uber smart-phone app. The app allows passengers to review drivers and vice-versa, providing a safer experience for both parties.
Drivers undergo a vetting-process to ensure that they are suitable for the role and are not, for example, sex-offenders who may jeopardize the safety of passengers.
To further ensure a smooth relationship with both passengers and drivers, Uber provides extensive online guides to their services for both types of customer, as well as offering customer service phone lines and web chat facilities.
Despite appearances, Uber is not a transport provider like its traditional taxi-cab rivals. Rather, Uber provides a platform on which registered freelance drivers are able to sell their transport services to consumers.
Uber's main activities are therefore developing and marketing their mobile app. Uber continually works on the app's algorithms to ensure the most efficient experience possible for drivers and passengers.
Uber's other main activity is their driver on-boarding process, where potential driver-partners' suitability for the role is assessed.
Uber's drivers are key partners. In Uber's business model, it is important that these are partners, rather than employees as this substantially decreases Uber's running costs.
Payment processors are another key partner, since Uber drivers may not take cash in nearly all regions. Uber uses two main payment processors, Braintree and Stripe.
The Uber app is dependent on mapping data and GPS networks to efficiently connect drivers with passengers. This is achieved through a partnership with GoogleMaps.
In many jurisdictions, including the UK, all Uber employees must register as licensed cab-drivers. This means that Uber must maintain partnerships with local authorities to ensure that their business does not violate the laws of the areas they operate in and that all driver-partners are acting legitimately.
In many cases, Uber expends substantial resources on lobbying and maintaining good relationships with local authorities to ensure that their business can continue to operate in as many cities as possible.
Uber's greatest resource is the platform it has created that connects passengers to drivers based on proximity. Algorithms are also key resources for Uber.
Their highly developed routing and pricing algorithms are an invaluable resource that enables Uber to typically provide a more efficient service than traditional taxi-firms.
Uber expends a huge amount on making sure their app runs smoothly, hiring a large number of world-class software engineers to ensure the optimum functioning of the platform.
It also employs city managers and a number of marketing teams in various locales.
Paying driver-partners for their services is another key expenditure. Here, Uber incurs lower running costs than traditional taxi companies because, as self-employed contractors, driver-partners are not entitled to all the perks associated with employment in many jurisdictions and must own and maintain their own cars.
Uber has also been known to invest heavily in political lobbyists to convince governmental authorities of Uber's positive effect on local economies and to persuade legislators not to enact laws that would prevent Uber operating in certain areas.
Uber's revenue stream is very simple. The app bills passengers based on number of miles travelled plus any surcharges that may be incurred, for example during peak hours. Some premium rides in more expensive cars are also offered at higher prices.
info: Travis was studying computer engineering at the of University of California, Los Angeles, when, in 1998, he and a few other classmates dropped out to found Scour Inc., a multimedia search engine that also provided an early peer-to-peer sharing platform. However, Scour was not to last, and filed for bankruptcy in 2000 following a large copyright infringement lawsuit. Kalanick went on to find more success with Red Swoosh, a similar web company which in 2007 was purchased by Akamai Technologies in an all-stock acquisition valued at around $15 million. A founding member of Uber, Kalanick replaced Ryan Graves as CEO in 2011. He retains the role to this day, and is also an active investor in, and adviser to, numerous other start-ups.
info: While still studying post-graduate software engineering at the University of Calgary, Garrett Camp co-founded StumbleUpon, a website whose main service was to provide users with personalized web-content recommendations. It was a success and in the course of a few years received substantial investment and gained over 25 million registered users. StumbleUpon was acquired by eBay in 2007 for $75 million, although Camp would eventually buy his majority stake back again. Camp remained CEO of StumbleUpon until stepping down in 2012 to focus on other projects, including Uber but also Expa, another company founded by Camp that offers consultancy services to burgeoning start-ups.
info: Ryan studied Economics at Miami University (Ohio), and proceeded to have a successful career as a business growth strategist with Foursquare and SocialDreamium before joining Uber. He served as Uber's first CEO, before moving to Head of Global Operations in 2011. Graves' strategic insights and growth-strategy expertise have been instrumental in facilitating Uber's rapid development into a multi-billion dollar company.
info: Shervin is an entrepreneur who has helped to found countless successful tech companies. A so-called silicon valley “super-angel”, Pishevar has been an early investor in several high-profile silicon valley start-ups. His other activities include co-founding and chairing Hyperloop One, a company whose ultimate aim is to revolutionize long-distance travel by developing pneumatic tube transportation technology. He also co-founded and continues to direct Sherpa Capital – a venture capital fund that has provided seed money for many successful companies, including Uber itself.
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