Uber Business Model, How does Uber make money, How does Uber work

Uber has taken the on demand economy vertical by storm. Formerly called UberCab, the startup was founded in 2009 in San Francisco by Travis Kalanick and Gerrett Camp. Both the founders are serial entrepreneurs as Gerrett earlier co-founded StumbleUpon (a social discovery engine) and Travis founded Red Swoosh which he later sold for $19 million. The name was later on changed to Uber in 2010, which simply means ‘Above’ in German.

Uber has been pioneer in the sharing economy and the concept of Uberification or Uberisation has emerged following the inventory lite on demand uber business model. As popularly known today, Uber is an on demand taxi booking app startup. It partners with cab drivers and provides a single tap cab booking option to riders for a convenient drive in and around the city. While Uber started with just one city in the United States, it currently operates in 633 cities worldwide. Uber today is worth over $60 billion in private valuation.

In this article we will cover how Uber works, how it got started, its history, Uber business model, revenue model, key revenue metrics, Uber’s unit economics, target customer segments, Uber’s value propositions, key problems and solutions that Uber has for its target market along with the emergence of the ‘Uber for X’ model.

How does Uber Work?

Uber, through its separate partner and rider apps for different platforms, acts as an aggregation platform (a.k.a. aggregator) that facilitates ride requests within and around respective cities that it operates in. It works in, what is known as, an inventory lite model wherein it does not own any of the taxis and cabs that it has in its network. All the cabs are owned by drivers – drivers sign up with Uber and become part of the Uber network.

Riders have a separate app using which they can request for a ride. The nearest driver who is currently active at the time of the request in the nearby vicinity will get the first incoming request notification. In case the driver fails or rejects the request, the notification goes to the other driver available nearby in quick succession until the ride request is entertained.

How Uber got started?

Uber got its first beta ready in May 2010 and Uber’s services and mobile app officially launched in San Francisco in 2011. Initially the company only allowed users to hail a black luxury car at 1.5x the price that of a taxi.

UberX – In early 2012, Uber started allowing partner sign-ups for drivers who had their own cars, subject to a background check and some minimum car requirements. From 2009 to now in 2012, the service was operating in 35 US cities.

UberPOOL – In August 2014, Uber started carpooling service called UberPOOL with a beta test first, again, in San Francisco. The ride sharing (a.k.a. carpooling) concept is where the riders are matched with other riders who are traveling in the same direction – the app will share the first name of the other rider and the planned route. The price of the carpooling service is naturally less than traditional on demand taxi booking service.

Uber Funding Rounds and Uber Investors

The founders invested $200,000 in seed money in 2009 upon inception. In 2010, Uber raised $1.25 million from investors and by the end of 2011, Uber had raised $44.5 million in total funding. Till date, Uber has raised a total of more than US$23 billion in private venture funding.

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