Behind the Wheel: The Success Story of Uber’s Disruptive Business Model (2024)

Swethaarchana

Disruptive Business Model- Definition

A Disruptive business model is a new idea or technology that challenges and transforms traditional industry practices. A disruptive business model typically aims to address unmet needs, offer solutions that were previously unavailable or inefficient, and create new opportunities or markets. This can be achieved through approaches such as eliminating intermediaries, simplifying processes, reengineering products or services, or optimizing their delivery.

Uber Technology Inc., established in 2009, stands as the largest global provider of personal transportation services. The company is headquartered in San Francisco, California, and operates in 65 countries, serving more than 600 cities. It is a highly effective peer-to-peer business model that connects individuals in need of transportation with those able to provide it ((i.e.) it connects riders with drivers).

Through a user-friendly mobile app available on both Android and iOS platforms, riders can easily request a ride from a network of registered drivers. With a remarkable worth of $72 billion, Uber enables over 15 million trips every day and employs more than 16,000 people.

The core principle behind Uber’s emergence was to maximize the utilization of existing transportation resources. To enhance the model’s sustainability the company has continually focused on expanding its network of drivers and vehicles.

The primary objective was to reduce waiting times for customers and increase the reliability of the Uber business model. By enhancing the system’s dependability, the aim was to generate higher demand for the service.

While Uber had a solid business plan and strong IT support, in order to achieve scalability, Uber needs additional funding. Various investors, including Google Ventures, stepped in to provide the necessary financial backing to fuel Uber’s growth. Some of those investors are:

Saudi Arabia’s public investment fund ($3.5 billion)
Google Venture ($363 million)
Tata Capital ($100 million)
First Round Capital ($1.25 million)
Fidelity investment ($1.4 billion)etc.

The increase in resources enabled Uber to invest more money in recruiting drivers and offering discounts to attract a larger customer base. Despite facing continuous losses, Uber has experienced a substantial surge in demand, leading to an expansion of its operational scale. As a result, the company’s business model has now achieved sustainability.

Behind the Wheel: The Success Story of Uber’s Disruptive Business Model (3)

The Magic Triangle model, proposed within the “St.Gallen Business Navigator” framework, encompasses four key dimensions represented in the form of a triangle. This concept’s main aim is to clarify your customer segments, value propositions, value chain, and profit mechanism.

The first is that every business should answer the question of who (i.e.) who are your target customers.

The value proposition (what)- The second aspect focuses on what is offered to the customer and what they value. It is called the customer value proposition or simply the value proposition. It refers to the overall package of products and services that a company provides.

The value chain (How)- This perspective of business, focuses on the approach of how we produce our offerings;

The profit mechanism (value)- This dimension outlines the financial viability of the business model, especially focusing on the revenue model. At last, it unifies every aspect that generates revenue and gives an answer to the question- how does business generate profit?

However, the success of Uber can be readily understood by examining this well-defined business model.

The ultimate revenue model of Uber

Uber’s revenue model is primarily based on the combination of fees, commissions, and surcharges.

Uber’s business model has created a convenient ecosystem that allows drivers and passengers to connect directly, eliminating the need for intermediaries. This approach saves significant costs in administrative expenses. Also, by leveraging the skills of individuals who already are experienced drivers, Uber avoids the expenses associated with recruiting, training, and obtaining permits for new drivers.

The main source of revenue for Uber comes from charging commissions to drivers, typically below 30%.

This commission structure enables Uber to sustain its operations and continue providing its services efficiently.

What makes Uber a Disruptive Business Model?

Behind the Wheel: The Success Story of Uber’s Disruptive Business Model (4)

Uber is consistently cited as an exemplary illustration of a disruptive business model, and there are several compelling reasons behind this widespread recognition.

⭐Uber eliminates the need for the intermediaries such as taxi companies and dispatchers. This direct connection between drivers and passengers promoted enhanced transparency and cost savings for both parties.

⭐Uber introduced a disruptive peer-to-peer business model that enabled individuals to offer transportation services using their own vehicles in exchange for payment. This innovative approach leveraged the sharing economy, providing drivers with additional earning options as well as a flexible alternative to traditional employment.

⭐Uber implemented surge pricing, a form of dynamic pricing that adjusts fares based on supply and demand. This pricing strategy motivates more drivers to be on the road during busy periods and offers customers the convenience of quick transportation at a premium price.

⭐The user-friendly and seamless Uber smartphone app allows users to track their rides, estimate rates, and make cashless payments. And Uber’s focus on convenience and delivering a superior client experience allowed it to differentiate itself from traditional taxi services.

⭐By using an inventory-light approach, Uber’s business model reduces its internal expenses. Unlike traditional taxi businesses, Uber does not own any vehicles, removing the burden of vehicle maintenance and servicing costs.

An Overview of Uber’s business model canvas💡

Customer segments

Individual riders: People who need transportation on-demand.
Business riders: Companies that provide transportation for their employees or clients.
Drivers: Individuals who provide transportation services using their own vehicles.

Offerings

Convenience: Easy and quick access to transportation services.
Affordability: Competitive pricing compared to traditional taxi services.
Safety: Built-in safety features and driver background checks.
Choice: A variety of vehicle options to cater to different needs and preferences.

Channels

Mobile App: the primary channel for customers to request rides and for drivers to accept them.
Website: An alternative for customers to book rides and access support.

Revenue streams

Ride fares: Commission from drivers & riders for each completed ride
Surge pricing: Surge pricing during peak hours or high-demand periods
Advertising: Advertising and partnerships with brands for in-app promotions

Key resources

Technology Infrastructure: Servers, data centers, and software systems to support the platform.
Driver Network: The pool of available drivers in each location.
Brand and Reputation: Uber’s strong brand and reputation are vital for attracting customers and drivers.

Partnerships

Vehicle Manufacturers: Partnerships with car manufacturers to provide rental and leasing options for drivers.
Payment Providers: Collaborations with payment processors to handle transactions securely and efficiently.

Uber devised an innovative solution by uniting cab drivers under a cohesive brand and offering consistent services at fixed prices. Through a user-friendly smartphone app, Uber simplified the process of ordering and tracking a cab, with few taps. With a global network of 2 million drivers and an impressive customer base of 100 million worldwide, Uber revolutionized the way people accessed transportation services. Thus stands as a disruptive business in the market.

Suggested read: How to create an app like Uber?