Uber has created a revolution in the transportation world.
Uber is a taxi fleeting company, that doesn’t own a single taxi. This unique situation, creates a highly effective alignment between the operating and business model of the company. However, this attractive position also creates some doubts regarding the sustainability of the model in the long term as competition increase.
Creating an innovative business model
Uber is a smartphones app that provides on demand transportation service to users. The company connects drivers that offer their services, and users that are interested in a convenient transportation method. The fare is set by Uber, using a dynamic pricing model – premium prices during peak hours and flat rates for off peak hours. Uber usually charges 20-30% of the fare of each ride while the remaining goes to the driver. The company ensures high quality of it services as it uses a feedback mechanism. By the end of every ride the customer can rate his driver and leave additional feedback. In order to continue using Uber, drivers must meet Uber’s standards.
Reinventing the taxi station operating model
Drivers can be anyone with a driving license and a car. Uber provides the driver an alternative, flexible source of income. An interesting fact is that while one of the most important assets of the company is its drivers, they are officially not the company’s employees (as of today). In addition, the cars in use are being privately held by the drivers and the company does not hold a vehicle fleet. However, the ability of the company to attract and retain drivers, is a core essential asset to the company’s success.
In order to use the service, passengers need to download the Uber app, register as users and provide payment method. Once the app is installed, the passenger can order a car, follow it on the map and contact his driver if needed. The passengers enjoy a convenient, simple service, at a relatively low cost.
Matching Supply and Demand:
An important core process in the company’s operating model is the company’s ability to connect between its drivers and users. If the company is not able to supply cars to the users fast enough – the users will use other transportation methods. If the drivers do not have enough work – they might shift to the competitors. In order to optimize this matching process, Uber uses price surge technology that allows the company to increase prices whenever demand is increasing. This unique ability increases the correlation between supply and demand, making the business model more sustainable. In addition, the company continues to develop more and more products like Uber Pool and Uber XL, customizing its services to the different types of users.
An important asset is the company brand and its ability to enjoy the first mover advantage. Currently, the company is growing rapidly, creating huge revenues while maintaining a relatively small amount of assets. However, the question is how long will Uber continue to be the market leader? Are the company’s assets abilities strong and unique enough?
The competition from companies like Lyft, Sidecar and Curb is increasing, and as they are suggesting very similar services and using aggressive marketing, Uber’s sustainability is being put into question. In order to continue its momentum, Uber will need to find new sources of uniqueness and competitive advantage.