A case study of Uber and how it thrives online
Whenever you want to commute what is the first thing that comes to your mind? Uber, right? It is surprising to see how Uber has become a synonym for a taxi.
Let's discuss the following points to understand Uber in a better way-
- How did the concept of Uber start?
- Which economic problem does Uber try to solve?
- How does it thrive online?
- Why is uber still a loss-incurring company?
- My analysis.
How did the concept of Uber start?
Once two friends went to an economic conference and when the conference ended the two friends found it hard to find a taxi. At that time, they thought that it would be fun if they could call a taxi just by clicking a button. This became a trigger for them and they started working on this idea and revolutionized the modern transportation model. Apart from transportation Uber also provides services like ordering food (UberEATS), Uber Self-driving vehicles, air services, etc. (Here we will mainly focus on transportation services. )
What economic problem does Uber try to solve?
The founders of Uber - Travis Kalanick and Garrett Camp saw a simple economic problem of demand and supply that is the supply of taxis was not in accordance with the demand for taxis at a given place or the distribution of resources was uneven over space.
How does Uber thrive online?
Uber defines itself as a tech company (and not a transportation company) that essentially connects drivers with riders. The drivers are treated as independent contractors and not as employees. In order to book a taxi, the customers do not have to go to any website or perform any tedious task, they just have to go to the Uber app and book the taxi. Uber has made this process very easy and convenient so that each and every person can use their app. Customers can track their taxis because of the GPS system and most importantly Uber taxis charge less fare than traditional taxis.
But the question is what makes Uber cheaper than the traditional taxis let's find out.
As I mentioned before, Uber considers itself a tech company (it does not own any cars), and the drivers as independent contractors and not employees so this gives Uber leverage over its competitors. It does not have to provide any perks like monthly salary, insurance plans, holidays, etc. to the driver and this allows it to cut down its operational costs.
Uber uses the following formula to calculate the fare price-
{base fare + (cost/min*time) + (cost/km*time)} * Surge Multiplier
+
Booking Fees for Uber
Why is Uber still a loss-incurring company?
Uber is a loss-making company (look at the data below) due to various reasons like very high competition from other platforms like Ola (India), Lyft (America), Grab (Singapore, Vietnam, Philippines, Malaysia, Myanmar, and Indonesia), it's skyrocketing operative costs (total costs>total revenue), it lost markets in countries like China, Bulgaria, and Europe due to different reasons. Uber drives its major share of the revenue from USA and Canada therefore if operations get disturbed here it leaves a negative impact on its revenue.
Uber annual profit / loss 2014 to 2021 ($bn)
| Year | Profit/Loss ($bn) |
|---|---|
| 2014 | -0.7 |
| 2015 | -1.6 |
| 2016 | -3.6 |
| 2017 | -4 |
| 2018 | 1 |
| 2019 | -8.5 |
| 2020 | -6.7 |
| 2021 | -0.4 |
Uber’s Revenue Breakdown Worldwide
| Regions | Revenue generated in 2019 | Revenue generated in 2020 | YOY Growth | Revenue Share in 2020 |
| Asia Pacific | $0.82 | $1.15 | 40.24% | 10.31% |
| EMEA (the Middle East and Africa) | $1.85 | $2.09 | 12.97% | 18.74% |
| Latin America | $1.86 | $1.30 | -30.11% | 11.66% |
| The United States and Canada | $8.47 | $6.61 | -21.96% | 59.28% |
| Total | $13.00 | $11.15 | -14.23% | 100.00% |
Source: BusinessOfApps website
Primary data that was collected by me
This data clearly shows that Uber is facing very stiff competition from Rapido. Although Uber was preferred by 42.9% of people, Rapido is also very popular and can become a threat to Uber considering the fact that Rapido came into the Indian market only in 2015.
My analysis of UberAccording to me, Uber is caught in an ugly middle position because drivers want more pay whereas riders want cheaper rides. If consumers do not get cheap rides, they will have trade-offs and will prefer other companies like Rapido over Uber. Whereas if drivers do not get high pay, they will either give up Uber or they will protest as they have done previously and this will incur losses to the company.
Uber has also faced a lot of lawsuits against it that have deteriorated its image in the market, which is not good for a company as it reduces consumer trust in a company.
It will be interesting to see what steps will be taken by Uber to get out of these problems and maintain its dominance.
Name-Pooja Nautiyal
Class-1 EcoH A
Register No-2233349
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