Uber's Business Model

Biz Model for Uber Technologies Inc.A REAL-TIME RIDESHARING SERVICE

A M B R E F I S C H ER | A R N AU D L E G R I S | C H R I STO P H ER L AU R E NT I U S | J OYCE L I M | K EO NG P E I Q UA N | R AY MOND U N G

Business models for other ride sharing companies such as Ola Cabs (http://www.slideshare.net/Funk97/presentations) and for different types of ride sharing such as multi-passenger ride sharing (http://www.slideshare.net/Funk97/presentations) can be found on my slide share accounts.

1. Background of taxi services and real-time ridesharing

2. What does Uber Technologies Inc do?

3. Value Proposition

4. Customers and Market

5. Value Capture

6. Competition

7. Strategic Control

8. Uber, an issue?

9. Improvements & Alternatives

10. Q&A

UBER TECHNOLOGIES INC. 2

Agenda

Background – Taxi Services

More convenient than other modes of public transport when going at a specific destination

Higher fees than other modes of public transport Fixed price based on base fare, distance, time, peak

hours/weekends & public holidays, advanced booking fees

Requires a government license to be a taxi driver

Car rented by the taxi operator

Taxis can be hired Hailing on the street

Waiting at specific taxi stations

For immediate booking by SMS, phone call, app

For advanced booking by phone call, apps


1. Background of taxi services




5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

What does Uber Technologies Inc do?

Network Orchestrator, connecting passengers with drivers Manages a network of drivers and passengers through a phone application

Provides options and varieties in the transportation service


Source of image: https://www.uber.com/

Toyota Camry BMW 7 series

GMC Yukon Denali

Mercedes S-Class

https://www.uber.com/

Uber: Real-Time Ridesharing

(FROM) RIDESHARING

Shares the same car and destination

Shares the cost of gas, toll fees, parking

Pairs passengers and drivers who are heading in the same direction / heading to the same destination

Time Sharing

(TO) REAL-TIME RIDESHARING

Shares the same car and destination

Individual costs

Uses latest technologies

Uses GPS and smartphones

Social Networks

Geared towards profit or commercial gain


IncrementalEvolution


Passengers

No

Destination decided byDrivers

Profit-driven

Ride Sharing:Neighbor, Colleague, Carpool, etc…

Real-Time Ride Sharing:Uber, Lyft, etc..

Yes

Source of image: http://marketrealist.com/analysis/stock-analysis/technology/internet/charts/?featured_post=70133&featured_chart=70136

Uber: Real-Time Ridesharing

http://marketrealist.com/analysis/stock-analysis/technology/internet/charts/?featured_post=70133&featured_chart=70136





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

EVERYONE CAN BE A DRIVER

Flexibility to drive Extra Income Drive with Assurance

Value Proposition


EVERYONE’S PRIVATE DRIVER

One tap to ride Reliable Pickup Status Sharing Ride Feedback Cashless

Value Proposition – Network Orchestrator


Passenger Driver

Request for ride

Notification of acceptance

Notification of the request

Accepts request

- Pay the ride- Give feedback

Picks the passenger and brings him to the destination

- Indicates navigation

- Estimates fare & time

App

GPS

Uber’s structure is simpler, thus generating lower costs which allows them to propose a lower price No inventory

Uber doesn’t have to pay fees as they are not “taxi service operators”

They are network orchestrators matching drivers and passengers

Drivers do not have to pay for professional fees to deliver the service

Uber drivers are partners not employees

Ease of becoming driver

More drivers than taxi drives in NYC 1

Majority of drivers are part time , only 38% worked full time 2

Part time driver can accept lower revenues than normal taxi drivers


Value Proposition – A cheaper ride compared to Taxis

1 http://www.digitaltrends.com/mobile/more-uber-cars-yellow-taxis-nyc/2 http://techcrunch.com/2015/01/22/uber-study/

DEMAND/SUPPLY ALGORITHM

Heat mapping to indicate where the demand is

“God View” – real time aerial view of the movement of cars1

Plenty of other data analyses, such as Analyzing how many times the app is open

Analyzing accuracy of demand prediction to refine the prediction algorithm

Calculating probability of accurate destinations and popular destinations2

SURGE PRICING ALGORITHM

Automatically detects situations of high demand and low supply and adjusts price accordingly, depending on the level of shortage.


1 http://www.reuters.com/article/2014/12/16/us-uber-privacy-idUSKBN0JU2DT20141216

2 http://blog.uber.com/passenger-destinations, http://blog.uber.com/2012/11/12/uberdata-mapping-a-citys-flow-using-ubers-ridership-data/

Source for both images: http://www.wired.com/2011/04/app-stars-uber/

Value Proposition – Surge Pricing: Meeting high demandSurge Pricing : Uber rates increase to ensure reliability when demand cannot be met

Encourage more driver to be available.

http://www.reuters.com/article/2014/12/16/us-uber-privacy-idUSKBN0JU2DT20141216

http://blog.uber.com/passenger-destinations

http://blog.uber.com/2012/11/12/uberdata-mapping-a-citys-flow-using-ubers-ridership-data/

http://www.wired.com/2011/04/app-stars-uber/

US 2013/0246207A1 (pending grant) System and Method for Dynamically Adjusting Prices

for Services

Pricing algorithm automatically detects situations of high demand and low supply and hikes the price in increments, depending on the scale of the shortage. Algorithm results in increased supply and reduced

demand.

“Through these two mechanisms, the company is able to (a) increase supply, (b) assure reliability, a key tenet of the company, and (c) maximize the number of completed rides.” – Bill Gurley, Uber investor and board member


Source of image: Patent No: US 2013/0246207A1 by Uber Technologies Inc, System and Method for Dynamically Adjusting Prices for Services

E.g. prices to be changed if utilization rate falls below 60% or

above 80%; or demand and supply model that compares the number of drivers to passengers.

Price adjusted relative to a fixed price i.e. using a multiplier

Value Proposition – Surge Pricing: Patent Pending


Value Proposition – Surge Pricing Example(1) Demand –Supply Equilibrium

$10

Normal Fare


$10

Fare Increases

$15

Value Proposition – Surge Pricing Example(2) Demand > Supply


$15

Fare Decreases$10

Value Proposition – Surge Pricing Example(3) Demand < Supply





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

So who do you think are Uber’s customers?


1) Drivers 2) Passengers 3) Both?

Source: Google Search Definitions

Uber’s definition of customer:

Individuals requesting or ordering an on-demand service, where a service provider refers to individuals or entities that can provide the requested service e.g. car/taxi service.


Passenger Uber Driver$$$ Commission

CUSTOMERPaying for the service (transportation)

PARTNERSComplementary Service Provider, NOT customer


Customer Segments (by needs)

I want a ride (Taxi, UberX, UberTaxi, Lyft)

I want a luxury ride (Limousine Taxi, UberBlack)

I’m willing to pay more to get a ride NOW (UberX, Lyft) I want the highest probability of getting a ride

I want a taxi NOW

I want to share the ride to reduce cost (UberPool)

I want a scheduled ride (Taxi)

I want a consistent good user experience (Uber, Lyft)

Key Differentiators between the different options:

Price

Time

User experience

Options

EARLY ADOPTERS

Tech-Savvy Users

Smartphone Users

Users who value time People who appreciates having a ride confirmation

shortly after the need arises

Users with (limited) spending power. They are either People who wish to save money but still get the

convenience or

They have the power to hail a ride at any price

EXAMPLES OF CUSTOMERS

UberPool – Non-working group e.g. students, young adults

UberX – e.g. working adults, people in a rush

UberTaxi – e.g. the usual taxi passenger

UberBlack (Premium) – e.g. professionals, people who wish to show off


Targeted Customer Segments (Real-time Ridesharing)

Uber’s Estimated Market Share (NYC Jan 2015)

40% of Total NYC Taxi Market (advanced booking taxis, Uber, Lyft)

45% of advanced booking Taxi Market 17% of Total Taxi Market


Total Taxi Market

135 million rides

~$1.9 Bn

Target Market

55 million rides

~$1 Bn

Uber Market Share

25 million rides

$0.4 BnTotal Taxi market : http://www.statisticbrain.com/taxi-cab-statistics/

Uber Marke share: http://www.northjersey.com/news/move-to-regulate-ride-share-services-like-uber-lyft-advances-in-nj-video-1.1292267

Market Comparison in %: http://www.businessinsider.com/uber-revenue-rides-drivers-and-fares-2014-11?op=1

http://www.statisticbrain.com/taxi-cab-statistics/

http://www.northjersey.com/news/move-to-regulate-ride-share-services-like-uber-lyft-advances-in-nj-video-1.1292267

http://www.businessinsider.com/uber-revenue-rides-drivers-and-fares-2014-11?op=1





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

Value Capture


Pricing & Payment Uber set prices for rides Peak hours Customers pay Uber with

credit card (not the drivers)

Splitting the Proceeds 20% of the ride go to Uber

Commission-based Depends on the city and

competition

From revenues to Profits Uber cover expenses (R&D,

marketing…) Employees & infrastructure

in cities

Reinvest to Grow R&D and acquisition of new

business





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

Competition


Smartphone Applications

Real-time Ridesharing

Taxis

Competitive Analysis – Uber vs Taxi (1)

Uber Taxi

Advance Booking No Yes

Hiring Method Smart Phone App Flag/Call Center/App/Dedicated taxi queue

Payment Cashless Cash/Credit Card

Driver/Passenger Rating Available NA

Pricing Structure Flexible Structured

Fare Sharing Anyone Limited to friends

ETA to Destination Available NA

ETA of the Ride Available Available (Apps Only)

Car Self Rented from Taxi Company

Driver’s perspectives Flexible Rigid

Law & Regulation (more on this later) Grey Area Well-defined

Value Capture to Company Commission Fee Rental Fee, Advertisement


UBER

Base fare

Metered fare based on time/distance

Surge pricing During high/low demand

TAXI

Base fare

Metered fare based on time/distance

Additional costs Peak hour / midnight surcharge

Public Holiday surcharge

Advanced booking fee

Luggage fees

Area based surcharge City

Airport


Competitive Analysis – Uber vs Taxi (2) Pricing Structure


Graphs from: http://www.businessinsider.sg/uber-vs-taxi-pricing-by-city-2014-10/#.VQ7j7-6UfP8

Competitive Analysis – Uber vs Taxi (3) Pricing Structure

http://www.businessinsider.sg/uber-vs-taxi-pricing-by-city-2014-10/

UBER

Requirements No professional taxi license required

Require your own vehicle

Income Flexible timing – part time work

Surge pricing may provide higher hourly wages

Expenses Petrol

Personal insurance

Maintenance of personal vehicle

TAXI

Requirements Professional taxi license / “medallion”

Income Full time work (i.e cover daily rental work)

Fixed surcharges

Expenses Fixed rental fees for taxi to be paid

License fees as a taxi driver to be paid


Competitive Analysis – Uber vs Taxi (4) Driver’s Perspectives


Image from: http://techcrunch.com/2015/01/22/uber-study/

Competitive Analysis – Uber vs Taxi (5) Driver’s Perspectives

http://techcrunch.com/2015/01/22/uber-study/

UBER LYFT Winner

Cost Lower on Average Higher UBER

Surge Pricing No Cap Cap at 200% LYFT (Passenger POV)

Surge Pricing No Cap Cap at 200% UBER (Driver POV)

Company Investment (2014) ~$405 Million ~$330 Million UBER

Safety Insurance/Driver Rating Insurance/Driver Rating TIE

Customer Support Online Support 24/7 Call Centre TIE

Professionalism Feels professional Feels friendly UBER

Service/Experience Passenger-Driver Relationship Friendly Ride LYFT

Legality Issues on real time ride sharing TIE

Winner UBER


Competitive Analysis – Uber vs Lyft (1)

Similarities Demand/supply algorithm

Both increases supply during high demand periods but the limit of Prime Time also means that comparatively, Uber partners would earn more during the same period if demand is extremely high.

Differences Surge Pricing: no cap (except for “abnormal disruption

of the market” – more on that later)

Prime Time: 200% price surge i.e. cap of 3x fare NYE 2014: 400% increase i.e. cap of 5x fare

The success of Uber’s Surge Pricing 2 million matched rides on NYE 2014 (worldwide)


Source of image: http://blog.uber.com/cheersto2015

Competitive Analysis – Uber vs Lyft (2) Surge Pricing vs Prime Time

Competitive Analysis – Uber vs Lyft (3) Prices in different states


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

CO

ST

Source of image: Uber and Lyft websites

Overall Competitive Analysis


0

1

2

3

4

5

6

AdvanceBooking

Law &Regulation

Hiring Method(User

Friendliness)

CashlessPayment

Fare Sharing Driver’s Flexibility

Go-to MarketCar Flexibility

UserExperience

RideInformation

RA

TIN

G

Strategy Canvas for Uber, Lyft and Taxi

Uber Taxi Lyft

Uber Taxi Lyft

Advance Booking 0 5 0

Law & Regulation 3 5 3

Hiring Method (User Friendliness) 5 3 5

Cashless Payment 5 3 5

Fare Sharing 5 3 5

Driver’s Flexibility 5 3 5

Go-to Market Car Flexibility 5 3 3

User Experience 5 3 5

Ride Information 5 3 5





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

First mover advantage Accumulate a larger parnter installed base, and real-

time ridesharing apps thrive on the size of customer base

Barrier to entry Patent applications If granted, Uber will be the only company in this line of business to

have related patents

But most patents refer to business methods

Network Effects Customer

Partner


Source of image: http://patentvue.com/2014/03/04/sidecar-and-uber-patent-portfolios-lead-the-ride-sharing-industry/

Strategic Control

http://patentvue.com/2014/03/04/sidecar-and-uber-patent-portfolios-lead-the-ride-sharing-industry/

Strategic Control


Retain & Gain

New

Drivers

Partner rewards program

• Vehicle Financing

• Health Care Incentives

• etc

Customers

• Price promotions

• Partnerships with local establishments e.g. restaurants, shops





5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

Issues (worldwide)

Issues Solutions

Trust and Safety issues • Alleged (sexual) assaults• Alleged Kidnapping

• Driver/Passenger information, GPS following rides

• Panic Button

• Background checks, identification of new technologies

Legal issues• Insurance coverage for accidents• Regulatory laws – Illegal taxi operation?

• Metromile’s Uber Car Insurance• Insurance Coverage for UberX

• App’s terms and conditions

• Conforming to the laws

Surge Pricing • Cap on fares for certain events



Source of image: https://www.uber.com/safety

Issues: Background checks

All drivers are screened against: County courthouse records

Federal courthouse records

Multi-State Criminal Database

National Sex Offender Registry screen

Social Security Trace (lifetime)

Motor Vehicle Records (historical and ongoing)

In Nov 2014, Uber started a safety review to identify new technologies such as Biometrics and

Voice verification

Further suggestions by U.S. Congress, Mar 2015 Adopt fingerprint-based background checks

https://www.uber.com/safety

Issues (worldwide)

Issues Solutions



• Panic Button








“You understand, therefore, that by using the application and the service, you

may be exposed to transportation that is potentially dangerous, offensive, harmful

to minors, unsafe or otherwise objectionable, and that you use the application

and the service at your own risk.” - Uber’s Terms & Conditions

UberBlack, UberSUV, or UberTAXI rides are provided by commercially licensed and insured partners and drivers. How about UberX?

Uber introduced insurance coverage for the UberX rides in Mar 2014. $1 million of liability coverage per incident.

$1 million of uninsured/underinsured motorist bodily injury coverage per incident.

Contingent comprehensive and collision insurance.

No fault coverage (e.g., Personal Injury Protection)

$50,000/$100,000/$25,000 of contingent coverage between trips.


Issues: Insurance Coverage for UberX

Source of image: http://blog.uber.com/ridesharinginsurance

http://blog.uber.com/ridesharinginsurance

Covers drivers for miles in between trips Uses a cellular gadget that plugs into their vehicle’s

diagnostic port.

Recognizes when drivers are working and are covered by Uber’s insurance so it only charges them for miles they drive for personal use.

Complements UberX Car Insurance $50,000/$100,000/$25,000 of contingent coverage

between trips.

As a result… Drivers do not have to fear Being denied coverage by personal insurance

Potential limitations of their personal insurance coverage while logged on to a rideshare app.


Issues: Metromile’s Uber Car Insurance

Source of image: http://blog.metromile.com/blog/2015/1/28/uber-partnership

http://blog.metromile.com/blog/2015/1/28/uber-partnership

Issues: Regulatory laws – is Uber legal?


Source of image: http://www.taxi-deutschland.net/images/presse/Infografik_Uber-legal-issues_EN_v12_RGB_2015-02-06_final.jpg, used under the CC BY-SA 4.0 Intl Licence

http://www.taxi-deutschland.net/images/presse/Infografik_Uber-legal-issues_EN_v12_RGB_2015-02-06_final.jpg

http://creativecommons.org/licenses/by-sa/4.0/

Issues (worldwide)

Issues Solutions



• Panic Button








Issues: Surge Pricing


Source of image: http://www.businessinsider.sg/ubers-highest-surge-price-ever-may-be-50x-2014-11/#.VRuIMO6UfP8

x normal rate

min rate

A 1km ride will cost you USD 650

http://www.businessinsider.sg/ubers-highest-surge-price-ever-may-be-50x-2014-11/

Issues: Surge Pricing

Uber came under fire for the surge pricing algorithm during the events: Hurricane Sandy

(elsewhere) Sydney Hostage Siege

Capped surge pricing from Jan 2015 for “abnormal disruption of the market” events “If Uber puts surge pricing into effect during an abnormal disruption of the market, Uber will not set the price for

any transportation option above a multiple of the base fare to the determined…based on the prices set by Uber for the same transportation option…during the sixty days preceding the commencement of the abnormal disruption of the market. To determine the price cap for a transportation option in a city and surrounding area, Uber shall first identify the three highest prices it set, on different days…Price cap shall be the next highest price that was set for the same transportation option …not including the days on which the three highest prices were set.”


i.e. If in the past 60 days, the 4 highest multipliers were 3x, 4x, 5x and 6x, Uber will charge a maximum of 3x the normal fare for such events.

1. Background of taxi services and real-time ridesharing




5. Value Capture

6. Competition


8. Uber, an issue?


10. Q&A


Agenda

UberGarage - Experimentation

UberFRESH & UberESSENTIALS Delivery lunch & various products

At an experiment stage

No delivery fee for Essentials fixed $3 fee for Fresh, no tips to the driver

Make money with product margin

Based on the same business model (drivers, app: location, payment, rating)

Create value to customers: convenient, very fast (10 minutes)

UberCARGO

UberRUSH

UberPOOL

Uber Business Reliable ride for your employees


Improving Existing Business


UBER

DRIVERS PASSENGERS

Extra Insurance Coverage

Uber Mobile App ProtectionDriver/Rider Preference

Incentive Program

Alternative Business Models – Customer Segments

UberAlternate Similar to UberX but using other forms of transport

e.g. bicycles or motorbikes.

Target segment: Passengers in developing countries / countries where public transport is not well established

UberAlternateX High end luxury transport

Target segment: Niche segment: luxury

Available for high end car


Alternative Business Models – Customer Segments

UberTour UberX for tourist attractions within the city/country

Planning of ride itinerary and following available tour vehicles

Target segment: Tourists with their own (flexible) itinerary



Alternative Business Models – Value Capture

UberCredits Passenger can buy $100 of UberCredits and be rewarded with an extra $20.

Entice more passengers to use Uber, which will increase demand and make drivers happy.

UberAdvertising Advertisements on the app and within the car

Advertising revenue

In the Future (10-15 years)....

Driverless Uber Use driverless car, when driverless car is available & legalized

Uber Next Predict the need of a ride based on data, schedule, etc


Alternative Business Models – Long Term

Lastly, if anyone is interested…. Apply now through: https://www.uber.com/jobs/54600/apply?gh_jid=54600


https://www.uber.com/jobs/54600/apply?gh_jid=54600

Q&AP.S. FOR QUESTIONS ON JOB APPLICATIONS, PLEASE SEND DIRECTLY TO UBER.


UBERX UBERPOOL


Images from: http://blog.uber.com/UberPoolDriver

Backup Slide: UberPOOL

http://blog.uber.com/UberPoolDriver

Backup Slide: Surge Pricing Technology example

In San Francisco, there can a high number of requesters at a certain time where transportation services are requested so that there is a spike in demand, while supply remains the same.

In comparison, in a nearby city, such as San Jose, there is no spike in demand for the transportation services or food services at the same time.

Due to the limited availability (e.g., inventory) of drivers and vehicles, the system can adjust the price for the service (e.g., increase the cost) for the requesters in San Francisco (or to requesters in a region within San Francisco).

For those requesters and service providers, the price for the particular service can be adjusted (e.g., increased), while the price (e.g., the default price value) for other requesters and services providers in other areas remains the same. The parsed data can also be stored in one of the system databases, such as a pricing data database, so that the price adjustment can retrieve previously parsed data at different times.

Data is stored in appropriate system databases so that a historical record can be maintained. The historical record can include requester data and provider data received at particular dates and times previously received.

In some examples, the historical data can also be used to approximate the amount of requesters and the amount of service providers at a particular geographic region at a certain time and/or date.

In this manner, information can be collected, stored, and maintained for future use (e.g., for price adjustment at a later time or for predicting future supply and demand for the service).

For example, the data collected on Friday evenings can be useful in predicting supply and demand for future Friday evenings (e.g., can be used to determine trends). Forecasting future spikes in demand, for example, can be useful in making sure a sufficient amount of service providers are available at the future time to meet the high demands.



Backup Slide: Surge Pricing System




Image from: http://www.cnet.com/news/uber-lyft-are-sinking-san-francisco-taxi-business/

Backup Slide: Increase vs Decline of apps to flagging

http://www.cnet.com/news/uber-lyft-are-sinking-san-francisco-taxi-business/

Backup Slide: Competition (Uber vs other apps)

Uber FlyWheel Lyft

Go-to Market Luxury/Private Cars/Existing Taxi

Existing Taxi Private Car

Marketing Strategy Free credits, celebrity endorsement, social media

No surge, non-a****** alternative to Uber

Branding(Moustache)

Tools Smartphone Taxi meter, Smartphone Smartphone

Payment Method Cashless Cashless Cashless

Taxi Fare Cheaper than traditional taxi Traditional Taxi Fee Cheaper than traditional taxi

Advance Booking Option NA Available NA

User Experience Driver/Passenger Rating NA Driver/Passenger Rating

Fare Sharing Uber Pool NA Line Lyft

Surge Pricing No limit NA Cap at 200% i.e. 3x fare



Image from: http://www.cnbc.com/id/102240065

Backup Slide: Competition (Market Share)

http://www.cnbc.com/id/102240065


Backup Slide: Competition (Uber vs Lyft)

Private hire license

Commercial insurance


Back up Slide: Becoming Uber driver in Singapore

Uber's Business Model

Business

Transcript of Uber's Business Model