What Sets Uber’s Business Model Apart?


Jul. 8 2016, Updated 1:06 a.m. ET

Car-sharing versus transport network companies

Previously, we looked at two of the largest car-sharing services providers, Zipcar and car2go. To provide car-sharing services, both Avis Budget Group’s (CAR) Zipcar and Daimler’s car2go use their own fleets of vehicles. However, these days, the global market is flooded with transport network companies that provide a platform that connects car drivers with customers. One of the most popular companies in this segment is Uber, which operates in about 481 cities in more than 66 countries worldwide. Let’s take a closer look at Uber’s business and operations.

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Uber’s mobile application

Uber Technologies is a transport network company. Through its smartphone application, the company allows drivers to connect with customers who want to order a ride. These drivers need to register with Uber as a partner after being verified and must have their own vehicle.

Whenever a registered user needs a ride, he can simply access the application to see the availability of rides in his area. There is a real-time map, along with the expected time of arrival at the pickup point. This feature makes Uber’s mobile application very convenient for customers.

Multiple payment options

In addition to connecting drivers and customers, Uber’s application calculates the charges that a customer needs to pay at the end of the trip. These charges are calculated based on the mileage and time of a particular trip. Also, Uber allows customers to use various automatic electronic payment methods instead of paying in cash. This way, the company can easily deduct its commission from the amount paid by the customers, and the rest of the money is transferred to the drivers.

Car-sharing companies require relatively higher capital investments than transport network companies such as Uber. However, this investment is not a big deal for major automakers (VCR) Daimler (DDAIF), General Motors (GM), and Volkswagen (VLKAY).

Surge pricing

Surge pricing is a technique used by Uber to charge extra fees per mile or per minute. This generally happens when the demand for Uber rides is high in a particular area or at a particular time. According to the company’s website, “A variety of circumstances cause fares to surge. For example, heavy rain, local sports events, and holidays can contribute to a temporary increase in demand for rides that requires surge pricing.”

However, due to its surge pricing, Uber has attracted criticism from not only customers but also various transport authorities worldwide and rivals, including Gett. In the next part, we’ll take a closer look at how Gett tries to benefit from Uber’s surge pricing.


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