What makes Uber successful?
Uber works because of its peer-to-peer business model running on a digital platform. This means that Uber is connecting people who offer a service with people who have a need.
But let’s take a step back and look at what exactly a business model is. You’ll be surprised that there is actually no universal definition of a business model. According to the St. Gallen University in Switzerland, a business model (see figure 1) provides answers to the following four questions.
Who is your target customer?
What do you offer to the customer?
How is the value proposition created?
How is revenue created?
Structure of a business model
Figure 1. Structure of a business model according to the St. Gallen University.Let’s have a look at how Uber would answer these questions.
Uber offers its service to two types of customers:
1. people who offer
2. people who want a ride.
The requirements to become a driver are straightforward: a clean criminal record, a newish car and a mobile phone. To get an Uber ride, customers simply need to download the Uber app, register, and provide credit card details.
Uber’s value proposition is in providing a highly flexible source of income for people who own a car. Drivers can determine when and for how many hours they work.
The value proposition for passengers is in:
- cheap, undercut market rates
- a wide network of drivers
- real-time information on where their ride is
- automatic credit card payments.Then Uber creates value internally by not having to deal with:
- servicing and maintaining a fleet of taxis
- call centre agents
- parking fees
- recruiting and training drivers and issuing permits.
This all means massive savings in fixed and variable costs.
Uber makes money by charging a commission of up to 30% from the drivers. Uber uses an automated algorithm to adjust prices and influence supply and demand in the market, resulting in significantly higher fares at times of high demand.So what does this all mean?
Looking at all this, it’s clear that Uber is not a taxi company – it’s an online platform that connects people. And that’s not new either. The peer-to-peer business model is used by many organisations, including eBay, Trade Me, Airbnb, and essentially every dating service.
Technology itself is seldom disruptive. If your industry is going to be disrupted, it’s going to be by trivial technology combined with a trivial, but effective, business model. And it’s likely to be an outsider, a start-up or an organisation from a different industry that’s not constrained by current industry logic and thinking, that disrupts you.