Uber is a taxi giant that has encouraged various startups to forge a business model with similar aspects. It has a footprint in over 70 countries and 990 cities worldwide. It is one of the largest transportation companies in the world that quickly rose to the top of the market after its launch. The taxi company is recognized all around the world and has set industry standards for other taxi-hailing services. The popularity and success of Uber are well-known. It features a flexible taxi business model that could be easily adapted by other companies.
You must be wondering why is Uber so massively successful while other taxicab alternatives struggle to compete. There are multiple reasons. We will discuss them later in this blog.
The ridesharing market is heavily dominated by two companies Uber and Lyft. The market has witnessed a significant surge in recent years. These applications allowed people to instantly call for a ride via their smartphones.
Popular taxi-hailing companies work as a mediator between riders and drivers and allow them to connect instantly by using their applications. The Uber taxi business model is customer oriented and relies on ride-sharing. In this blog, we will highlight the factors that act as challenges for the taxi-hailing industry and how it is different from traditional taxi-hailing services.
Market Overview of Uber Taxi Business
The ride-sharing market has boomed in recent years. In the last quarter of 2020, around 93 million people used the Uber application on a monthly basis.
According to Statista, Uber generated a global net revenue of $11.1 billion in 2020. The popular taxicab company completed a staggering 5 billion rides in that year which was a major contributor to the gross revenue.
In 2020, Uber generated approximately $57.9 billion in gross bookings worldwide. It dominated over 70% of the market while Lyft had a market share of 30%.
In 2021, it generated net revenue of $17.5 billion with over 93 million monthly active users all around the world coupled with 3.5 million drivers.
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It is evident from the market statistics that Uber is dominating the ride-sharing and taxi-hailing business. Competitors like Lyft and Ola struggle to compete. While some companies have established markets in different parts of the world, Uber has been prevalent in all major worldwide markets. If you want to Start a taxi business of your own, you must have a better understanding of Uber’s business model.
Uber Taxi Business Model
It’s taxi business model is based on commission from completed rides. Moreover, it also has various other revenue-generating models. It is a revolutionary business model that is highly flexible and its core components can be adapted by any business regardless of the sector or dimension. In this section, we have listed the various revenue-generating models that Uber uses.
While booking a ride, customers are displayed an estimated price based on the distance and the traffic conditions of the route. Uber takes a 25% commission from the estimated price and the rest is factored into other expenses and partners. Commission from rides has been the primary source of income of the taxi-hailing giant. Besides, the commission rates also fluctuate from 15%-30% depending on the region.
In rush hours when the demand for taxis is high, Uber uses an algorithm of dynamic pricing structure to increase the cost of rides. It allows drivers and Uber to earn extra income in return for providing instant rides to customers. The conditions for surge fees include high traffic, excessive booking in the area, weather conditions, etc.
The passengers also incur a cancellation charge if they cancel the ride after booking. The charges are dependent on the time interval between the booking and when the driver has reached your location. If a passenger cancels the ride after the driver reached their location, the cancellation charge is increased significantly and will be applicable to your next booking.
Advertising and Brand Promotion
Uber also takes advantage of the old-school third-party advertisement model. The taxi-hailing business is recognized all around the globe and generates additional revenue by promoting other brands on its platform.
Uber provides different types of vehicle options to its customers. The company also allows its customers to get premium rides in top-notch taxis. Customers have to pay an extra sum if they choose to opt for a premium ride. The commission of these rides is also significantly increased.
These are the most common revenue-generating methods that Uber uses to generate billion of dollars every year. But how is it different from other taxi-hailing services? Let us take a look at how it’s business model is different from traditional taxi-hailing services.
Uber Business Model Vs Traditional Taxi Business Model
Uber vs Taxi: Overview
While traditional taxi services have been on the streets since the 1800s, Uber quickly took over the taxi-hailing business ever since its inception in 2010. Soon after, competitors like Lyft also marked their presence in 2012.
Yellow taxi cabs have been the preferred mode of transportation for locals and tourists in the United States but with apps like Uber, Ola, and Lyft in the market, passengers now have a variety of choices to reach their destination.
While you must be thinking that the popular taxi brand has put traditional taxis out of business, reports indicate that there are at least 106,000 for-hire vehicles that are licensed to operate in New York City.
Both business models rely on the same pricing strategy that is dependent on time and distance but Uber takes it further by providing an estimated price before the ride giving passengers a sense of choice.
Uber vs Taxi: Cost
Uber and the Traditional taxi business model are somewhat similar. As stated above, both parties use similar metrics for the pricing of rides which include time and distance covered. However, is one more cost-effective than the other? Let’s take a look
One major difference between Uber and traditional taxis is that it doesn’t charge on the basis of traffic. However, it does have conditional surge charges in place in case of rush hour and high demand.
Moreover, while it does provide an estimated price before the ride, these prices can be different from the final price of the ride because of certain conditions. However, the application does provide a selection of different vehicles that the user can choose from depending upon their preference. The various types of vehicles Uber offers are-
Taxis on the other hand don’t have different vehicle options and also don’t provide an estimated fare before the ride. Taxis in New York City have a base fare of $2.5 to $5. Moreover, they charge extra for every ⅕ mile or minute and taxis also take into account the speed of the vehicle and traffic conditions.
Unlike Uber, taxis don’t have a surge charge, but they do charge extra depending on rush hour and timing. Normally, there is an extra surcharge after 8:00 P.M.
Uber vs Taxi: Business Model
It has been taking advantage of its flexible business model to capture a vast majority of the potential market and generate higher ROI. Moreover, the Uber taxi business model’s structure was significantly changed after the pandemic to accommodate the growing demands of the users. Ever since the pandemic, the platform has been divided into two segments.
Mobility Platform: This segment consists of the taxi-hailing and ride-sharing services provided by Uber. During the pandemic when the demand for taxis was at an all-time low, the company made some significant changes to its business model. After the shift, the platform managed to make a profit and generated $1.5 billion in revenue even during the pandemic.
Door-to-Door Delivery Platform: This segment became an instant hit during the pandemic. Uber analyzed the needs of the customers and came up with a business model to offer doorstep deliveries of essential commodities as per the user’s requirements. The platform grew at a staggering 114% during the pandemic and is still going strong.
Traditional Taxi Services
The conventional taxi-hailing service features a simplistic business model where the fares are calculated according to the time and distance of the ride. Although Uber uses a similar business model, the additional services provided by it and other taxi applications give them a massive edge over traditional taxi services.
Moreover, traditional taxi services also don’t include surge fees which is a benefit for the customers, not the taxi business. However, these services do include additional charges for nighttime as well as the intensity of the traffic.
The Key Takeaways
- Uber is a renowned taxi-hailing company that has a global presence in all the major countries of the world.
- The company managed to make a profit even during the pandemic and completed a staggering 5 billion rides in 2020.
- The popular taxi-hailing app has a similar business model to traditional taxi services that were previously used.
- It disrupted the taxi-hailing market ever since its inception in 2010. Similar applications like Ola and Lyft soon followed the trend.
- With the help of a flexible business model and various monetization strategies, Uber is now the face of taxi-hailing applications worldwide.
- The flexible Uber taxi business model can be adapted by any taxi-hailing application to increase its revenue potential and generate high ROI.
- The market for ride-sharing applications is booming. It is the right time to invest in the market by creating your own ride-sharing taxi application.
The Uber Taxi Business Model is highly flexible and can be incorporated into any taxi application to boost its revenue-generating capabilities. We have highlighted several factors that make it better than conventional taxi services.
With the help of a simple business model and multiple monetization strategies, applications like Uber are dominating the taxi-hailing industry and flourishing all around the world. If you are looking to develop your own Taxi booking application, BR Softech is a world-class Taxi app development company that can help you create a stellar Taxi application.
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Frequently Asked Questions(FAQs)
The cost to develop a Taxi application is dependent on various factors. On average, taxi app development can cost up to $50,000 to $80,000 depending on the features and functionalities.
Yes, the market for taxi applications is highly profitable. Apps like Uber and Lyft generate billions of dollars in revenue every year.
Yes, we provide customized taxi app solutions that are tailored according to the client’s requirements.
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