It’s predicted that with Uber’s new 2020 subscription business model, they are on track to be one of the best subscription business models in Australia if not the world. And, it all stems from Uber being the first on-demand car network system. Connecting needy customers with idle suppliers with few additional overheads and charging both parties lots of small fees and charges along the way. 

 

Uber took the world by storm: It’s given normal people the ability to serve consumers like taxi cabs would, but without the hassle of registering or waiting on the street etc. Which is a source of income for the former and a great convenience for the latter. Add to that, real-time booking options from your mobile phone, and voila! You have a recurring revenue model example which connects the needy customers with the idle suppliers with minimum overheads.

 

Uber as a multi-sided technology platform

Uber is a multi-sided technology platform. This means it is a technology foundation upon which users, customers, organisations, or other entities can interact or exchange value by collaborating, complementing, or transacting with one another. As a multi-sided platform, Uber needs to incentivise the supply-side of the market (drivers) to attract the demand-side (riders).

 

In simple terms, Uber has built a revenue-generating machine by utilising jobless car owners who want to make extra income. But unlike taxi services, they have made almost no profits with their revolutionary platform. Almost Amazon-like, they are burning through cash quarter after quarter with the hope that one day they will, like Amazon, be almost a monopoly.

 

In this article, we’ll discuss Uber’s revenue model, subscription business model and the Uber pricing strategy. This will include Uber’s customer segments, value propositions, key problems, solutions, cost structure and revenue model. For budding entrepreneurs, we have catered to the rise of ‘uber for x’ startups and what you need to know about pricing revenue models to make your platform business a success like Uber. 

 

Uber’s exponential growth is based on one of the best subscription business models 

 

Uber has achieved exponential growth by creating a positive reinforcing feedback loop: the more drivers sign up, the more appealing it becomes for riders, and the more riders request rides, the better the Uber experience gets for the drivers.

 

This loop is also called the “Network Effect” which is the driving force behind Uber’s exponential growth. Initially, Uber had to invest a lot to attract and retain drivers. That’s why Uber-like business models need heavy investment for incentivising the supply side of the marketplace.

 

Uber is aiming to become a subscription business model where you will have a certain amount of kilometres or rides per day like the NetFlix subscription business model. Uber subscription uses all the data that they have on their customers during their entire subscription life cycle, which leads to much richer insights. The more customers use their app, the more insights they have around their riders’ habits, which in turn will help them for types of cross-sell and to up-sell products.

 

Subscription business model definition

 

The subscription business model definition is simple: Rather than selling products individually, a subscription offers periodic (monthly, yearly, or seasonal) use or access to a product or service, or scheduled performances for an entire season. Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty.

Subscription business model advantages include a predictable recurring revenue stream. Rather than building a product with no guarantee that there will be a market for it. A company with a subscription model can start every month with an installed base of revenue that they can then reinvest in the business.

 

The second big advantage is that the subscription model simply delivers deeper customer relationships and customer brand loyalty. What’s more, Uber is investing heavily to embed this relationship so that you don’t ever look back and think of Uber as the go to for transportation.

 

For example, Uber is one of the few tech companies in the world that has been valued over $70 Billion. They have already received equity funding of $22.2B and operate in 633 cities worldwide. They are likely to receive billions of more dollars from investors to ensure they continue to grow their platform and enter new segments and markets.

 

This Uber pricing strategy case study shows the confidence of investors in Uber’s business model and growth plans; making it easy for us to imagine how much profitable revenue the organisation is likely to make once it attains full scale and liquidity.

 

best subscription business models 

 

How Uber Works in becoming one of the best subscription business models 

 

Uber found a solution to a broken and unpleasant transportation issue: unpleasant taxis rides and unpredictable, price gouging taxi fares that were anything but fair. This, in turn, gave rise to a mobile app. Uber extended their solution with mobile technology to ensure more people and drivers would join their network. All they had to do was book a cab by tapping a smartphone to get a ride from the nearest driver. At this point, people no longer had to wait for grumpy taxi drivers to turn up if they felt like it in often smelly cabs, experiencing awkward silences or insane chatter – a real game-changer for the taxi industry and their customers.

 

The app was officially launched in 2010 and soon became popular due to the value it provided to people. Soon after, Uber brought in peak pricing – another important aspect of their business model. Peak pricing is a pure yield management play: Whenever the demand increases, per mile prices, automatically increases. Uber calls this Surge Pricing Technology – but really this is simple yield management.

 

The new price depends on the number of available drivers and the number of requests made by people who want to travel. A price surge technology patent is pending in the US.

 

Different cars for different riders

 

Uber offer a range of different cab models to cater to everyone: Uber does not limit itself to a particular model of car or to a particular class of people. There is Uber X, Uber Black for those who love to travel in a black car, Uber Taxi for those looking for cost-efficient solutions and Uber SUV for those who want luxury.

 

Another recent feature Uber has launched is a safety feature that helps you make sure you’re getting into the right car. Riders now have the option of receiving a four-digit PIN code to give their drivers before starting a trip. It’s an extra safety measure to verify you’re getting in the right vehicle and your driver is picking up the right person. The PIN safety feature can be turned on at any time.

 

Features of Uber:

 

  • A user can tap his smartphone and call a cab at his location.
  • The driver has the option to accept or reject a ride.
  • If the driver accepts the ride, driver details are sent to the customer along with ETA.
  • The customer can track the driver as he arrives at his location.
  • The driver can also track the exact location of the customer and reach his exact location.
  • The payment procedure is handled by them
  • In countries like India, they have even started accepting cash payments which are paid directly to the driver.
  • It has a rating system in place for drivers right from the beginning, where a customer can rate the driver after his ride.

 

 

Value Propositions of Uber being best subscription business models 

 

For the Customers, Uber’s value proposition is very appealing:

 

  • There is no need to wait for a taxi for a long time.
  • They offer free rides on certain occasions and discounts from time to time.
  • Prices are less than the normal taxi fares.
  • Uber’s tagline says – Your personal driver. It lets customers travel in style.
  • They give you a fixed price for common places like airports etc.

 

For drivers, the Uber value proposition is also appealing, especially if you’re looking for some extra cash here and there. For example, there’s: 

 

  • It’s an additional source of income.
  • Flexible working schedules. Can work part-time or simply whenever they like.
  • Easy payment procedure.
  • Those who love to drive can earn money while pursuing their hobby.
  • Uber pays drivers to be online, even if they don’t get any request.

 

For customer segments

 

  • You don’t have to own a car.
  • You can drink and not worry about driving to or from a party or function.
  • Like to travel in style and want to be treated as a VIP.
  • Want a clean and cost-efficient cab at their doorstep.

 

Uber is revolutionizing the way passengers pay for travel. Experts predict the ride-share giant will move to a subscription-based service where users pay a set amount for a certain number of rides or kilometres, with no lock-in contracts or upfront payments. Subscription models are very popular now because they provide a consistent and profitable recurring revenue stream for businesses, especially platform businesses like Uber. 

 

 

Growth Model: How Uber finds customers

 

  • In less than 6 years, Uber has managed to become the best example of a city-by-city mobile service company roll-out.

 

  • The underlying principle here is that for every city it launches, it faces the same chicken and egg problem. 

 

The advantages that Uber has as compared to new startups in this article are:

 

  • A lot of money and investment go into incentivising both drivers and customers.

 

  • Rock-solid processes are now set up – based on years of experience launching Uber in 311 cities.

 

  • Uber is a now established brand and can use its brand power to attract even more curious, early adopters.

 

The way Uber gains market share starts with a small city launch team. It has a general manager who heads the customer acquisition as well as driver acquisition. The first cabs to come on board are generally professional drivers who are already associated with local taxi companies and have their own cars.

 

First customers come from various local advertising channels like FM radio, newspapers, online advertising etc.

 

Introducing the new player in the best subscription business models 

 

It is quite a challenge to market a newly launched product or service in any geographical area. They first launched in San Francisco, a city which is home to tech-savvy people, what gave Uber the edge. The first drivers on the platform came through cold calling. Many professional drivers were with other cab companies. Or was a self-employed taxi driver.

 

To get their first customers, they took to social media and other mass marketing means. It offered discounts, free rides and rates that were substantially less than traditional taxi services in the city. 

 

The first customers enthusiastically wanted to try the new service. Because Uber offered them rides from club venues to the user’s doorstep. The party people were instantly impressed by the offer. So were executives.  Uber did a smart thing by offering executives free rides or deals on key destinations like the airport to city routes, saving them time at a reasonable fee.

 

Word of Mouth advertising is what made Uber the best subscription business models 

 

Whosoever took a ride in Uber was amazed by their first-hand experience. This made the early users become regular customers and they also helped spread the name by word of mouth advertising. This word of mouth advertising was one of the major driving forces for Uber. 

 

Implications

 

  • Uber revolutionised the transport sector. Instead of waiting for a cab on the street. A phone app is all you need to book a ride at a predetermined time.

 

  • It gave jobs to thousands of car owners to earn extra income.

 

  • It made riding more enjoyable than a regular taxi ride i.e., not a cringe-worthy experience as you sit down in a messy cab with a grumpy taxi driver.

 

  • Uber is going beyond the car service. They are now into the helicopter and jet service. Expanding the service to offer this option to daily commuters who travel to and from neighbouring suburbs. They also implement variable pricing to utilise capacity and capture price premiums during peak times and seasons. 

 

Conclusion

 

  • Uber uses surge pricing technology. This is a form of dynamic pricing that depends on the number of available drivers. Along with the number of requests made by people who want to travel.

 

  • The early users of Uber enjoyed the ride so much they became regular customers. Hence, they also helped spread the name by word of mouth advertising.

 

 

  • In effect, Uber has gone beyond just connecting the drivers to the passengers. But have gone to include gathering data on our riding habits,  popular places and routes and advertising key destinations and experiences as part of their brand. It appears Uber is investing heavily in its plan to utilise all future modes of transportation from car, helicopters to private jets. Their subscription business model plays a key role in monetising the full economic value of their new growth expansion plans. 

 

 

 

To learn more about business subscription models, download this whitepaper.