Posted in Research

Uber: Improvements in Revenue and Service

Creative Brief: The client was looking for a short analysis and research piece on Uber revenue and service models. This piece took 2.5 hr to research and write, well under the budget of 4 hours provided by the client.

Uber: Improvements in Revenue and Service

The Uber story started much like any other start-up story.  Founders Travis Kalanick and Garrett Camp needed something; they needed a ride specifically.  After experiencing difficulty hailing a cab one evening in Paris, the pair came up with the idea of an on-demand service. Get a ride at the press of a button, and in the year 2010 Uber was born.  Since then it has popped up in over 500 cities and over 60 countries worldwide. Individuals can interact with Uber in two ways, as a rider or as a driver.  Business can also tap into Uber for deliveries.   With what seems like an ultra successful model it is almost impossible to conceive that the business would be beguiled by losses in revenue or customer service issues.  However, with fast paced large scale growth comes growing pains in the form of lost revenue and customer complaints.

It is difficult to measure Uber’s revenue growth because they post both billion dollar revenue and billion dollar losses.  According to an article in Techcrunch.com  by Lora Kolodny, Uber is projected to spend $1.55 for every dollar it makes in revenue.  One may wonder how it is possible to post such losses with such enormous growth.  Uber’s revenue model is predicated on being a pioneer in the rideshare industry.  This means constant testing in the marketplace. In order to have rides, one must have human drivers. The human element added much to losses on the revenue side.  Drivers and employees need to be paid which has lead to an extensive retooling of compensation practices over the years.  With driver compensation also comes lawsuits over employment compensation models.  According to Kolodny, other factors that contribute to losses at Uber are through business expansion into the delivery market, entering the realm of self-driving cars, global expansion, technology development, and fighting off fierce competition in the marketplace.  Uber has attempted to make inroads into each of these categories to improve efficiency and thus reduce cash hemorrhage.  Some of these efforts like the driverless cars, aimed at reducing payroll costs, failed due to noncompliance with state permitting requirements. Kolodny reports that although this was most likely a major hit to the bottom line, investors still see the potential in what these fleets can provide in the future.

Other major cash outlays such as improving technology, and global expansion should prove to be successful moves for the company. For example, Uber has worked to improve its own map technology so that it will not have to rely on outside partners.  Kolodny points to the partnership between Uber and its Chinese competitor, Didi Chuxing, as a way to double down in other areas such as the food delivery efforts, UberEATS. One particular revenue recouping feature that caught media attention is the price surge technology that increases fares based on demand. Uber is currently working on a US patent for that technology. The good news is that revenue is expected to surge past the $5.5 billion dollar mark by the end of this year.  That figure is up from $2 billion in revenue from last year.  According to Juggernaut.com as of 2015 Uber has received equity funding of $8.2 billion and is valued at over $50 billion.

According to Juggernaut.com the value proposition to consumers is push button technology that allows users to call a cab from an application on their Smartphone.  This type of service means no waiting in lines, the ability to track the vehicle, and easily pay for the service. Uber has worked to expand the initial service line by including car options such as Uber Black, or Uber SUV, and Uber designed for children and senior citizens.  Essentially, Uber capitalizes on inconvenience to tap the market.  They provide service to people enjoying nightlife or special functions, travelers or tourists, and ease waiting for a cab in inclement weather.  In an interview by Kara Swisher in Vanity Fair, Co-Founder Travis Kalanick makes it clear what his service goals are, reliable transportation that is “cheaper than owning a car,” and reliability with the push of a button.

Jessi Hemple states in wired.com, one way the company worked to improve service and to achieve goals was to re-brand Uber to reflect its “grown up” status. This re-branding effort was obtained by unifying the brand globally and by creating logos, language, and images in the app that were universally understood.  In response to the difficulty that people experienced with contacting customer service by email, especially in places like India and China, Tess Townsend reports on inc.com that Uber added a new feature.  The new feature is designed to allow users to initiate general customer service inquiries “at the push of a button.” To further promote good service, some cities are currently participating in a pilot program for an emergency phone number.  The emergency number is a direct response to criticism received in the wake of reports of harassment, sexual misconduct, and shootings.  Uber is rolling out the change slowly to ensure accuracy and proper use in test markets. All-in-all the company appears to have its ear to the ground, testing for efficiency and looking for ways to achieve the goal of on-demand service at a price point that makes sense.

References:

Hempel, Jessi. “The Inside Story of Uber’s Radical Rebranding.” wired.com (2/2/16)

Juggernaut.com. “How Uber Works: Insights into Business and Revenue Model.”  (9/24/15)

Kolodny, Lora. “Uber losses Expected to hit $3 billion in 2016 despite revenue growth“. Techcrunch.com (12/21/16)

Swisher, Kara. “Man and Uber Man.http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy. vanityfair.com  (11/5/14)

Townsend, Tess. “Uber Ditches Email for In-App Customer Service.”  inc.com (3/30/16)

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I had an early mid-life crisis. I quit my successful and safe corporate career and started over in pursuit of work with meaning. What a journey it has been! And guess what, I'm not sorry!

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