Uber On-Demand Business Model

Uber On-Demand Business Model

Uber disrupted the taxi industry with a workforce that is essentially any person with a smartphone and a car. Location-aware smartphone apps bring drivers and passengers together, while in-app accounts make the cashless payment process effortless. By simply opening the Uber app and pressing the middle button for several seconds (a long press), customers can order a ride to their current location, selecting the kind of car they want. Payment is automatically charged to the credit card on file with receipts via e-mail.

The Uber concept developed in response to scarcity of taxies. It started on a snowy Paris night in 2008 when the two founders could not get a cab. They wanted a simple app that could get them a car with a tap. On June 1, 2015, the entrepreneurs celebrated Uber’s fifth anniversary and announced that the company had grown into a transportation network covering 311 cities in 58 countries in North and South Americas, Europe, Africa, Asia Pacific, and the Middle East. By mid-2018, their global presence had grown tremendously over the past few years, and to achieve this phenomenal growth Uber has invested in new and developing technologies and partnerships. For example, the company partnered with Carnegie Mellon University to build robotic cars and purchased deCarta, a 40-person mapping start-up to reduce its dependence on Google Maps.

Airbnb Access-over-Ownership Business Model

Another disruption to a traditional industry occurred when Airbnb blindsided the hotel industry. Airbnb—probably the most global of the new startups—allows anyone with a spare apartment or room to run their own bed and breakfast by giving them a technology platform to market themselves to a global market. Just click a few buttons on Airbnb’s website and type up a brief description of your property and its amenities, and your spare room can become a new source of income! By 2016, Airbnb hosts had accommodated 40 million guests in its 1.5 million listings in 34,000 cities in 190 countries. In mid-2018, Airbnb had accommodated over a whopping 150 million guests in 4 million listings—including 1,400 castles—in 65,000 cities and 191 countries around the globe. In comparison, Hilton, InterContinental, and Marriott, the largest hotel chains in the world, have less than one million rooms each.

Business Success of Uber and Airbnb in terms of Company Valuation, Growth, and Globalization

The ride-hailing app Uber and the housing rental app Airbnb are two of the most valuable start-ups, as displayed in Figure 1.1. Valuation of a company at its early stages is based heavily on its growth potential and future value. In contrast, the valuation of an established company is based on its present value, which is calculated using traditional financial ratios and techniques related to revenues or other assets.

FIGURE 1.1 Innovative business models of Airbnb and Uber have been extremely successful.

Uber’s massive market value—estimated at $60 billion—is greater than 80% of all Standard & Poor (S&P) 500 companies, many of which have been around for 25, 50, or 100 years. Currently, investors value Airbnb at $31 billion—rivaling that of hotel giant Marriott International.

To achieve their phenomenal local and global growth, both Uber and Airbnb have used some interesting technology-enabled strategies. For example, Uber has been aggressive in going global. It uses “Ambassadors” who are paid to recruit new drivers from its competitor Lyft using an automated hiring, recruitment, and onboarding system that is far more efficient than the process used by traditional taxi companies. Ambassadors also offer free rides to new customers to advertise Uber by word of mouth in new cities, and drones are used to recruit new drivers and customers around the globe! Once a customer base has been established, Uber founder, Travis Kalanick, then actively lobbies governors worldwide to write new laws that favor Uber’s business model.

However, globalization hasn’t all been plain sailing for Uber. Since 2011, when Uber first expanded its services outside of the United States, Uber has encountered resistance in several countries such as China, Russia, and Southeast Asia. Despite setbacks, it has been able to salvage market share in these countries by retaining a substantial share in joint ventures with local rivals such as Yandex.Taxi (https://taxi.yandex.ru) and Grab (https://www.grab.com/sg). More recently, Uber has shifted its focus to countries where it is convinced it can win, including India, Middle East, and North Africa, and has a particular interest in Saudi Arabia where Uber is focusing on recruiting female drivers who have only recently been allowed to drive there. Despite its optimism that its business model will be successful in these parts of the world, local competitors there also present undisputed barriers to Uber’s ultimate success. For example, Uber sold its Chinese business to Didi Chuxing in 2016, putting an end to its very expensive, high-stakes battle over the lucrative Chinese market.

On the other hand, Airbnb growth strategies include developing new services to enhance their guests’ travel experience, such as creating “Airbnb Plus – a listing of homes verified for quality and comfort” and identifying “Superhosts” who have consistently been rated highly by previous guests. They have also added “Travel Experiences” to allow their guests insider access to unexpected places together with a list of restaurants that have been recommended by many of their guests. But, Airbnb’s most effective growth strategy has been increasing the number of countries where its services are offered. For example, since Airbnb unveiled its French platform in 2012, it has gone from strength to strength with a staggering 8.5 million French people using Airbnb properties between June 1 and August 31, 2019.

This strategy, however, has presented Airbnb organizers with some very interesting challenges that include handling a total of 65 different currencies, translating host listings between countries, dealing with foreign law agencies, and offering country-specific sign-up methods. For example, although Facebook or Google accounts work in the United States, these are not the best sign-up methods in other parts of the world, and just by allowing travelers to use Weibo (https://www.weibo.com/us) and WeChat (https://www.wechat.com/en), Airbnb is able to grow its customer base in China by 700%.

Uber and Airbnb Retool their Digital Business Models to Build Resilience during the COVID-19 Pandemic

While globalization has presented highly valued start-ups like Uber and Airbnb with huge opportunities for growth, the COVID-19 pandemic presented them with some daunting business challenges as people around the globe were told to stay home. In the early days of the pandemic, both Uber and Airbnb were faced with a significant downturn in demand as far fewer people took rides or sought accommodations for vacation or business, during COVD-19 lockdowns and Airbnb’s plans to file a request to ‘go public’ were waylaid by pandemic-related turmoil in the stock market. This initial reaction has been followed by ongoing government and customer concerns about general health and safety issues associated with the pandemic. As a result, on-demand and sharing economy companies have been forced to make significant adjustments in response to unforeseen events and recent data show that their businesses are growing again thanks to agile thinking and creative adjustments they have made to their business models. For example, Airbnb made efforts to increase the variety of the accommodations they offer and use technology to broadcast their new offerings. In June 2020 Airbnb reported that bookings for entire homes and cabins and cottages in secluded areas increased significantly causing their gross booking value to grow for the first time since February 2020 and on August 19, 2020 it filed with the Security Exchange Commission (SEC) to ‘go public’. In another creative move, Uber transformed itself from a solely ridesharing venture to a food delivery service. Consequently, their new mobile app ‘Uber Eats’ has become their key revenue generator amidst COVID-19. In creating Uber Eats, Uber offered restaurants a new way to connect with their customers and inject a modicum of positivity among the bad news plaguing the world during and after COVID-19. In quickly reacting to the unforeseen events of COVID-19, Uber and Airbnb have demonstrated the power of on-demand and sharing economy companies to make swift and significant adjustments to their business models by digitally transforming themselves.

At the end of the day, it is clear that technology plays a huge part in both enabling innovative products and services to facilitate local and global success by allowing gig workers and consumers in the on-demand and sharing economies to seamlessly connect with business services 24 hours a day, 365 days a year despite important cultural differences and the challenges of COVID-19.

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