Business Model Canvas
Business Model Canvas
Business Model Canvas
PREPARED FOR:
MR. NORAZMAN BIN HARUN
DUE DATE:
8 MAY 2020
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Table of content
NO TITLE PAGE NUMBER
1. Executive summary 3
1. INTRODUCTION 4-5
2. KEY PARTNERS 6-8
3. KEY ACTIVITIES 9
4. VALUE PROPOSITION 10-11
5. CUSTOMER RELATIONSHIP 12
6. CUSTOMER SEGMENT 13-16
7. KEY RESOURCES 17
8. DISTRIBUTION CHANNEL 18
9. COST STRUCTURE 19-20
10. REVENUE STREAMS 21-23
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EXECUTIVE SUMMARY
At the end of the business model canvas, we managed to get a lot of new knowledge
about businesses in the real world. This report is dedicated to discuss the businesss
of Uber Technology Inc. Uber launched in 2009, was originally founded as Ubercab
by Garrett Camp, a computer programmer and the co-founder of StumbleUpon,
and Travis Kalanick. Uber is a technology platform. Our smartphone apps connect
driver-partners and riders. In cities where Uber operates, use your rider app to
request a ride. When a nearby driver-partner accepts your request, your app
displays an estimated time of arrival for the driver-partner heading to your pickup
location. Your app notifies you when the driver-partner is about to arrive.
Uber has limited of key partners and relies heavily on its internal design and
engineering team to deliver best experiences to the users. A majority of the costs
come from employing these individuals and supplying the technology needed to
develop and improve its online and mobile software. These two cost items are
necessary in executing its key activities.
Uber customer segments are well-defined group of people both sides the customers
as well as the drivers. For Uber business model has 2 groups of customers. The
driver and the passengers. The firm’s value proposition taps into the platform to
connect drivers and passengers, easiest way around, low cost of luxury and earn
money when people want. Its customer relationship ae strong, as the software and
mobile app are considered trusted partner and resource to many of its users. Despite
is solid value proposition and loyal customer base, a larger of its current users are
not paying for these services. Uber must focus on retaining their current premium
members and converting their free members to premium, fee-based accounts.
Uber’s key resources will be of increasing importance in the near term. In addition,
employing staff with the skills and expertise to grow its premium customer base will
be absolutely necessary if the firm is to be successful in the future.
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INTRODUCTION
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manager and was given between 5-10% of the company. Not long after, he was
named the company’s CEO.
In 2011, the company’s name was shortened to Uber, and in 2012, Uber rolled out
UberX (a service which allowed people to work for Uber driving their own car). Since
then, Uber has been on the cutting edge of a number of transportation services and
technologies, from self-driving cars, to a carpooling service, and even a helicopter
service. In July 2012, the company introduced UberX, a cheaper option that allows
people to drive for Uber using non-luxury vehicles, subject to a background check,
registration requirement, and car standards. By early 2013, the service was
operating in 35 cities. In April 2013, Uber allowed drivers to use their personal
vehicles as part of UberX. Rates were quickly lowered, which caused some
dissatisfaction among Uber BLACK and taxi drivers, whose earnings decreased as a
result of the increased competition at lower rates.
Today, Uber operates in 300 cities across 6 continents, and in 2016 Uber
grossed $20 billion. Interestingly enough, Uber actually lost $2.8 billion on that 2016
gross, showing just how committed the company is to continuing to push the
envelope and develop new services and technologies that will revolutionize the
transportation industry
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Key Partners
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1. Drivers
The main one is the drivers who own all their cars. The drivers form a unique
partnership with Uber in the sense that they are the ones who acquire Uber’s
customers and deliver them their value proposition. The drivers are on the supply
side of Uber and they can join or leave at a moment notice. It is essential to have a
sufficient number of them to be able to provide the customer proposition (timely pick-
up at low cost). They bring their own cars into the value proposition for which Uber
does not have to outlay any capital costs. Without a critical mass of drivers, the
crucial indirect network effects do not kick-in which is why Uber accelerates supply
when they enter a new city. The drivers saves Uber from having a contract with a
leasing company for hundreds of thousands of cars.
2. Investors
Investors is a person or organization that puts money into financial schemes,
property, etc. with the expectation of achieving a profit. Investors make it their
business to spend their profit on Uber which benefits its business dramatically. They
provide funding. The funding helps to develop the functionality, apps, algorithms,
driver-less cars, but is also used for customers acquisition costs and other
expenditures.
3. Lobbyists
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Lobbyists is a person who takes part in an organized attempt to influence legislators.
Lobbyists are important for Uber at this stage of the company. In US, every time
Uber enters a new city, they have lobbyists helping reduce resistance. Uber has left
cities that have put up too high obstacles. The aggregate success (or failure) of their
lobbyists can make a considerable difference to Uber’s trajectory. Once an
established company, this group can move to the group of other partners. In
countries where lobby activities are curtailed Uber needs to coral other support.
From 2015 to 2016, their lobbying expenditures have almost 3-folded to $1.4m per
annum in the US alone. In the first half of 2017, Uber spent almost as much as in the
previous year.
4. Other partners
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Key activities
The Key activities of a business represent what the company must do to make the
business model work. These activities can be producing a product or providing a
service, or a mix of both. Uber is a ride-hailing company that offers the Uber mobile
app, which you can use to submit a trip request that is automatically sent to an Uber
driver near to you, alerting the driver to your location. Despite appearances, Uber is
not a transport provider like its traditional taxi-cab rivals. Rather, Uber provides a
platform on which registered freelance drivers are able to sell their transport services
to consumers. The key activities should revolve around enhancing positive indirect
network effects and reducing negative ones.
For digital product this involves ongoing product evolution and marketing. These
activities, in turn, include recruiting, advertising, etc. A key part of Uber’s business
model is the developing the platform, marketing advertising in their mobile app, and
retention and optimising it algorithms. It’s also has to do significant marketing on a
global and a local lever to driver passenger adoption and ensure an adequate supply
of drivers. Churn apparently is a problem. Uber’s still has the same problem as
traditional taxi companies. It serves lots on unconnected geographical markets.
Singapore, London, Frankfurt. Each has specific attributes and requirements and so
marketing to users in each city, and ensuring that there is the right level of driver
support for the user growth is critical for meeting its value proposition
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Value propositions
In Uber, we can see it serves the customer needs which is some people who seek
for a job they can be a driver, some of people need a cheap ride and easy get a cab,
its become our norms to get fast into somewhere destinations, especially with people
who works in the city, the time is gold, and they need a fast easy call for a ride.
Other value that Uber provide is, Uber is a multi-sided platform and as such it has to
have a value proposition to both sides, the passengers as well as the drivers. For
riders, which is in this context called customers, the value propositions are that it’s
the best way to get around, to be able to call a ride with one tap 24/7 and track the
driver arriving. For drivers, it’s the opportunity to earn, the freedom of choosing their
work hours and the ease of getting started. All propositions fall into what economists
call reduction of search costs and transaction costs which is the predominant feature
of multi-sided platforms.
In detail, for the customers this means the fast pickup become shorter than take a
cab which is take 3-5 minutes often. The Uber apps make the customer call for a ride
in a just a tap from the app. It’s made the customer get the ride in easiest way and
the customer doesn’t have to tell the driver where to go, all the information is in the
app that drivers and customers use. The reason for using Uber vs Taxis is because
of the time savings and simplicity of the service. Their app connects riders and
drivers through GPS and alerts the closest driver.
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2. Low cost luxury
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Customer relationship
Customers' relationships with Uber are highly automated, occurring mostly through
the Uber smart-phone app. The app allows passengers to review drivers and vice-
versa, providing a safer experience for both parties. Drivers undergo a vetting-
process to ensure that they are suitable for the role and are not, for example, sex-
offenders who may jeopardize the safety of passengers. To further ensure a smooth
relationship with both passengers and drivers, Uber provides extensive online guides
to their services for both types of customer, as well as offering customer service
phone lines and web chat facilities.
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Customer Segment
Customer
segmentation is the process of dividing customers into groups based on common
characteristics so companies can market to each group effectively and appropriately.
In business-to-business marketing, a company might segment customers according
to a wide range of factors, including: Industry. Number of employees. Using different
types of market segmentation allows you to target customers based on unique
characteristics, create more effective marketing campaigns, and find
opportunities in your market. Segmentation involves dividing population into groups
according to shared characteristics, whereas targeting implies choosing specific
groups identified as a result of segmentation to sell products. Positioning refers to
the selection of the marketing mix the most suitable for the target customer segment.
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behaviour, interests, and motivations. An organization can choose to target a single
group or multiple groups through its products and services. By matching the
customer segment to a business value proposition, a company can achieve a more
lucrative revenue stream. Hence, it is fundamental for an organization to understand
the trade-off between different customer segments and carefully select which
segment it wants to target. Then, the organization must create a value proposition
and employ a business model best suited to servicing their chosen customer
segment’s needs.
An organization can categorize consumers into distinct groups if they have the
following characteristics:
1. The customer groups have a particular need which justifies the creation of a
product to match this need.
5. Each consumer group feels strongly enough to pay for a different version of
the product or service, tailored to their preferences.
As a multi-sided platform business, Uber will benefit from segmenting both sides the
customers as well as the drivers. For Uber business model has 2 groups
of customers. The driver and the passengers. In a traditional taxi business model
canvas, the customer segment is purely passengers and drivers are part of the
company. Uber offers its service to passengers and drivers. The passenger
segments can display narrower by demographics, type of usage and socio-economic
characteristics. The first one is Uber’s customer segment are drivers. Instead of
employing drivers and having an asset-heavy company, Uber uses freelance drivers
which brings many legal battles worldwide. Driver also divide into users who make a
choice from a range of possibilities. For Uber as a full-time job solution, and those
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who leverage it in addition to their main job. This is the segmentation of Uber first
customer segment:
Uber for kids is a special service from Uber dedicated for parents who want their kids
to reach home from school in an Uber cab. While another special service
from Uber is targets senior citizens. As per the statistics, Senior citizens make for up
to 30% to 40% of total rides in many cities. This made Uber have some special
features for seniors and hence attract more senior citizens on the platform. Check
out this post from fortune: Why senior citizens are flocking to Uber. All of these
customers connected into one network which is the Uber app. Here Uber has reached
well beyond the traditional source of recruits for taxi drivers. They made driving
accessible to anyone with a smartphone, a smart car and a smart appearance. As
well as anyone who’d like to earn some cash whenever they want to.
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Customer (passenger) segmentation:
Micro-Geography: home, work, typical locations (the Uber app will track your
location even if it’s off unless you change the default settings)
By usage patterns: regular, infrequent, etc
Offering used / type of usage
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Figure 1 shows type of cars used by Uber for different type of customer segment
Key
resource
Every business model requires Key Resources. Your resources allow your enterprise
to create and offer a Value Proposition, reach markets, maintain relationships with
Customer Segments, and earn revenues. Different Key Resources are needed
depending on the type of business model. A microchip manufacturer requires capital-
intensive production facilities, whereas a microchip designer focuses more on human
resources. Key resources can be physical, financial, intellectual, or human. Key
resources can be owned or leased by the company or acquired from key partners.
For Uber, Uber has three key resources without which the whole thing falls apart.
First, it has the platform. Some of Uber’s key resources include its network which is
the drivers and customers. These connects Uber to drivers and passengers and both
to each other. With Uber applications for both the driver and customer has been an
integral resource.
Then, for intellectual resources, Uber’s focus on improving its algorithms and data
analysis. Their analysis is also directed towards the growth of their network. It has
the algorithms that do the heavy lyfting. These are the pricing and routing algorithms.
The pricing algorithms are used to balance supply and demand in the market and
help ensure that there is always enough capacity available to meet demand fulfilling
its core value proposition.
The routing algorithm then focuses on ensuring that the customer wait time is as
short as possible and by implication reduces the deadhead time for drivers as they
are either waiting for, or driving to a new job. Other than that, in this case, uber
doesn’t need to provide car, because of the network platform that makes people who
want to be a driver, they can use their car, and it’s a key resource for uber to raise
money without providing cars. In addition, from physical resources, Uber makes
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money by running a ride-hailing service, and takes a cut of the fares. The company
also has a food order and delivery business, Uber Eats, and a freight shipping
business, Uber Freight. These work similarly to ride-hailing, except that they match
people with delivery drivers and freight shippers, respectively.
Distribution Channel
A distribution channel is a chain of businesses or intermediaries through which a
good or service passes until it reaches the final buyer or the end consumer.
Distribution channels can include wholesalers, retailers, distributors, and even the
Internet. A distribution channel is a path by which all goods and services must travel
to arrive at the intended consumer. Conversely, it also describes the pathway
payments make from the end consumer to the original vendor. Distribution channels
can be short or long, and depend on the number of intermediaries required to deliver
a product or service.
Uber started to use many different channels as it grew, but early on the focus was in
moving from city to city to get enough drivers and users signed up. Uber largely
depends upon word of mouth and social media to channel its brand and traffic which
is incredibly important in overcoming adoption fear and crossing the chasm from
early adopters. They also wanted to get them using the app so there was a strong
enough market to make it work. Increasingly with a market in each city.
One of Uber’s huge strengths has been the amount of money that it has raised which
has given it a huge amount of earned media which in turn has driven passenger and
driver growth. Some of their channellings are also utilized through voucher, digital
ads, paid ads as well as public media coverage which is being used to rectify their
flawed image.
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Cost structure
Cost Structure defines all the costs and expenses that your company will incur while
operating your business model. This final step in the process is important, because it
will help your team decide whether to pivot or proceed.
To define a cost structure, you need to define every cost incurred in relation to a
cost object. The following bullet points highlight key elements of the cost
structures of various cost objects:
Variable costs: Staff wages, bonuses, payroll taxes, travel and entertainment
Variable costs: Costs of products and services sold to the customer, product
returns, credits taken, early payment discounts taken.
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For many online platforms such as Uber, the biggest cost element is customer
acquisition costs (CAC). Customer acquisition cost is the best approximation of the
total cost of acquiring a new customer. In CAC is included such as free vouchers,
one-off subsidies, digital advertising, etc. In Uber cost structure, there are salaries for
the software engineers, the sales, and marketing teams and the country and city
managers. And then there are the driver payments. Uber gets paid upfront, keeping
the money before paying drivers each week to ensure that the payments are valid.
In addition, Uber’s biggest cost is cost of revenue, a category that includes insurance
costs related to ride-hailing, incentives paid to drivers, and costs incurred with
carriers for the Uber Freight trucking platform. In 2018, Uber spent $5.6 billion, or
50% of its revenue, on this category. Cost of revenue increased by $1.5 billion, or
35%, from 2017 to 2018, in part due to an increase in “excess driver incentives.”
Uber describes these incentives as any amount paid to a driver that exceeds the
revenue earned by that driver (for instance, if a driver’s earnings from a trip exceed
the fare for that trip). Excess driver incentives jumped by about $300 million in 2018
from the previous year, largely due to Uber Eats.
While most driver promotions go into cost of revenue, rider discounts go into Uber’s
next biggest expense, sales and marketing. In 2018, Uber spent $3.2 billion, or 28%
of revenue, on this category, up $627 million or 25% from the previous year. The
company attributed this increase to $1.4 billion in discounts, promotions, refunds,
and credits for customers, up from $949 million in 2017. Uber also puts driver referral
bonuses into sales and marketing, and reduced that expense to $136 million in 2018,
from $199 million in 2017.
A lesser but still significant expense for Uber is research and development, which
includes the company’s efforts to develop self-driving cars through its Advanced
Technologies Group. In 2018, Uber spent $1.5 billion on research and development,
or 13% of revenue, up from $1.2 billion in 2017. Of that $1.5 billion, $457 million was
spent on Uber’s autonomous vehicle research, up from $384 million 2017.
It is assumed that the ride-hailing industry is not going to be very much segmented
other than the location itself. Some experts believe this will lead to a winner-take-all
of.
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REVENUE STREAM
Revenue Streams is the building block where the cash comes in. There are many
ways to generate revenue. Think of usage or subscription fees, sales, leasing,
licensing, brokerage fees for advertising. This is transactional revenue (one-time
payment) or recurring revenue. Where the value proposition generates ongoing
payments. Depending on your business model you can have different revenue
streams. Two-sided business models can generate revenue from both the demand
and supply side. Think of online marketplaces or comparison websites.
Revenue in Uber’s business model is pretty simple. Uber moves the traditional taxi
meter from the car to its servers which is tracking via GPS technology on the phone
and then charges the passenger based on the miles travelled and whatever surge
multiplier is in effect. If the passenger uses a different Uber brand the same process
applies but with different pricing. Fees on fuel, toll, safe driver’s fees, insurance, etc.
are also part of its revenue.
Revenue stream is also mean how does the company make money from each
customer segment. In Uber company, it makes money especially from Uber Ride,
and then Uber Eats (food delivery services), Uber for business, Uber freight and
Uber Health. According to the Wall Street Journal, this is how the Breakdown of Uber
revenue (Q2 2018) looks like:
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Figure 2 shows Breakdwon of Uber Revenue
Meanwhile in Uber Ride, Uber’s consumers utilize its app to access cabs for a
variety of reasons. Some of which normally include them not owning a car or
choosing not to use one. Drivers make about 75 % of the total ride fare, and Uber’s
commission is about 25 %. However, the effective Uber’s commission can go as high
as 45 – 55% if it’s a short distance ride due to booking fees and minimum fare
charges. The trip fare for Uber Ride will incorporate:
Booking fees – it’s about $1-3 based on location in the United States.
Distance per mile fare – Customers are charged after a fare distance in
Local Currency per mile of travel. The charges tend to vary depending upon
the type of cab and location.
Travel time fare – Customers are charged after free X minutes in Local
Currency per mile of travel. The charges tend to vary depending upon the
type of cab and location.
Taxes will be in accordance with location.
Wait Time fare – If you make the driver wait for an additional period of time,
additional charges will be applied.
Appetite Fee – This is a fee that Uber has recently begun charging its
customers. This mostly depends upon the previous data Uber has of the
customer.
Apart from its well-known Uber Ride Share Service, Uber has begun to offer a
myriad of services to its customers in order to evolve within the changing
marketplace and attract newer demographics. Some of the more prominent ones are
Uber Eats. Uber has become the parent company of its Uber Eats branch and now
provides consumers with the opportunity to order from their favourite restaurants
online. Uber’s delivery partners will deliver the food to the customer’s doorstep.
These delivery partners utilize their app to deliver their order as fast as possible with
impeccable quality.
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This has proven to be beneficial to restaurants as well. They can raise their profiles
and become more visible in their online platform. Uber Eats is comprised of 3
revenue sources:
Next is Uber for business, it’s a ride-sharing service aimed at business customers.
Businesses can manage rides, send multiple rides and book rides even 30 days in
advance for their clients or employees. Furthermore, is Uber Health. Uber
has partnered with different healthcare organizations. It did so to provide patients
with different ride scheduling options. Professionals in the Healthcare industry can
now book rides for their patients and give them access to their required care.
Additionally, is Uber Freight. Uber Freight is a business-oriented transportation
service app. It provides its customers with a convenient way to handle
their transportation goods.
It is a free app that allows shippers to use a button and book whatever goods they
want to ship. Its mechanism is built to give an insight as to the trip activities along
with his upfront cost and other expenses.
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