By: Colleen Sheedy
“Hey, let’s just Uber” is a popular sentence uttered by most students at Bryant University on the weekends. Living on campus can create a serious struggle for navigating around Rhode Island and trying to get from one place to another. Whether we are trying to get to Blackie’s Bull Dog Tavern on a Friday night for some sweet potato fries, or we need to make a run to the closest Target, we can find our way there with the touch of a button. We can just “Uber.” Yes, Uber is now a new verb that is understood and used by many millennials. But what does Uber mean to us here at Bryant? Uber is a lifesaver for college students who do not have their own form of transportation on campus. Not only is Uber a great resource, but their business model also proves to be a resource yet again for business students at Bryant.
In late 2015, Uber was among the most high-profile new companies of its generation. As they connected passengers to drivers by smartphone technology, they instantly satisfied the supply and demand for the transportation markets. Uber was originated by two entrepreneurs in March of 2009 and it took off instantly, now bringing a revenue of over $20 billion as of 2016 and is growing exponentially. But, why did these two young business students enter this market? Why would they want to compete with taxi services and public transportation that has been around for decades? Uber was created because they believed that they could serve their target market better than existing companies.
It is safe to say that Uber did, and still is, going through obstacles to try and overcome the taxi markets. With their impressive way of retaining earnings, they face their competitors with incredible confidence and determination that they will be taking over the market very soon. It is easy to categorize Uber’s business model as genius based off their plan to make a profit. As many young business students at Bryant understand, the hardest thing about a startup company is getting through the first few years. It is unlikely that in the first year or two you will see an overall profit. It takes a significant amount of capital and advertising to get your name out their while paying operating expenses and overhead costs. Uber did not have to face this problem.
Let’s bring it back to freshman year Macroeconomics class. Supply and demand is the overall concept of a business entering a market. Achieving the needs for supply and demand while maintaining a steady equilibrium can be a challenging task for a startup business. It is difficult to get a sense on how much supply to produce while looking at the current demand in the market. Why wouldn’t Uber have this common issue? Uber’s business model is reliant on the supply and demand curve in the market. If there is demand for rides, the supply for drivers will then reach that amount. Without the demand for drivers, the supply for drivers is not needed. But, if there is no demand during a certain time period, then Uber does not necessarily lose any money because they will simply not have the need for their drivers during that specific time period. In times of no demand for drivers, Uber does not pay these drivers for sitting around and waiting to pick people up.
It is an unavoidable factor that there are good times and bad times in an economy or specific market that effects the individual companies. Now that we understand that Uber can safely survive these “bad times,” how do they exceed during the “good times”? Uber’s surge pricing model is the bread and butter of their income statement. When “Surge Pricing” was put into effect, Uber could raise the price anywhere from 1.5x to 7x the normal price. This was a way that Uber made exceeding profit for not only the company itself, but their drivers as well. This was an innovative and finically intelligent way to bring supply and demand to an equilibrium when demand exceeded supply.
Even though Uber has some battle wounds through regulation processes and competing with the Taxi market, this nine-year old company has maintained tremendous growth throughout the last decade. The business model of Uber is simple and reliable and is also a brilliant way to make a profit with limited riskiness. There have been competitors like Lyft and Sidecar that have come into play within the last five years. Despite this, Uber has not only created a new form of transportation but has created a new culture in and of itself. So next time you hear someone say, “let’s Uber” and not “let’s Lyft” or “let’s get that app where we can request a ride,” remember that this whole culture was started by two young entrepreneurs that wanted to make some money by matching up supply and demand in the transportation market.