Uber SWOT Analysis

Uber SWOT Analysis

Uber is certainly a company that needs no further introduction — but how does the company perform when it comes to its strengths, weaknesses, opportunities, and threats in the rising ride-sharing market? So, we shall explore the Uber SWOT Analysis.

Starting first with its popular ride-hailing service before expanding into other areas such as food delivery, as well as freight services and logistics, the company has carved out a niche for itself in the transportation industry. However, many people don’t understand how it managed to achieve this feat. Our Uber SWOT analysis seeks to explain this by examining the strengths, weaknesses, opportunities, and threats to the Uber business model.

Brief History

Uber is a ride-hailing service that can be said to be the prototype of the industry, and certainly, one that has changed the way we view transportation since its inception in 2009. The company achieved this by offering users the option of choosing mobility-as-a-service. This simply means that customers can temporarily rent the services of a vehicle for a stipulated amount of time or distance without having to go through the hassles of ownership.

This revolution started major disruptions within traditional modes of transportation, such as public transportation and taxi services. This eventually led to the creation of the term Uberization. This word has become synonymous with the process of causing major disruptions to an entrenched sector or industry through the integration of certain technological advancements, such as mobile devices or IT services.

In keeping with this trend, the company soon expanded its services to include other successful products, such as Uber Eats (a food delivery service) as well as Uber Freight (a trucking and logistics service). With the way Uber changed how we move around, it is only fitting that we take a closer look into some key elements of its business model, such as its strong points, shortcomings, future potential, and lurking dangers.

Uber Strengths

Here are some of the strengths of the Uber company.

Its Ride-Sharing Platform Is the Largest in the Industry

Even though the Uber ride-hailing service is not the only product offered by Uber Technologies, it has historically made up the largest share of its annual revenue (though Uber Eats has recently taken this position). Therefore, the fact that the product is also the largest ride-hailing service in the world gives the company a significant advantage over competitors.

This allows them to maintain a larger fleet of vehicles than virtually all other major industry players, thereby carving out a larger market share, attaining greater area coverage, and lowering estimated waiting times. This makes Uber popular among regular ride-hailing users, who are attracted to the quicker travel times and cheaper prices offered by Uber’s rides over traditional taxis and other ride-hailing platforms.

First-Mover Advantage

As the first ride-hailing service with a widely available app, Uber enjoys some of the primary advantages associated with the first-mover phenomenon. Some of these benefits include strong customer loyalty, a persistent association of the brand name with the industry, and additional time and experience in the market to perfect their product.

Of course, this position as the sole service provider within an industry does not last forever, as other competitors quickly crop up to capitalize on the new market. However, by this time, Uber had carved out a large enough market share and brand equity to still command a top spot within the industry.

The Company Enjoys Strong Brand Recognition

Some brands go beyond simply becoming household names. They form an essential part of the current business ethos and stand at the forefront of some of the most defining technologies of each generation. Companies such as Netflix, Google, Amazon, and, of course, Uber can be considered as such.

The brand equity afforded by such a position allows a company like Uber to leverage strong brand loyalty, widespread brand awareness, and a great degree of positive brand association. While this can be explained to some degree by the first-mover advantage enjoyed by the brand, concerted efforts on the part of the company towards promoting positive rider experiences and expanding their services to underserved areas can also explain their widespread popularity.

Unique Pricing System

Aside from complaints about the long travel times and the famous unreliability of conventional taxis, they are also a more expensive option than Uber rides. This is because taxis use a pricing model which charges passengers per mile while the vehicle is moving and per minute when it is motionless.

On the other hand, Uber uses a unique dynamic pricing algorithm that considers several variables when calculating the total charge for a trip. Some of these variables include distance, time, current demand for rides, as well as traffic. Despite the complicated nature of the algorithm, it offers cheaper prices than taxis.

It Offers Cheaper Prices Than Its Competitors

Not only is Uber cheaper than traditional taxis, but it is also cheaper than most other primary ride-hailing services, such as Lyft, DoorDash, and so on. This is likely because the company commands a larger fleet of vehicles and enjoys a larger market share in terms of regular users, allowing them to operate on smaller margins which are then passed on to riders as lower fares.

Advantageous Contractual Agreement With Drivers

Though the type of contract signed between Uber drivers and the company has been described as unethical — and, in some countries, considered illegal —, from a business standpoint, it is pretty compelling. Drivers (particularly within the U.S.) who partner with Uber are considered to be independent contractors instead of full-time employees. This means that they are not entitled to an array of employee benefits and support that may have otherwise been available to them.

This helps Uber keep their operating costs relatively low since they do not have to cover the costs of these benefits. This may also be advantageous to drivers since several studies show that independent contractors make as much as 20 to 40% more per hour than full-time employees as well as enjoy a more flexible work schedule. Within the U.S., they are also categorized under a separate tax bracket and are therefore exempted from several types of tax.

Revolutionary Business Model

Another strength that Uber has is the innovative nature of its business model. It was the first company to offer ride-hailing as a form of mobility-as-a-service business model, combined with its unique dynamic pricing system as well as a low-cost contractual agreement with drivers. The combination of these key features, as well as several other factors, allow the company to effectively disrupt the traditional taxi public transport system.

Another key feature of the business model is that it offered a degree of convenience that was not available with the current taxi system, or which was financially out of the reach of most potential customers. By offering affordable, reliable, and quick transportation services, it was obvious that Uber would quickly carve out a niche for itself within the market.

Dual Rating System

The ride-hailing industry is a business in which customer experience means everything. Uber has had its fair share of scandals regarding rider experience with their services, especially in the rider and driver interactions. One of the strategies the company has used to combat this is the introduction of a dual rating system, which relies on mutual assessments made by both the driver and the customer in terms of their experience during the ride.

This creates an incentive for both drivers and passengers to be on their best behavior during the trip. This is because drivers with higher ratings will obviously see their services being utilized more often. On the other hand, customers who are notorious for causing negative interactions will be rated poorly, and we find it hard to find a driver who will accept their ride request or may even find themselves banned from the platform itself.

Low Operating Expenses

Another feature of the platform is the ability to keep its operating expenses relatively low for a company of its size. This is because, in addition to hiring drivers as independent contractors (and therefore avoiding several employee benefits), the company is also not charged with maintaining vehicles within its fleet. This is strictly within the jurisdiction of the drivers and allows Uber to keep its operating expenses relatively low.

The company also does not have to worry about purchasing new vehicles as the drivers provide all Uber vehicles. Therefore, Uber has a virtually unlimited fleet of potential vehicles that they do not have to own, fully insure or maintain and can simply hire for a fee.

High Market Valuation

Uber is the most valuable ride-hailing service in the world and one of the most valuable companies in the world, with a market capitalization of $70 billion. This has several advantages, such as allowing the company to attract investors as well as low-interest loans. It also increases consumer confidence in both the products and its stock, therefore driving further growth.

Uber Weaknesses 

Now, let’s take a look at some of the weaknesses of Uber company.

Frequent Scandals

For better or for worse, Uber is a company that has a hard time keeping its name out of the news. The company has been beset with a variety of scandals since the onset, some of which have been minor inconveniences and others that have threatened its very existence. For example, the company has been accused of disrespecting local regulations. It does this by lobbying for public support and pushing for reforms after breaking the law instead of before it.

Another set of scandals that rocked the company was a series of sexual harassment allegations, both among employees of the company, as well as between drivers and riders. Some other scandals surrounding the company include accusations of tax evasion, unethical labor practices, predatory pricing during crises, and so on.

The Company Has Failed to Achieve Consistent Profitability

Despite being the most successful ride-hailing service in the world and the earliest player to enter the industry, Uber has long been plagued with issues of profitability. In fact, since its inception in 2009, the company has failed to turn a profit in any quarter up until the second quarter of 2022. According to some analysts, even this was achieved after a cumulative loss of $32 billion (over half of which occurred within the last three years) and some deceptive bookkeeping.

That has led some industry experts to question why a company with such a large market share, high annual revenues, over $25 billion in investor funding, and widespread popularity would post consistent quarterly losses. Some possible answers include:

  • The company has spent billions of dollars in various acquisitions to eliminate competition and improve its services. A significant number of these acquisitions have failed to achieve profitability in their own right, further dragging down the company’s bottom line.
  • Uber Technologies has also had significant failures in several investments despite its successes. Some of these include failed expansion plans within regions such as China in Southeast Asia and the failed self-driving vehicle start-up Aurora, which cost the business roughly $2.5 billion.
  • Another reason the company has struggled to maintain profitability is the high degree of competition within the sector. Uber is currently operating in over 70 countries around the globe, each of which has local competitors which seek to undercut the company in terms of pricing and marketing. This means that Uber has to incentivize customers through lower prices as well as discounts and coupon offers, further hurting their already struggling bottom line.
  • Significant legal fees, fines, as well as high lobbying costs to various regulatory and governing bodies may also be one of the reasons that Uber spends so much money.
  • Another reason which has been suggested to explain why a company such as Uber has had such a hard time turning a profit is that it is merely a product of its time. It was founded during a period of historically low-interest rates as well as reckless venture capital investments spurred on by the boom of mobile phones, the Internet, and other forms of information technology. This means that the company has never had issues with funding, leading to what some would call monetary irresponsibility.

The Uber Business Model Is Easy to Imitate

Even though Uber Technologies was the first company in the ride-hailing industry, it did not remain alone for long. The Uber business model is relatively easy to imitate, and it is cheaper for competitors to build on a business model which Uber has already designed. Therefore, within several short years of opening, the company faced numerous competitors, leading to a destructive price undercutting pattern and greater market share competition.

Unethical Employment Practices

As we mentioned earlier, Uber employees are classified as independent contractors instead of full-time employees in several regions, such as the United States. We’ve mentioned the benefits of this, such as flexible working hours, favorable tax exemptions, as well as higher average earnings in certain situations.

However, there are also some shortcomings of this practice as well. Prominent among these is the fact that independent contractors are not entitled to a wide range of employment benefits such as health insurance, better working conditions, unemployment support, retirement benefits, and profit-sharing benefits. This has led some to describe Uber’s hiring process as being predatory and even exploitative, leading to lower worker satisfaction and low employee retention.

Low Customer Loyalty

Despite its large market share and undoubtedly impressive brand equity, Uber has struggled with customer loyalty due to a business model which does not promote a high degree of customer interaction on a personal level. To some degree, this has to do with the way the business model is structured, with many users simply seeing the service as an app that allows them to hail a ride and not as a company deserving of their loyalty on a personal level.

Also, many users of the app are millennials and professionals who have no issues switching to another platform that offers them lower prices or better services. The company has long tried to battle this by introducing various forms of customer loyalty benefits, such as VIP programs.

Privacy Concerns

Like many tech companies, Uber has struggled with privacy concerns and the ethical usage of customer data. Obviously, a service like Uber has large amounts of data concerning where their riders go and how often they use the service. This is only further exacerbated by the fact that the company has already suffered several major data breaches, with the most recent breach occurring in 2022. It is also worrying that Uber has a history of attempting to cover up these security lapses and prevent them from becoming known to the general public.

Unpredictable Business Model

Despite the Uber business model’s evident brilliance, investors have been worried about the unpredictability of its revenues, profitability, and operating expenses for a while. The company has swung between periods of large and narrow losses, with brief quarters showing profitability. This is certainly not a positive factor for consumer and investor confidence and may be a sign of the underlying cracks within the business model.

Uber Opportunities

Now, let’s discuss the few opportunities that Uber Technologies can capitalize on to improve its business model, customer experience, and revenue.

Improving Their Reputation Through Greater Accountability and Performance

Uber started as one of the most positive and hopeful tech start-ups of its time. However, frequent scandals and a failure to live up to the expectations of both investors and customers have left its image dented and its reputation one of mixed feelings.

Despite all this, the company has taken several measures to improve its reputation and its relationship with its drivers and passengers. Some of these include the use of loyalty bonuses, better hiring practices and working conditions for drivers, stricter user privacy laws, and greater compliance with local regulations.

The company’s rapid response to complaints of harassment, and racial and gender discrimination among state drivers, as well as improving driver-rider relationships through the use of a rating system or all positive indicators that it is on the right track to regaining the trust of the public.

Investing in the Future

One of the several positive things which could be said about the Uber corporation is that it is not scared of investing in the future. The company has invested heavily in the past in various forms of revolutionary transportation technology, such as driverless vehicles and air taxis.

Admittedly, this has come with significant financial risk, and the company has lost heavily in these developments. However, Uber is not one to be deterred and has continued to invest in future forms of transportation, albeit in a more pragmatic and financially conservative manner. Their position as the foremost ride-hailing service and their large market share makes them the ideal candidate to usher in a generation of improved, tech-driven transportation.

Expand Its Operations

Despite its position at the top of the industry, Uber is still heavily invested in expanding its services to a number of new frontiers and underserved areas. For instance, it is well known that the company invested heavily in the Asian market, especially in areas such as India and China. The company has also made head routes in various South American and European countries, albeit with mixed results. Finding an effective strategy to capitalize on these regional markets will probably be the next step in pushing Uber Technologies to the next level.

Another area that Uber can consider investing in is suburban areas, which are famously underserved by taxi services, making such services unreliable and expensive. By offering such areas a reliable, cheap, and quick transportation option, the company has a chance to carve out a niche for itself within the market.

Another advantage of expansion is that you do see the estimated waiting time for Uber services. One of the primary drivers behind consumer preference for Uber over traditional taxis is the quickness of their services, with the median wait time for an Uber vehicle being less than five minutes in most areas.

Investing in Green Technology

This point can be applied in two ways. First of all, studies have shown that electric vehicles are cheaper than petrol-driven vehicles in the long run and are, therefore, more cost-effective for drivers. This is especially so due to subsidies offered by governments such as the United States on the purchase of electric vehicles.

Also, many consumers are becoming more aware of the impact our activities have on the environment, as well as the responsibilities and rules of corporations in mitigating climate change. Therefore, by supporting green technologies such as promoting the use of electric vehicles, Uber can capitalize on this current trend and improve their brand image among their user base and potential customers.

Strengthen and Diversify Their Products

As we mentioned, even though the ride-hailing service is the most iconic product offered by Uber Technologies, their Uber Eats and freight services are also attracting significant attention as well. Revenue from the Uber Eats service has more than tripled in the last three years, and has recently surpassed its ride-hailing service as the largest generator of revenue for the company.

Their Uber Freight division is also another area that has seen significant growth in the past few years. Even though it is not yet a primary source of revenue for the company, it is fast becoming one of the leading disruptors within the road-freight ecosystem and, in 2018, was the most downloaded trucking app.

Therefore, this is an indicator that the company should look into diversifying into niche transportation markets. For example, offering ambulance services, pet transportation services, as well as other forms of mobility-as-a-service depending on consumer demand and the favorable nature of the business model. One way the business can achieve this is through strategic acquisition of various competitors or other businesses.

Uber Threats

Finally, let’s take a look at some of the external threats to the Uber business model.

Drivers and Customer Switching Platforms

For the various reasons which have been mentioned above, Uber has had a famously poor relationship with its drivers and a somewhat distant relationship with customers. This may, of course, lead to a worrying trend of both drivers and customers switching to platforms that offer them more advantageous services, gradually depleting the market share and large fleet vehicles enjoyed by Uber.

Even though the recent cost-of-living crisis has increased the number of drivers and individuals carrying out delivery services for the company by as much as 31% YoY, the service has a famously low retention rate. Up to 70% of drivers quit within the first eight months, and only 4% of drivers are still working for the service after a year.

Frequent Legal Battles

Uber has gained a reputation as a disruptor within the traditional transportation sector, starting first with taxis, then food delivery services now even freight services and logistics. However, some of their business strategies and practices have caused frequent run-ins with the law. Whether it’s through non-compliance with local transportation regulations, unethical worker practices, or data privacy concerns, the company has a long list of legal battles and settlements.

Increasing Competition Is Leading to Thinner Profit Margins

With increasing competition from other ride-hailing services, Uber has been forced to reduce their prices to stay competitive in the market. While this is a normal part of any business, for a company such as Uber that is struggling with profitability, this may be a severe risk to the continued existence of the platform.

This is further exacerbated by the fact that financing cash flow seems to have dried up in recent years while operating expenses have increased, except for in 2021, with fewer drivers and passengers due to the pandemic. Therefore, increasing competition, as well as rising operating costs due to rapid expansion, may ultimately lead to the failure of Uber.

A Greater Degree of Regulation on the Industry

While Uber, to a large degree, has been allowed to operate relatively freely within most states in the United States, this cannot be said for every country to which it has expanded. For instance, strong government regulations were one of the factors which effectively drove the business out of China, while equally strict regulations in several European countries, such as Germany, are significantly affecting the ability of the company to function effectively.

To a large degree, Uber’s success depends on its ability to operate freely using its unique business model. Any regulation that interferes with this will likely take away a large number of the comparative advantages the platform has over other ride-hailing services, as well as conventional taxis and public transportation.

Self-Driving Cars

While self-driving vehicles may represent the future of Uber, they may also be its downfall. In a situation where a fleet of self-driving cars is available to users, the need for ride-hailing services may drop drastically, therefore, putting the company out of business if it fails to diversify or tap into this market on time. With the recent strides in self-driving technology made by companies such as Tesla, this future may be closer than it seems.

Fraudulent Activities By Drivers

Passenger safety is one of the users’ most important factors when choosing a ride-hailing service. Therefore, recent spots of complaints concerning fraudulent activities by drivers working for Uber may be a threat to the reputation of the business and an indication of the need to further increase their background and security checks when selecting drivers.

Conclusion

Uber is more than just a household name when it comes to the ride-hailing industry, as well as other forms of mobility as a service. It is a disruptor, innovator, and first-mover within the industry. However, for a wide range of reasons, it has failed to live up to its advertised potential, and an increasing number of investors are losing faith that the company will ever be able to turn a profit. Irrespective of whatever happens to the company, Uber has forever written its name in history as one of the driving forces (pun intended) behind the application of tech solutions to virtually every sector of our lives.

RECEIVE OUR UPDATES

NEWSLETTER

Want Receive new Business Model Analysis direct on your inbox? Subscribe now and don't miss any new posts!