Note: model works if you do not rent car.
https://www.quora.com/What-is-Ubers-business-model-1
Yuen Lo, 10 years as a successful institutional investor
"Uber is the digital disruption of an industry that struggles to ensure high standards at low cost. Its business model is:
• Find drivers with access to a car who want to earn money.
• Orchestrate them centrally to offer a highly scaled and distributed transport platform.
• Allow people who want to make journeys book these drivers via a mobile application.
• Create a review system to ensure great service.
• Take a 20-30% cut of all bookings.
• Leverage the data collected to minimize wait times and maximize drive times.
The current strategy being applied to this model is quite simple.
Take the almost $9bn they have raised and use it to run the competition into the ground.
You already knew all of this, but what happens from here is actually more nuanced than you think."
Strong name recognition + most drivers & cars means that it is plausible that the dominant taxi mobile app in any given city will have 80% share. I mean, who is really going to check more than one taxi app on a regular basis?
Despite what the media portrays, Uber pays drivers more than the alternatives. The logic is simple, driving a car off Uber is pretty poorly paid.
As you can imagine, once Uber achieves local domination, it will be able to turn losses into profits, and subsequently into economic rent. Typically you don’t even need 80% market share in anything to have pricing power. However what is less common is when this 80% share leads to pricing power vis a vis the customer AND your core cost i.e. your drivers.
This pricing power won’t be infinite given low switching costs but it is very real. Perhaps a better way to put it is right now, Uber offers rides for less than the regulated yellow cabs, and drivers earn slightly more. In the medium term when it is the only viable choice in a city, it may offer rides in line with regulated cabs and pay its drivers less.
High market share and broken competitors will be what makes this stick.
Uber isn’t trying to be Bank America offering the same mortgages as everyone else, it wants to be the Federal Reserve setting the rate.
Tl:dr Uber tends to monopoly in the presence of drivers who work in their own self-interest.
Drivers are stuck in a prisoners dilemma where the only equilibrium is the majority of them on the platform that pays the best.
However in the presence of driver-less cars, Uber's strategy will likely disintegrate into perfect competition.
It is well known that in the long term that drivers are going to get cut out and automated.
However, driverless cars will be the end of the Uber investment case.
How?
Imagine a future world where a new competitor raises $2bn and buys fleets of cars with autonomous driving systems. Can Uber force this competitor out like it is doing now?
No it can’t. The competitor’s $2bn becomes a sunk cost and establishes itself as a strong number 2 market by market.
Uber’s market share rapidly declines from 80% to 50%.
Then imagine you own a self driving car. What is going to stop you renting it out to your friends and neighbors? Driver-less cars eliminates Uber's core strength.
If you’re wondering what is Uber’s core strength, it isn’t its app, or its brand. It is its ability to give drivers the best available deal.
Drivers are Uber’s strategic barrier to entry.
Uber understands this. That is why they poached half the robotics staff from Carnegie Mellon last year. Its driver-less cars have to be better than everyone else's.
