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Do you also have this misconception that when you book a taxi through Uber, the car standing right in front of you is owned by the company? Well, you would be surprised to know but Uber doesn’t own any taxi. It is just a technology company that works by matching drivers and riders. The people who are willing to use their cars as taxis become the drivers and the people who wish to use taxis are the riders. The app works by getting them together.

Now the question arises, isn't it easier to use normal taxis? You go out, grab a cab, without requiring any app for that. But there are certain places where taxis are not easily available. This is where Uber comes in. With the help of a single app, you can book a cab from anywhere. The phone number of taxis is varied among different cities and countries which got simplified by Uber. Additionally, it gave some people a new opportunity to become taxi drivers in order to generate a source of income. This option was not available before Uber came into existence. This is because the car had to be registered first, taxi drivers needed a license, followed by many more hassles that were brought to an end with the convenience of the app. A lot more costs were involved in these processes that were reduced through this medium because of which, Uber can offer taxi services at low prices.

Generally, in normal taxis, the fare is calculated by checking the meter. But Uber has its own algorithm of evaluating the cost of a taxi ride which was considered quite innovative at the time. The calculations are somewhat like this:

  • First, there is a base fare. Depending upon the car you’ve selected, there is Uber X, Uber XL, Uber Black.

  • Added to that is the cost per minute multiplied by time.

  • Adding up, the cost per kilometer multiplied by time.(the cost per minute and cost per kilometer is different for each location)

  • Then, the sum of the three is multiplied by a surge multiplier.

  • After that comes the booking and administration fees. This is what Uber charges for itself.

The concept of Surge Multiplier is groundbreaking in itself. Uber noticed that there are some places that have an abundance of drivers whereas at other places, there are plenty of riders, but lack of drivers. So, in order to balance such a situation and to match them adequately, they decided to use surge pricing. They divided the map into hexagons and then checked for areas with more drivers and more riders in each hexagon. In the hexagon having more riders than drivers, they would apply a surge multiplier in the price.

Let’s suppose that the value of the multiplier is 2x, then the price of the taxi ride would increase by two times. While the price is quite high for the riders, it serves as a motivation for the drivers as the rising demand in that area gives them a chance to earn twice the amount of the price. That’s how the demand is met by balancing out the number of taxi riders and drivers.

The model of surge pricing was successful in many countries. But what about those countries where people can’t afford to buy cars? Uber observed that there are many people having multiple cars as well as many companies that own several cars, especially car rental companies. In such cases, cars aren’t in use at all times. Just imagine, if a person has 3 or 4 cars, most of the time the cars are parked without being used. Companies owning multiple cars are called fleet owners by Uber. They decided to match the fleet owners with the drivers so that the idle cars can be used by the drivers to earn for themselves and the fleet owners could easily rent out their cars. This is the fleet model adopted by Uber to expand their services.

Thus we see how Uber became the platform that connects drivers and riders with each other. Through its business model, not only is it able to earn for itself but also provides a source of income to many others. Overall, Uber disrupted the traditional taxi industry by offering a more convenient and cost-effective alternative for riders.

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