How Long Can This Business Model Last?

uberlogoI am not an avid Uber user, but I do use them from time to time and find the service quite good. The fact that it is less expensive than a taxi (usually) is an added benefit, until you stop and ask yourself how long the business model can continue.

I have tried to figure out what is actually in it for the driver. Based on what I assume their split is, and the wear and tear on their cars, I can’t figure out why anyone would do this job. Turns out I am not the only one questioning this.

Given the fact that many Uber drivers are not required to carry added insurance for working as a “taxi,” and the pressure on Uber to comply with the same licensing and insurance requirements of taxis, one wonders when the business model blows up.

I believe the matching service is outstanding, and why cab companies did not come up with it is just another example of disruption coming from outside an industry. However, Uber’s profit model is unsustainable in my opinion. Either prices have to go up so drivers can make a proper amount of money, or drivers are likely to become scarce, making the service less viable. And that is not even including the added costs that are likely to be imposed by licensing and insurance.

Just as Airbnb has had to collect “hotel” taxes, Uber is likely to have to deal with “taxi” taxes. Uber’s new, highly touted program to help potential drivers buy an acceptable car is also likely to blow up once the drivers figure out that a car payment and maintenance eats big time into their paycheck.

Bottom line for me is the business model makes Uber look über attractive to investors, but it is likely to be unsustainable for the lifeblood of the system … drivers; thus causing the system to collapse or prices to rise … substantially.

Mitch

Advertisements
This entry was posted in strategy and tagged , , . Bookmark the permalink.

One Response to How Long Can This Business Model Last?

  1. Pingback: And The Change Begins | Value Acceleration

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s