Uber’s impact on India is unmistakable. Two years after stepping into the Indian market, Uber has changed the way that Indians in certain cities plan their short distance commutes. However, its presence is not limited to millions of smartphones. It has also made its mark in MBA classrooms as a notable case study and a promising business model. Uber continuously challenges competitors with its attractive services and cheap fares. Meanwhile, Uber intrigues analysts, who have been watching Uber’s 40% month-over-month growth while publishing articles such as “India’s Taxi Wars: Uber vs Ola”.
Background on Uber cabs
Uber is a ride-sharing company that was founded in 2009 by Travis Kalanick and Garrett Camp in San Francisco. Kalanick and Camp hacked into the taxi problem of this city by linking those who need a ride with those who are willing to drive.
The fundamental business idea is simple. However, making this idea profitable and sustainable requires connecting millions of data points into usable information.
How Uber works
A customer who needs a ride opens the Uber app on his phone. Within seconds, all the available cabs in his vicinity show up on his phone screen. This is done by systematically tracking the GPS data gathered from thousands of registered users and cab drivers. Instead of calling out for a taxi or an auto on the roadside with a wave of the hand, the customer can summon the nearest Uber cab driver from home with the tap of a button. This electronic “hail” appears as a ping on the driver’s cell phone. The driver can then choose to accept or reject the hail within 15 seconds.
In a country where customers can sometimes be rejected by several autos before they find one who will go to their destination and follow the meter, Uber and other similar cab startups are a blessing. Their cab drivers almost never reject a hail. (Later in the article, we will come back to how Uber has designed its system to maintain its high acceptance rate.)
Have you ever wondered how many minds are behind the operations of all Uber cabs? Just 3! Only 3 employees run the operations of Uber in each Indian city.
The customer’s request for an Uber cab is confirmed within seconds with an estimated waiting time, based on real-time traffic data. The confirmation is followed by details of the driver and car (including a picture of the driver). Uber keeps a database of its drivers to ensure that this information is dependable. Driver information increases the confidence of Uber’s customers, many of whom worry about crime rates and security when traveling. This is especially true for women or customers traveling at odd hours.
While on the ride, Uber cabs use GPS data to allow family and friends to track the car’s journey. This is another feature to make Indians feel secure. Once the customer approaches their destination, they pay an amount automatically calculated by Uber’s app. This prevents bargaining or arguments about improper billing. This is even easier for customers who choose to pay through an online wallet linked to their Uber account. These customers can just say thank you and hop out of the car.
The data behind Uber rates
Uber cabs are known to provide extremely low per-kilometer rates. Uber’s rates can be as low as 5- 6 Rs./km, which is lower than most auto rates. Uber’s rates set an unbeatable standard in cities where cabs used to charge around Rs. 14/km.
Studies show that customers who opt for Uber’s 6 Rs./km ride over the 14-20 Rs./km rides of other cab providers (such as Meru) can end up paying more. This has its roots in Uber’s pricing system, which accounts for travel time along with travel distance.
One of Uber’s schemes to optimize profit despite low prices is the surge pricing model. Here again, Uber uses data in ways never thought of before. Uber runs detailed predictive analysis of the rise in demand by geographical location. This is made possible by continually analysing data sets such as weather conditions, major events like a cricket match or a rock concert, and traffic trends of office-goers. When its analysis shows that the demand is bound to rise, Uber cabs increase their rates up to 5 times the normal rate.
While Uber claims that its surge pricing model ensures more cabs on the road in times of high demand, which in turn ensures that customer demands are met. However, some studies reveal that the number of cabs on the road do not increase during such times. Instead, the existing Uber cabs are reallocated, leading to increased waiting times in nearby areas.
The surge pricing model is brilliantly designed — from a business model perspective, of course, since it is not a great deal for customers. Through the surge pricing model, Uber uses insights generated from data to make significant profits for both the company and its drivers.
Uber’s data-driven rating system
In a world where customer loyalty is one of the biggest concerns of every employer, how does an app that aggregates employees (rather than employing them directly) ensure a great customer experience? Uber uses a rating system for this. Each time a driver gives someone a ride, the customer rates him. In addition, the rating system tracks cab acceptance rates — the number of times a cab driver accepts an electronic hail. The rating based on these two data sets encourages the drivers to maintain a professional attitude, stay on time and accept as many as possible rides. Then the customers remain happy as they are certain about getting a cab at the first attempt.
Some sources say that a minimum of 80-90% of acceptance rate is considered necessary for every driver to remain eligible to drive. Those could be rumors, but there are known policies that appreciate high ratings and higher acceptance rates. Drivers who have low acceptance rates are made to attend classes.
Sources say that the pay for driving with Uber varies from city to city, but it can be as high as Rs. 300 per ride in Delhi. Uber gets a 20% cut on each ride but, even with this payment, drivers earn more than what they could have made driving independently. Drivers often find it inconvenient to maintain such high acceptance rates, but the high incentives per ride along with the pressure of losing their partnership with Uber maintains high acceptance rates.
Uber’s massive database of customer and driver data
Uber uses its app to collect lots of PII (Personally Identifiable Information) data points, which are any data that can potentially identify a specific individual. This is possible because of Uber’s app, which has the right to track customer location even when customers are offline. In addition, customers happily trade PII data for extra travel miles or discounts. This PII data makes every customer a data gold mine for Uber. Information gathered from customers’ accounts, locations, credit card details, phone book details, and more allows Uber to track major trends — popular choices about eateries, traffic patterns of cities and workplaces of their employees, shopping habits, etc.
There have been several incidences in the past that have raised questions about how Uber is using this data. Ex-employees have revealed the existence of a “God view” tool for its corporate employees, which reveals the location of all customers and drivers. In addition, Uber can track the location of all its customers and drivers even when the app is not being used. Uber justifies this use of location as necessary for deciding fares and improving services. Two separate incidences in the United States have brought in light the possible misuse of some of this data.
Whether this data is being sold or shared is still under question. However, the Sherwood- Uber tie up earlier this year is an indication that Uber is stepping into the big data business.
User data is helping Uber expand at an unprecedented rate. Forbes believes that the mammoth amount of data in Uber’s systems means that is on its way to becoming a big data company.
Though it would never supersede Uber’s core business revenues, data could become a significant source of revenue.
It is difficult to say if the cab industry will find another disruptive business model that challenges Uber. However, Uber has surely set the stage for using data to open up new avenues for both businesses and its customers.