The economic principles behind Uber’s success

Image: Freepik

Everywhere from Silicon Valley to the southern tips of Africa to the kangaroo corners down under, your ride shall only be a few taps away.

Uber is so successful because it’s so convenient. Anyone from its vast network of 2 million drivers shall be at your service in the blink of an eye. Open the app and choose a ride. Standard or luxury or in India, a ride in a rickshaw. Soon we may even travel in flying taxis! Talk about being a part of the Jetsons!

Anything less than a 4.6-star on average can get a driver deactivated from the company’s list of drivers, which is still better than Netflix’s thumbs up or down in my opinion.

This is how Uber calculates your fare: Start with a regular base fare + (Per minute rate X time spent inside the car) + (distance X per mile rate) all of which depends on the city. A $40 ride in Tokyo costs about $3.20 in Dhaka and $1.62 in Cairo. Add the booking fee, and possibly airport toll cancellation, claims, and lost item fees to arrive at the concluding sum which may occasionally bamboozle the best of us.

Image: Freepik

One medallion, the right to operate a single taxi was once worth over a million dollars!

But due to the oversupply of drivers on the road, empowered by the likes of Uber, who do not require medallions, the typical taxi industry has taken a beating. It has drained the value of medallions drastically. High competition, low prices, and angry calls for further regulation.

Sounds familiar?

This time we might not be in an economic depression, but two-quarters of negative growth does indicate a recession is on the cards meaning many new drivers could be out on the road avoiding a dead end to feed their families.

Image: Freepik

So why exactly did Uber lose money early on?

The same reason why many start-ups lose money early on. Many start-ups sacrifice profit for growth.



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