How Long Can This Business Model Last?


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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.


Republished with author's permission from original post.

Mitchell Goozé
Mitchell Goozé is the president and founder of Customer Manufacturing Group. His broad scope of business experience ranges from operations management in established firms, to start-up and turn-around situations and mergers. A seasoned general manager, he has headed divisions of large corporations and been CEO of independent firms, always focusing the company strategy on the most important person in business . . . the customer.


  1. Uber has a major problem in India, and is not allowed to operate: The taxis are not registered and all taxis must run only on CNG (do these taxis have CNG). The drivers are not registered.
    I think they will find a way around this.
    Will it win? Maybe. and survive long term? The market is evolving and more disruptive entries are expected

  2. Thanks for your post. I am a heavy user of Uber and have interviewed many of their drivers. They all seem to be very happy with their relationship. One aspect they wish is to enable passengers to be able to add a tip via their credit card. Now, tipping is the exception and is done only with cash. However, they tell me Uber is working on adding this feature.

    Because passengers are happy, I suspect it makes the drivers happy. And, while I cannot predict their long term success, I do know the phenomenon is spreading to many enterprises. So, they have been successful as a disruptor and effective at altering customer expectation!

  3. Uber is not far from many CX conversations these days! In reality, does any business model have an infinite lifespan in 2015? What Uber has done has, as you rightly point out, is completely disrupt their industry. Some taxi drivers have made a decision to join the ‘party’, others are doing nothing, other than suggesting what Uber has done is ‘unfair’.

    Whether Uber are right to do what they have done or not, no-one can deny that there are many consumers who absolutely love their proposition – not just the lower prices, but because it makes the taxi experience so much easier.

    What you rightly point out again though is that even Uber can not stand still. Change is inevitable and they will need to constantly adapt to whatever change hits them. I therefore believe that their business model as it stands today may well need to change in the short term, but will Uber continue to exist and transform their industry in the long term – absolutely.

  4. Uber’s business model is vulnerable to the same kinds of challenges as new service and value concepts such as Groupon and Living Social have experienced with providers. Namely, providers have to be reinforced, and they have to see benefit for themselves.

  5. I have similar feelings (reservations) expressed by Mitch. Uber is designed to deliver a better experience to customers and due to global scale is very attractive to investors.

    But the same could be said for the dot bombs of 15 years ago. Now, i’m not saying Uber is like, but still, a business model has to survive past a few years and an IPO event. It’s hard to say that Uber is worth $50B.

    The weak link seems to be the reliance on under-insured drivers. When/if Uber drivers are required to have commercial-grade insurance policies as taxi drivers do, their costs will go up. That will make the driving service less attractive and may cause some to defect in search of better opportunities.

    Of course, some insurance companies will step in to solve this problem, so in the end I think the coverage problem will be solved, state by state, country by country.

    I not optimistic that taxi companies will get their act together to improve the finding/hiring/paying experience where Uber and Lyft excel.

    So my take is Uber is here to stay. Prices may not be sustainable, but even if the pricing is about the same as taxis, if it’s easier and travelers like the service (and consistency market to market), Uber will keep its customers.

  6. I don’t think Uber’s business model faces imminent threats from too little supply (drivers) or too little demand (passengers). Even if they did, there are many things the company can tweak to stoke up each one.

    And actually, they probably don’t need to stress very much on the demand side. It’s been quite some time since I’ve heard a company’s customers sing praises the way Uber’s have. Recently, I heard people call in to a radio talk show and get choked up the point of tears describing their wonderful Uber experience. Not many companies command that intensity of positive emotion.

    But regulation presents a much more serious threat to the company’s business model. Search on “legal challenges to Uber,” and you’ll get about 441,000 results – give or take. The Wall Street Journal has a rich global infographic that provides much insight:

    Lately, the company has run afoul with its drivers who feel that the company’s heavy-handed rules more resemble an employer-employee relationship, upending the freelance status that it currently enjoys in many jurisdictions. Enforcing that distinction would represent a fundamental change in their business model, and make it subject to laws that would change their entire operating structure. It will be interesting to see how this plays out.


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