Uber’s New Plus Option Helps Explain Their Business Model and Where the Company is Going

Ever since I wrote Why Taxis Suck and What You Can Do About It I’ve been fascinated by Uber’s business model.

You pull up an app on your phone, hit a couple of buttons and a car will come to your location to pick you up and take you pretty much anywhere you wish. You can watch the car’s progress as it approaches you on a map on your phone. When you arrive at your destination you get out of the vehicle and go, there’s no payment transaction — that’s all handled electronically with your card on file, and a receipt is emailed to you. Tip is included.

That’s revolutionized transportation for me. The traditional Uber black car model is great as far as it goes, but UberX — calling on someone with a car and spare time — is price-competitive with a taxi and far more convenient to ‘hail’. Plus the cars are generally in better repair, and since you rate the driver (and drivers need to maintain high ratings to stay on with Uber), they’re generally nicer too.

The business model is to take underutilized resources — downtime of professional drivers who would otherwise just sit around and wait for their next scheduled pickup, spare time for individuals with a car that isn’t being used — and make those resources more efficient. Uber takes a percentage of the fare, and the driver makes money.

Ultimately they are about making more efficient use of resources generally, and since they are tracking vehicles on the go they can be about moving ‘stuff’ as well as people. Uber’s corner store will bring you condoms in certain markets. UberTree has delivered Christmas trees. They’ve had ice cream on demand.

It’s the ability to scale that provides a glimmer of hope that Uber could actually become the company implied by its $18 billion valuation.

I’m skeptical it gets there but the underlying economic revolution enabled by technology is real. There are other competitors, of course, like Lyft — I tend to use Uber because it’s been in the cities I need and the initial idea of riding in the front seat and giving the driver a fist bump sort of turned me off. I prefer to remain more distant and anonymous in my travels.

One other avenue for Uber to expand its market presence and revenue is through greater product segmentation. There’s huge variability in UberX — you might get a Hyundai which meets Uber’s minimum standards, or you might get a luxury car, whatever the driver who accepts your ride happens to own.

In Los Angeles and Orange County they’ve launched UberPlus which differentiates the vehicle you’ll be picked up in. For a premium over UberX, but less money than UberBlack, you can get rides from BMW 3 Series, Mercedes-Benz C-Classes and Audi A4s and similar vehicles.

There are several possible effects here.

  • This allows drivers with nicer cars to make more. It brings more drivers (and thus capacity) into the Uber system.

  • It lets Uber earn a price premium over their current UberX product, often charging more money to customers for rides they would otherwise provide today (by giving those customers something they’ll pay more for).

  • At the same time it could pull business away from the more expensive UberBlack, which could then put downward pricing pressure on the service.

All of these are potential good news for Uber, who benefits from more drivers and more rides and from charging more for things that people will pay more for. It’s all about more efficient utilization of resources.

If you haven’t used Uber yet they’ll give you $30 off of your first ride. (And I get the same for referring you.) In DC, UberX (a dude with their car) starts at $7 while a black car starts at $12. So make it a worthwhile ride to maximize the credit. For me, a black car from work to the airport is $29 or so for instance.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Uber has been regularly adding 2-3X premium to fares in the LA area. Without significant competitors, this would go out of hand.

  2. Gary: Uber’s fine print says a tip is not “required.” A tip is not included. (But it is not customary.)

    @asar: Lyft charges similar a similar premium (called “Prime Time” prices) during high demand.

  3. Yeah ok, let me know when uber’s cars can fly, then we’re talking. Otherwise you’re still stuck in traffic.

  4. Your summary is a bit lacking, you do understand that what you described is basically what UberBlack is so what is the difference?

    If they are using chauffeurs usually the car would be a town car or luxury sedan… what would plus be? I do not see how it could be anything less than a town car in the US….

    In Bangkok for example they use Camry’s and call it Uber Black, i could see that being called UberPlus… but how does that apply to the US or Europe..

  5. “It’s all about more efficient utilization of resources.”

    I disagree here. It depends on what you’re looking to maximize/minimize; if I wanted to *minimize* the time that riders were waiting for *any* ride, then I’d sometimes direct an Uber+/black to those riders. For example, there are 5 Uber vehicles in an area close to my requested pickup. 4 are Uber+, and they are closer, but one is UberX, the furthest away vehicle. Maybe I need to get someplace as *FAST* as possible, and I don’t care which type of vehicle gets me there. By segmenting the market *by luxury* I’ve both complicated a user’s choices and denied him the ability to select what s/he really needs, *fast* transportation.

    Which leads to my second point; Uber is complicating things, and this has a real cost. I used Uber for the first time this past June. I had no idea what the difference was between UberX/Black/etc. and frankly, I didn’t *want* to know. I wanted to know who the cheapest service was. I eventually got the transportation I needed, but Uber needlessly complicated my decision. Sure, I know what to look for now, but any learning curve will put off users. It’s not always the right decision, even if, from a business perspective, it appears to make sense.

    So, I’d say that while it’s an efficient way of further dividing existing customers and deriving extra incremental revenue, it makes the wall that new users face that much taller, and it fails to address what I would consider to be their biggest market (their biggest market being those looking for fast transportation… what indicates this to me is that they’re using their phones, almost definitively at the last minute, to indicate that they are in need of transportation).

  6. @jamesb2147 you may want the cheapest service available but that is just you. I for one and many of the people I know ONLY use Uber for its premium services depending on the country we are in Asia & Europe that would include Uber Lux and Uber VIP. We never and would never consider using UberX or similar non premium service.

  7. @Jay. Seriously! Have you ever been in an UberX? They’re stuffed to the gills with peasants. I would never consider using one either. Ever. Because that makes sense.

  8. @jamesb2147 Uber is complicating things? Maybe for you. For the rest of us, it’s making our lives and commutes far easier than what was offered before- which was 1. Standing on a street waiting for a cab to show up and hoping that one does soon, or 2. Finding the name of a taxi service, finding a phone if you don’t have one, finding out exactly where you are in a foreign city, and then waiting and hoping a taxi shows up.

    The Uber app makes this SO much easier. You know what’s available, what the ETA is estimated to be, your almost exact location, and even the approximate fare for your destination- before the taxi even arrives.

    The only thing Uber is doing is shifting customers from an extremely inefficient system (that had no user control) to one that gives the user almost complete control.

    If you can’t figure out what kind of car you want on an Uber app, then maybe you shouldn’t own a smart phone. It’s so darn simple it’s ridiculous.

  9. I love Uber & Lyft! My wife & I use both several times a week as taxis in Miami are straight up disgusting! FYI: I always ride in back and never fist bump when in a Lyft vehicle. And in Miami there are no pink mustaches on the vehicles but there are new Lexus and even a guy with new 3 series BMW driving around!

  10. Uber is a criminal organization that acts as if they’re a “super-human” race by the use of a virus on cellphones, and a bogus 5 star rating system. They are funded by Blackrock, Fidelity (and other large institutions), but now that the Fed money printing is history, so will Uber.

    I’m waiting for the one star ratings when the passenger robberies begin.

  11. @Jay — Gary’s summary is quite clear: UberPlus fits neatly between UberX and UberBlack. While you might get anything from a 10-year-old compact car to a new luxury SUV with UberX, UberPlus demands a higher minimum vehicle standard. And while both UberX and UberPlus are operated by “amateur” drivers using their personal vehicles, the pricier UberBlack continues to be operated by professional livery drivers offering full-size Cadillacs, Lincolns, or equivalent.

    @jamesb2147 — The various Uber vehicle classes are listed in order from least to most expensive. It’s not that difficult to figure out.

  12. @easy victor
    I’m saying that they’re needlessly complicating their own product, compared to what a majority of potential customers want. (They’re still better than taxis and I never compared them to taxis.) I understand wanting flexibility and respect that, but it’s not what most people are looking for.

    It’s the same reason your parents/grandparents/w/e probably get frustrated when using some new (for them) technology. They just want it to *do what they want,* not keep asking them questions.

    I’m not saying that Uber+/black shouldn’t exist, just that it should be an option for advanced users, rather than a choice that users are forced to make w/o being educated.

  13. @jamesb214 How can moving an icon -one half inch to the right to pick your mode of transport- be complicated? It’s just not. My grandmother could handle this if she were still alive (and probably appreciate it!).

    I like choices. Sometimes I want a cheap, quick ride. Other times I want something more comfortable-whether it be a “black” car, SUV, or +. It’s nice to have an option.

  14. @easy victor
    I like having the option.

    What I don’t like is Uber’s failure to communicate what that choice is and means, and also their simultaneous failure to address the market of people who want pickups *as quickly as possible*, w/e the price may be.

    My suggestion to Uber would be to have this be your options screen, instead of the current setup:

    Fastest pickup (*Costs more)

    Cheapest ride (*Might take longer)

    Luxury ride (*Might take longer and costs more)

    Professional luxury ride (*Will take longer and costs more)

    Having the above choices, with the costs and benefits of each clearly outlined, would have made my riding decision easier and caused much less confusion and consternation than Uber’s existing app layout.

    Does that make sense?

  15. @jamesb2147 It does. To me, it does what you’re looking for now. I can see what’s close to me when I choose a format (X, black, etc) and get a pretty good idea when they’ll be there. If I don’t like the timeframe confirmed, then I can just cancel and resubmit.

  16. @EasyVictor,

    How about you take Uber, get raped, and then give a 1 star rating for it. What are you going to do? Huh? Will Uber paying for the compulsory? Oh no, you’re the hypnotized phone scroller.

    Get real, you know-nothing, uBer kiss-employee. NetFlix stock dropped $110.00 in 3 minutes. Uber won’t even make it to an IPO, and then you’re rammed from behind, coffee goes flying….oh, Uber!

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