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6 pros and cons of the ride-hailing business model

The ride-hailing business model has taken over the transportation industry and changed the lives of millions of people. But is it all that great? This article examines the ride-hailing business model, discussing its benefits and drawbacks.

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The ride-hailing industry continues to boom, projected to be worth over $225 billion by the year 2028. But in a sea of competition, how can you expect to compete with monolithic companies like Uber and Lyft?

As a current or potential ride-hailing business owner, it pays to know the advantages and pitfalls of your industry.

So, in today’s article, we’ll demystify the major pros and cons of the ride-hailing business model. 

Without further ado, let’s dive right in…

6 pros of the ride-hailing business model

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Pro #1. Super convenient

There’s one thing that the ride-hailing business model thrives on: convenience. Customers worldwide choose ride-hailing apps every day over alternatives due to the sheer convenience.

In the fast-paced modern world, customers are always expecting faster, and easier services. With a couple of clicks on your smartphone, a car could arrive to pick you up in a matter of seconds — now that’s convenient.

Pro #2. Cheaper than traditional transport methods

For quite a while, taxi drivers and private transport services have garnered a bad reputation for price-gauging their customers. Millions of people have all but abandoned this traditional transport method for the cost-effective alternative of ride-sharing.

Mostly, customers prefer the costs of ride-hailing due to:

  • Fixed prices that are identified before riding;
  • No extra costs for sitting still in traffic;
  • No arguments with drivers over final costs.

This allows ride-hailing business owners to capitalize on the market share that’s lost by overpriced transport services.

Pro #3. Increased safety for drivers and passengers

Now, there’s a bit of debate about whether taxi or ride-hailing transport methods are safer. On one hand, taxi drivers are more experienced behind the wheel and undergo much deeper background checks.

However, the GPS tracking capabilities of ride-hailing apps make many users and drivers feel safer. Women also tend to prefer the ability to pick female drivers, which taxi services rarely offer.

Pro #4. Flexible employment opportunities

Whether you’re a vendor or driver, ride-hailing apps offer new employment opportunities, especially to those in high-unemployment areas. If you own a motorbike, ride-hailing apps allow you to make money by delivering food or as transport.

They also enable drivers to work the hours they prefer — whether that’s bright and early or deep into the night. Drivers can also work as many or as few hours as they feel like in a single day, boosting morale and efficiency.

Pro #5. Everything customers need in one app

With the advancement of the ride-hailing business model comes the rise of the super app. Apps like Southeast Asia’s Grab and Go-Jek allow customers to:

  • Order or schedule a ride;
  • Get takeout delivered at any time;
  • Book courier services;
  • Organize waste disposal;
  • Deliver groceries to their front door.

This trend will continue to grow as ride-hailing apps expand the services they provide their users, simultaneously increasing profits.

Pro #6. Possibilities to be environmentally friendly

While electric taxis are gaining popularity in bigger cities, many ride-hailing apps offer their users the option of ordering an electric vehicle. This way, environmentally-minded businesses and users can do their part to reduce their carbon footprint.

Unlike traditional transport methods, ride-hailing companies like Uber are striving to eliminate their carbon footprint entirely. This also includes offering drivers subsidies to purchase electric vehicles.

6 cons of ride-hailing businesses

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Con #1. Lack of clear regulation

Depending on your country, the laws and regulations surrounding ride-hailing apps can be confusing or simply missing. Matters are made worse when ride-hailing companies need to juggle regional licensing requirements, labor laws, and more.

When creating a ride-hailing business model, you should consider the particular laws that govern your business’s jurisdiction. Each country, and even states in between, may require different business licenses, mandatory insurance, and minimum wages.

Con #2. Unpredictable surge pricing

Unlike traditional transport methods, the majority of ride-hailing business models apply surge pricing at specific times. Sometimes, seeing prices triple, many users can be deterred from using these services.

Multiple factors determine surge pricing:

  • Regular rush hours;
  • Limited drivers available;
  • Poor traffic or weather conditions;
  • Incentives for drivers during peak hours.

While users can expect surge pricing at obvious times, other occasions can be unpredictable or cause inconvenience and exorbitant costs.

Con #3. Conflicts with taxi services

As ride-hailing apps have been launched worldwide, the integration of these services has been rocky. In some countries like Thailand, local disputes between taxi and ride-hailing drivers have caused violent turf wars.

Customers are often caught in the middle of these altercations, causing uncomfortable and unsafe experiences. Until taxi services and ride-hailing businesses can settle their differences, issues like this will continue to occur.

Con #4. Heavily dependent on technology

Like it or not, the entire ride-hailing business model relies on the availability and functionality of technology. Sometimes, disruption to these services is inevitable:

  • Extreme weather causing power outages;
  • Lack of connectivity in lower-income areas;
  • Drivers or users losing WiFi connection;
  • Older apps, phones, and software are becoming redundant.

The exceptional power of ride-hailing is fueled by technology. Being inextricably linked, this dependence on technology will always represent a possible weakness as well.

Ride-hailing technology is also subject to cybercrime, so users should be warned to use a VPN program to ensure complete data privacy.

Con #5. Drivers can be underpaid

Much of the controversy caused by ride-hailing business models is often how much they pay their fleet of drivers. Unfortunately, plenty of ride-hailing corporations profit from exploiting cheap labor laws.

This can cause a disgruntled workforce while also causing conflict with other alternatives like taxis and delivery services. Due to a lack of regulation, this is a fairly rampant issue in the ride-hailing industry.

Con #6. Negative carbon footprint

Some companies are attempting to offer their drivers and users the option of environmentally friendly services. However, a vast number of ride-hailing companies are ignoring their carbon footprint altogether.

Operating a fleet of cars and bikes, the environmental impact caused by your business can be disastrous. Heading into the future, all ride-hailing companies will need to consider this when structuring their business model.

Conclusion

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Ride-hailing has revolutionized the transport industry and will continue to offer profitable opportunities for business owners. 

However, as this technology evolves, so will the pros and cons associated with it. To excel in the industry, you’ll need to regularly update your ride-hailing business model to suit the current climate.

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