Uber Success vs Uber Pissed!

Wasabi Roll is dedicated to providing valuable information to its readers.  We typically shy away from shill pieces; however, we did experience the new ride sharing business model that so many have been touting, but few have actually tried.  Our experience with this was exemplary.  We enjoyed a new car, quick pick up, no tipping required and courteous driver.  Although there are many choices out there in this space, Lyft, Sidecar, Uber, due to our experience, we chose Uber.  Besides, Uber is widely popular, but highly controversial within its space, and that we do specialize in.

It is no surprise that in comparison taxi  are found them to be about 30% more of what Uber would cost. Uber cars offer a better price in many cities, but they don't always charge the same rate. In times of high demand Uber initiates surge pricing – you are charged the normal fare times a surge multiplier. We figured out the break-even point for each city. This is the level of surge pricing when the Uber car becomes more expensive than a taxi.

Uber Cheap

Uber's pricing is actually a little deceiving. Taxis charge riders per mile when moving, and per minute when idling. Uber chargers riders per mile AND minute whether they're moving or idling (except in Philadelphia, where Uber charges per minute only when your speed drops below 11 MPH).

Even so, Uber rates do beat cab fares in most cities. We looked at a sample trip and calculated both costs for a number of different cities. For this analysis, we used fares from UberX, the service where drivers use their own cars. Assume the trip is 5 miles and takes 10 minutes. Also, assume there is no waiting time. The car drives 30MPH the whole way there.

Uber Business Model

• Uber is a marketplace and Uber’s drivers are all independent agents. Uber’s drivers are independent agents that are either self-employed, or work for someone who owns multiple cars. Uber does not own cars and does not employ drivers. Each day, and each hour for that matter, these drivers decide whether or not to open the Uber application and accept requests for rides from Uber customers. These drivers are not bound by exclusivity. Many of them work on multiple services, and many have “regular customers” that they engage off the Uber platform.

• Uber provides a map for your location writ the location of your impending driver.  In addition, you are given the description of the car and a picture of the model with the name of the driver.  This is great, for you not only know what to look for when they arrive, you can do other things while waiting because you will know exactly when they arrive. The app works by connecting riders with a network of independent drivers, who use their own vehicles to transport passengers. The rides are touted as being 10 to 20 percent cheaper than a traditional taxi ride with faster pickup times.

• The majority of Uber fares go to these independent drivers. On average, over 80% of gross fares end up in the hands of drivers. What’s more, of the percentage that is retained by Uber, a large portion goes to cover variable expenses within the service. These expenses include payment processing, payment fraud, refunds, customer service, dispute resolution, cellular handsets and service fees for the drivers, and local regulatory efforts. The bottom line is that this is a low margin business — much more akin to Amazon than Google.

• Uber’s dynamic pricing (“surge pricing”) affects a tiny minority of all Uber rides, less than 10% of trips. Dynamic pricing is most common on peak times on Friday and Saturday nights, on certain Holidays, such as Halloween and New Year’s Eve, and during particularly big events and bad weather conditions. All told, it’s a fraction of the time that Uber drivers are operating. The vast majority of the time, Uber’s increasingly low basic rates (uberX is often 40% cheaper than the local taxi alternative) are the primary price points for the service.

Uber Pricing Origins

Back in early 2012, Uber’s Boston team noticed a problem. On Friday and Saturday nights, around 1am, the company was experiencing a spike in “unfulfilled requests.” The root cause was that drivers were clocking off the system to go home, just before the weekend partygoers were ready to venture home themselves. There was a supply-demand imbalance, and the result was a lot of very unhappy customers. So the Boston team had an idea. What if they offered the drivers a higher price to stay on the system longer (until around 3AM)? Would more take home dollars for drivers increase supply? In just two weeks they had a resounding answer. By offering more money to drivers, they were able to increase on-the-road supply of drivers by 70-80%, and more importantly eliminate two-thirds of the unfulfilled requests. The supply curve was highly elastic. Drivers were indeed motivated by price.

Based on the results from the Boston experiment, Uber implemented its dynamic pricing policy to be used solely when demand is materially outstripping supply. Dynamic pricing changes are driven algorithmically when wait times are increasing dramatically, and “unfulfilled requests” start to rise. In essence, there are two functions of the increased price model. One is to increase supply. The second function of the price increase is to temporarily intentionally reduce demand. Through these two mechanisms, the company is able to (a) increase supply, (b) assure reliability, a key tenet of the company, and (c) maximize the number of completed rides.

Uber Pissed Off

Uber has made lots of fans as it’s rolled out its service — which allows users to order a ride through a smartphone app — to more than 100 cities across the country since launching in 2010. Before today, Las Vegas was one of the largest cities Uber hadn’t launched in. The company is also launching its service in Reno and Carson City.

Uber’s presence in other cities has drawn fierce challenges and many lawsuits in cities such as Washington, D.C., New York City and San Francisco, but the company has largely weathered the opposition and continues to operate in those cities. In many cases, new regulations were passed specifically addressing and legitimizing the ridesharing model championed by Uber and similar companies such as Lyft and Sidecar.

In Nevada, Uber will have to contend with the state’s powerful taxi lobby, which has given more than $3 million to political candidates since 1990, the highest amount of any state in the country, according to data from the Sunlight Foundation.

For now, the company is not launching its Uber Black service, which involves luxury town cars, in Nevada because state law requires those vehicles to be booked at least an hour in advance and to include a minimum fare. Neither of those requirements fits in Uber’s current business model.

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Uber officials were coy about what took them so long to arrive in Las Vegas, stating only that they were waiting for the right time to launch. Experts have said that Las Vegas’ highly-regulated taxi industry and unique structure of the market — 95 percent of the region’s 26 million cab rides take place at the airport or on the Strip — made it a more challenging environment than most cities.

Uber drivers will not be allowed to pick up riders on the Strip or at the airport, although they can drop off passengers at those locations. Instead, the company says it will focus on outlying residential areas it considers undeserved by traditional taxis.

“We’re focusing on launching for people who live and work here,” Kasselman said. “There’s no question about the Strip having lots of transportation options, but the people that actually drive the economy in this city don’t have those options.”

Uber’s success in other cities has made it some high-powered enemies at taxicab companies. Las Vegas taxicab operators have argued for months that Uber’s service would be illegal if launched in Nevada.

Uber has pushed back against these claims, and Kasselman said the company is confident it can legally operate in Nevada. In fact, Kasselman argues, state regulations don’t even consider a service such as Uber, leaving a gray area that needs to be further defined.

Uber Drivers

With our interviews, we did encounter, some dissatisfied participants, the drivers.  Yes, the drivers.  Apparently, although the drivers usually benefit the most when profits are up, but conversely, when the pricing cuts to stay the low cost provider is in effect, again the driver feels the brunt of the promotion.  Now, the promotion was emailed to the drivers in advance – expressing that there is more customers; hence, more money; however, less money meant a 10 hour shift to make ends meet for a driver, in a cost cut market, may turn into a 14 hour shift to do the same.  For some this is too much. 

Another beef that was brought up was the tipping arrangement.  The model does afford the driver tipping options; however, these are not intuitive and not subjective on a drive experience way.  Hence, many Uber riders don’t bother.  In addition, drivers aren’t given that tipping accounting, so they remain in the dark.  One such driver said, “If we were given the opportunity to receive tips, or at least get an accounting of such.  Perhaps the cost cut markets wouldn’t be a problem”.

Source:

• http://www.vegasinc.com/business/2014/oct/24/uber-arrives-las-vegas-today-battles-taxi-companie/
• http://www.businessinsider.com/uber-versus-taxi-best-deal-cheaper-2014-10#ixzz3K1958WdV

So “Once more unto the breach, dear friends, once more;”

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About Rick Ricker

An IT professional with over 22 years experience in Information Security, wireless broadband, network and Infrastructure design, development, and support.

For more information, contact Rick at (800) 399-6085 x502