When Travis Kalanick left Uber, and Expedia’s CEO took over, one of the first moves was to introduce tipping of drivers. Kalanick had opposed tipping because he wanted the experience to be seamless – no extra clicks or decisions, just get out of the car.
People generally applauded the change as being good for drivers, because they do not understand how tipping works. It doesn’t mean higher pay.
The CEO of one hotel ownership group actually said the quiet part out loud. Hotels encourage tipping housekeepers because it means hotels can pay the housekeepers less or at least avoid paying them more.
There’s a wage that’s necessary to attract enough workers. Whether that wage is coming from the guest or from the hotel doesn’t matter. If more comes from the guest, the hotel doesn’t need to pay as much to fully staff the department. For instance,
- A worker might accept employment with an expectation of making $20 per hour.
- It doesn’t matter if that’s $20 from the employer, or $15 from the employer and $5 (on average) from guests.
- However the lack of certainty in tipping might mean they’d need $6 or $7 from guests to consider it break-even. But that still lets the hotel pay $3 or $4 less.
That’s exactly what’s happened at Uber. They introduced tipping, and Uber pays their drivers less. They can get enough drivers on the road precisely because drivers expect that while Uber doesn’t pay as much, the customer might make it up with a tip.
What’s happening, though, is that Uber is paying drivers less and people are tipping less than drivers have expected. That’s reduced driver pay, which encourages better drivers with other opportunities to leave the platform. They’re replaced by different drivers, and often less expensive, older, and less well-maintained vehicles. It’s one reason that the overall Uber experience has gotten so much worse.
According to the new Gridwise Gig Mobility Report. It contains interesting nuggets like,
- Business travel may not be what it used to be, but the most airport dropoffs are still on Monday mornings, and pickups peak Sunday evenings (when people return from weekend trips, and some business travelers head out).
- The most expensive rideshare trip for last year cost $1,277.45 from Los Angeles to Vegas. One customer tipped $176.68 on a $688 fare. The longest trip was 562 miles from Knoxville to Chicago.
- One Kansas Uber driver did 72 trips in a day, and a DoorDash driver made 85 deliveries in one day in Anchorage.
However what’s really interesting is data that sheds light on driver pay and tipping behavior. They found that Uber drivers made 17.1% less in 2023 than the year before.
51% of food and grocery driver income comes from tips. This figure is just 10% for rideshare drivers, in part because expected tipping isn’t happening – only 28.3% of rides earn tips (compared to 88.5% of grocery deliveries and 74.5% of food orders).
Now, I tip service workers with tough jobs and low wages. It supports a system that’s bad for workers, but I don’t want to stick it to the individual employee on a given day.
Of course you should never tip a Hong Kong-based investment group that owns your hotel and you shouldn’t tip the online travel agency website where you booked your hotel. And as a general principle: you should not give tips to a computer, such as a self-checkout kiosk.
I have to remind myself how bad taxis were (and are) because Uber is so frustrating. Taxis were always limited in number by regulation, so there were never enough. They were hard to get. You’d spend time flagging them down on the street (in the rain and cold) and then they might not even want to go where you were going. Once you got one the car was invariably in poor condition, because they earned the same amount whether it was well-maintained or not.
Uber is great compared to taxis but that’s something they accomplished a decade ago. Uber changed on-demand ground transportation but then it settled. For all of its sins, it used to be an innovative company and now it’s not. That’s bad for customers and for drivers, but they’re also not burning investor cash the way they used to. Since the company is living off of past innovations it’s had to improve its financials by squeezing both sides of the platform, drivers and customers, instead of growing into profitability.