Story after story comes out critical of Uber. Reid sent me an article, that I saw mentioned on a blog about Uber’s CEO being indicted in South Korea because their UberX service is illegal.
But an indictment, as in South Korea, where Travis Kalanick faces up to $18,000 in fines is more or less meaningless. It’s posturing — such weak sauce that it amounts to implicit permission to continue operating. The move shows responsiveness to entrenched interests (taxis), that politicians are doing something, but that something is so light that the message to Uber is that there’s a near-zero cost to continuing to do business, travel on!
When Uber’s surge pricing kicked in in Sydney earlier this month as a drama unfolded with a gunman, they came under fire.
There are real criticisms of Uber. I believe they have a great business model, they’ve grown too quickly, and their corporate culture hasn’t kept pace with their growth. They were a brash upstart, fighting battles with regulators from their very start and at every turn, and that affected their DNA. As a company they need to grow up, and we’ll see if they can.
I like and use Uber, although I post the bad news and the criticisms, too. But the one criticism that rings most hollow is of their practice of surge pricing — raising prices when there’s significant demand that outstrips available vehicles.
Because surge pricing is great.
- It’s never a surprise. It pops up on a customer’s screen. You even have to type in the multiple to confirm it. You can’t be charged for surge pricing without acknowledging it first.
- Most of the money goes to the driver, not to Uber. Uber takes the same 20% cut during a surge that they do on regular rides.
- It balances requests for rides with available rides. People with a real need get rides, others are encouraged to take alternate forms of transportation or wait for the surge to end.
- It makes more rides available. It brings drivers into the surge area, when they might not be driving at all. Take a snow storm, at regular prices you stay warm at home, at surge prices you provide service if you’re a driver. That benefits drivers and gets riders where they’re going. And when drivers enter the area, the surge ends.
The degree of the surge depends on the imbalance between riders wanting rides and drivers available and willing to provide rides.
I’ve paid surge pricing — arrive at New York Penn Station. 4pm on a Friday. Raining. Shift change. You won’t get a cab on the street. The cab line was about an hour long. Uber, 1.25x pricing, a few extra bucks and I was on my way to my hotel in about 3 minutes. Bam.
THE ALTERNATIVE TO SURGE PRICING IS NOT ENOUGH RIDES AT ANY PRICE. The alternative ‘surge’ pricing is infinite. Uber adds capacity, provides a service that wouldn’t otherwise exist.
Uber’s Boston team first tinkered with a price hike on weekend nights around 1 a.m., when drivers tended to clock out just as the city’s public transit system approached closing time, a situation that created lots of demand for Uber cars.
In just two weeks they had a resounding answer,” Gurley writes. “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.”
Economists love surge pricing, people who don’t understand economics hate it.