Uber’s Surge Pricing is Great Here’s Why You Should Love It

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!

Peter Thiel called Uber “the most ethically challenged company in Silicon Valley.”

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.

Reader N.G. passes along a piece explaining what surge pricing does, with data.

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.


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’s real problem is that they don’t take responsibility for their actions.

    Uber wants to be a “transportation technology company”, engaged with “independent contractor drivers” with a “private driver” and tiering of service to price points blah blah blah.

    Customers think of Uber as a taxi or car-service. Just read the posts above. Frankly read any posts about Uber. They talk about a TAXI company, give or take.

    Yes the Uber concept is innovative.

    But everything else is rotten. EVERYTHING. The management. The company culture. The pricing model. The driver engagement. The defiance of the law. Defiance of regulation. The real and alleged crimes by drivers. (Let’s dispense with the ‘independent contractor’ excuse). But especially the management. They hide behind excuses for EVERYTHING. Every situation above, and many others.

    For those looking for more than Gary’s token post critizing Uber, here’s a handy site of Uber complaints that’s night-and-day more insightful than Gary’s placeholder:
    1. Death of Passenger.
    2. Battery of Passenger.
    3. Choking of Passenger.
    4. Assault of Passenger.
    5. Abuse and Assault of Passenger.
    6. Driver hits passenger with hammer.
    7. Sexual assault of Passenger.

    That’s just the FIRST PAGE. Link: http://www.whosdrivingyou.org/rideshare-incidents.html

    The San Francisco death. The “Emil” incident. The Delhi crime. The Boston crime. The Oregon ban. The Korea ban. The Europe lawsuits. All of this points to something rotten within.

    Uber’s done because they have a rotten management team. Uber’s done because they have a boring business model. I assert that the only reason Uber is still in business is because they keep offering discounts and credits to new and existing riders to keep the buzz going. I assert it’s a business with uninteresting margins and no competitive differentiation to TAXIS [let alone any ride-share firm] and without continued discounting they are toast because the investors’ (ie. VCs) money will dry up.

    Meanwhile, WTF are the investors thinking. $40 billion valuation and they still don’t hire a management team to keep the douchebag founder and his entourage in check?

  2. @Mokonutz – not sure who you’re using for a black car that’s less? (Would love to know) And as I re-read I realize that UberX is certainly less expensive than a cab from downtown DC..

  3. Put down the app and shop around! Town Car or suburban service to IAD for <$80 including gratuity. In nicer cars than uber black with more professional drivers. Maxi Limo is our go-to.

    Honestly, $90 for an uber aging, run down Lincoln with a driver with extremely limited English to Dulles is just ridiculous. And, again, that's pre-surge pricing (which is clearly manipulated).

    No referral bonuses or affiliate cashbacks though. Just straight business transactions.

  4. Maxi looks quite reasonable. What I like about UberX (which is cheaper of course, and I really don’t care about the assertion of ‘extremely’ limited English which hasn’t been my experience) is on demand, no prescheduling.. I often have intentions to leave for the airport sat 90 minutes prior to departure and wind up pushing the envelope and leaving 50 minutes before departure [when heading out of DCA]. So I’m not the ideal pre-schedule guy.

  5. Since Boston is used as an example, would anyone who normally uses Uber from BOS care to guess what I will face and pay if I use Uber arriving BOS on a Wed 11 pm in Jan. going to the Fenway? I’ll be using my $20 Uber sign-up credit. And how much tip to get future prompt service? Thanks.

  6. Everyone should have freedom of choice. If it is too expensive, don’t use it and find another option. If I am hungry and see a bunch of restaurants, I can check their menu and prices. If I don’t see something I like or if it the prices are too dear or too cheap, I can choose to go somewhere else. I don’t like scalpers but sometimes they are the only option for a sold out event. Again I have the choice of paying their price or not.

    While not perfect, I have used Uber for the convenience and price in the US, Germany, France and Belgium. Uber has saved me from circuitous routes and fare padding when I needed a ride in places where I do not speak the language or know my way around. Once I left behind an item in a Uber car and got it returned when I tracked down the driver a few weeks later. I have had some fare hiccups but when I reported it to customer service, adjustments were quickly made to my bill. See if you can say the same regarding yellow cabs or other taxis.

    Overall, Uber is an option for me. If a car is available and the price is agreeable, I take it. Otherwise, I find another way to get where i need to go. I recently had to pay 2.1X surge pricing to get a ride home. It ended up costing about $140. While I didn’t like it, it got me home safe and faster in a car that was more comfortable and cleaner than a NYC taxi. I knew what I was getting into when I ordered the car and it was my choice to use Uber than wait around for a cheaper option.

  7. I’m a disaster scientist and I disagree that you shouldn’t have demand based pricing in disasters. Florida has laws prohibiting price gouging and as a result, is left without enough contractors in the days after a hurricane when it is critical to protect homes from more damages. I would use Uber precisely because of their surge pricing model- that is their differentiator. If I need a cab in the snow, I’m willing to pay top dollar to get one. Food in disasters is actually the opposite problem, usually: charities providing free food undermine the markets, and merchants and farmers are driven out of business, and then the charities are there for months or years.
    Scott

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