Why Uber's "Snow Surge" Uproar Is Only the Beginning
Over the weekend, outrage over Uber's "surge pricing" popped up again, as peak weekend demand coincided with snowstorms in New York City. Prices reached seven or eight times the usual base fare-rate in some places.
The e-hailing app presents its pricing structure when users book a car, but that didn't mellow the sticker shock. Customers in New York tweeted their outrage Saturday night--"Love ya @uber, but $132.00 to get across town last night?! I'm not made of money!" wrote Michelle Beadle, a TV-sports announcer.
And after the flurry of tweets, a predictable storm of news stories hit yesterday exploring the outrage, and suggesting what Uber should do about it. New York being the media capital of the Western Hemisphere, it's perhaps natural that a few outraged tweets get blown into a national story. But in reality, one night of surge pricing means very little for Uber--or anyone else. Here's why.
New Year's Eve is just weeks away
Let's not forget that fast-approaching New Year's Eve is surge pricing D-Day for Uber.
In cities around the globe, NYE merits an all-hands-on-deck mentality among the company's teams. It's the day demand--before and after midnight--outstrips supply most intensely, and surge pricing is instituted in almost every place Uber operates. In cities in which Uber recently launched, NYE is often the first time surge pricing is instituted--and that is a legitimately big shock to customers.
Uber has tried to promote a policy of transparency, which goes beyond just alerting customers before they book a ride subject to the extreme pricing. Last year, to show off its sophisticated operations and rally the Uber troops, Uber CEO Travis Kalanick and operations chief Ryan Graves hosted a live webcast from the Uber San Francisco office to give a play-by-play of surges affecting New Year's revelers.
If you still think this weekend was bad, predict far more backlash in two weeks.
Pricing isn't Uber's biggest problem
If Uber wants to avoid the perception that it's gouging customers, the company might consider retooling its driver-payment structure.
As Matthew Yglesias points out in Slate, we as consumers are pretty accustomed to seeing prices rise when demand is high. Just look at the hotel industry: Renting a bungalow or booking a hotel room on the Mayan Riviera would be twice as expensive during peak months (winter in North America) than during slow months, for instance. "You typically see peak pricing in an industry like hotels or restaurants where the supply can't scale up or down rapidly," Yglesias writes.
Only, Uber isn't like a restaurant (in which prices are often higher for dinner, for which there's more demand, than lunch), or a resort, in that it doesn't have precisely limited space. Instead, it (theoretically, at least) has the capability to get more drivers on the road when demand is high--and the surge pricing is part of that motivation. Yglesias posits that perhaps not enough of the surge-price is going directly back to drivers--and that Uber is focusing on the wrong end of the problem here: It's working on making surge pricing socially acceptable, rather than making it a great boon for drivers. Writes Yglesias:
The goal shouldn't be to find a way to make 5x or 8x pricing psychologically tolerable. It should be to find a way to make 2x or 3x pricing attractive enough to drivers that the multiples basically never have to get higher than that. And you do that the old-fashioned way--by paying people more.
In an interview last year, AngelList co-founder Naval Ravikant--who also owns a small stake in Uber--noted that in the e-hailing space, finding and serving customers is much more difficult than finding and working with drivers. "Supply aggregation is not an issue," he says. "Aggregating demand is the hard part, and where Uber is doing well."
Maybe it's time for Uber to focus on the supply-side once again.
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