It is very interesting how people with different frameworks react to events. An example is the media storm related to SF startup Uber.com and dynamic pricing. For the second year now Uber has utilized dynamic pricing for peak demand periods such as Halloween and New Years Eve. Perhaps the media will continue to make January the “dump on Uber” month; or maybe they will go back to easy fillers like “Ten best of 2013″. Uber seems to be like the political-horse-race meme, journalists can generate column inches without even getting out of their chair. They just need a Twitter account.
Back to frameworks. I will offer only two examples to illustrate:
- computer science, economics
#1 When I read about Uber inside my framework #1, I see Uber as a dating service that leverages machine learning. They earn a fee only when they match-mate successfully, and better than competitors. They earn more fees if their algorithms allow them to better position their drivers where the demand will be (micro demand prediction) They don’t “own” either side of these matches. In particular, it’s the drivers that are really setting the price and agreeing to the pricing scheme. Uber is providing the platform to enable the transaction. So given my framework, what I see is:
- Charges of “greed” and “gouging” don’t make sense – if the Uber service doesn’t attract drivers to Halloween or New Years Eve then there is no match. No ride for me, no fee for Uber.
- If Uber is going to be the winner in this match-making competition, then their secret sauce is going to have to make both buyer and seller prefer Uber to the other ride matching services. Profiles of the “daters” are absolutely essential. Yet journos complain that “the driver rated the passenger”.
#2 On hearing somebody paid 7x the typical fare on to get home in a December snowstorm? Obviously that is the Uber corporation taking advantage of the helpless passenger. The alternative of the stranded passenger in the snow doesn’t come to mind. On hearing a story that Uber didn’t tell the passenger what the fare would be until they get a big Visa bill they think “Of course, that’s what that greedy corporation would do”. The alternative that the passenger didn’t pay attention to all the Uber price notices and warnings isn’t considered.
I was first aware of the Uber dynamic pricing trials in 2012 from Joshua Gans’ post Uber and the delicate business of creating a platform. Reacting to the first media storm, Joshua summarized Uber’s challenge
Basically, to satisfy one side of its market — the taxi drivers — Uber upset the other side — its customers.
At the time I thought Uber would experiment until they found the right balance to satisfy both “daters”. So far it appears that this techno-optimist called it wrong. I’ve investigated as best I can the bill-of-accusations against Uber. None of it holds up. I’ve examined their FAQ, their user guide, and a number of Travis Kalanick’s blog posts on dynamic pricing. I’m impressed — objectively Uber has worked very hard to avoid surprising a customer with a high fare. How can a client complain “Uber didn’t tell me what the ride would cost” when, from NZ (!), I was able to obtain a London Uber quote in about 60 seconds on my iPad on a slow internet connection. Starting with finding where on the Uber site to get my quote, then choosing London as my city, then typing in my route from Mayfair to Canary Wharf.
Further down the quote screen is the exact fare basis, which is the same time and/or distance fare basis as for most taxis, including Uber London competitor HAILO. In October Hailo’s minimum fare has gone up to £10 between 6am to 10pm Monday to Sunday; and £15 between 10pm to 6am.
And the famous London Black Taxis. I said same fare basis, not the same coefficients.
If you read through the Uber Happy New Year bulletin published Dec 30, the day before NYE, you’ll see how totally clear the Uber UI on what you will pay — you can’t just press I ACCEPT HIGHER FARE under the Huge Type multiplier, you also have to key in the multiplier (7 in my example above). And the depth of the coaching (“pro tips” to avoid paying high fares). Travis begins with this:
New Year’s Eve is upon us and we want to give you some quick pro tips for getting around with Uber! This New Year’s Eve we’ll have a record number of cars on the road ready to get you where you want to go. But, that doesn’t change one simple fact: on NYE, everyone wants to move around the city at exactly the same time!
You can avoid the peaks of surge pricing with good timing when you travel. Check out our smart tips below, and don’t forget you’ll always know the price before you request.
So here’s my question: what can Uber do differently than the above, or this (from a Travis Kalanick Dec 16 email reply to “outraged client”):
We regularly do surge pricing when demand outstrips supply. Remember, we do not own cars nor do we employ drivers. Higher prices are required in order to get cars on the road and keep them on the road during the busiest times. This maximizes the number of trips and minimizes the number of people stranded. The drivers have other options as well. In short, without Surge Pricing, there would be no car available at all.
Now granted, that the prices are significantly higher. BUT we notify every customer in big bold images in text, which each customer has to confirm in order to request. Furthermore, every customer also had to type in what the multiplier was in order to double confirm that they understood what they were agreeing to.
So, was it expensive. It was, and we wish it wasn’t necessary. But if you did indeed take the rides described then you confirmed the price which was very up front, and then entered the multiple you read into a text box in order to double confirm.
Airlines and Hotels are more expensive during busy times. Uber is as well. We don’t just charge to make a buck though, we take a small fee of the transaction, but the vast majority goes to the driver so that we can maximize the number of drivers on the road. The point is in order to provide you with a reliable ride, prices need to go up.
If you have other ideas for how to provide a reliable ride during busy times, I am all ears. In the end, Uber is reliable, always, and we will create a system that maximizes the number of people that can get safe and reliable rides. Not surging is saying you shouldn’t have the option. Not surging is saying we should be just like a taxi and be unreliable when people need us most. These are outcomes that take choices away from the consumer and make it harder to get around cities – these are outcomes that we put a lot of hard work in to avoid so that at least you have the choice if you want one.