Tag Archives: Uber

Uber is a Dating Service

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:

  1. computer science, economics
  2. journalists

#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. 

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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. 

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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.

Uber’s ride-matching encounters a wee bit of dynamic pricing resistance

Megan McArdle did a short post on why surge pricing is the optimal mechanism to clear the market. And also why it might be net bad strategy for Uber. A fragment:

At the core, Uber is not a taxi company; it's a technology company. The company has a lot of data on where its customers are, and where they like to go. That enables some cool stuff: Travis Kalanick, the company’s chief executive officer, told me that Uber can slightly outperform gambling spreads on whether a team will win a home game, just by looking at stadium trips. More practically, data enables them to move cars to where they might be wanted, which means it’s easier to get a car if you are outside the dense urban core. And when demand is very heavy, data enables Uber to dynamically price rides to ensure that cars are always available — if you’re willing to pay.

I love Uber’s surge pricing; it means that we can get a car home on New Year's Eve. Yes, it costs a lot, but the alternative is hoofing it for a few icy miles through some not-quite-safe streets.

But I’m an economic policy journalist, not a normal person. Normal people hate this sort of dynamic pricing, which they call “price gouging.”

This came to a head last week, when a brutal snowstorm on the East Coast kept taxis off the streets. Desperate folks in the New York metro area turned to Uber — and then screamed at the bills they got for hundreds of dollars, even though Uber’s smartphone app seems to have clearly warned them that this was going to happen. Economically illiterate recrimination ensued…

CEO Travis Kalanick posted his reply to outraged customer

Surge Pricing email that just came in and my response. Get some popcorn and scroll down…

————— Forwarded message —————
From: Travis Kalanick

Date: Mon, Dec 16, 2013 at 8:44 PM
Subject: Re: I'm OUTRAGED!
To:

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.

Thanks,

Travis

On Mon, Dec 16, 2013 at 5:01 PM, wrote:
Dear mr. Kalanick,

I used to love uber… I have written several blogs about the amazing service and how amazing I thought your company was. Key word, WAS! I called uber on sat. To take me to a show that was 60 blks away, and also called uber to pick me back up to bring me home. I usually get an email with my receipts, but havent received one yet… did a little research and was SHOCKED to see that i was charged $180 each way! That's $360 to go 120 blocks!

I WILL NEVER USE YOUR COMPANY AGAIN! I AM OUTRAGED AND DISGUSTED THAT YOU WOULD JACK UP YOUR CHARGES THAT MUCH BECAUSE OF A SNOW STORM!!!

I hope it was worth losing a loyal customer-like myself! I plan on telling this story to everyone I know and plan on writing about this on my blog!

You should be ashamed of yourself!

Megan links to the work of Duke University's Mike Munger. I agree that Mike is a superb source on this behavioral issue. His Econtalk interview with Russ Roberts explores real world examples of illogical reactions to dynamic pricing. If you don't like 1 hr podcasts, there is a partial transcript and rich resource links to papers on this topic. Abstract:

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the psychology, sociology, and economics of buying and selling. Why are different transactions that seemingly make both parties better off frowned on and often made illegal? In theory, all voluntary transactions should make both parties better off. But Munger argues that some transactions are more voluntary than others. Munger lists the attributes of a truly voluntary transaction, what he calls a euvoluntary transaction and argues that when transactions are not euvoluntary, they may be outlawed or seen as immoral. Related issues that are discussed include price gouging after a natural disaster, blackmail, sales of human organs, and the employment of low-wage workers.

Another Munger Econtalk I recommend is Munger on price gouging.

 

Uber is recruiting a Policy Economist!

We’re looking for a Policy Economist to tease smart answers to hard questions out of big data

Über iPhone app

Uber is a fascinating enterprise. I think they are going to change cities globally. Not just reform the sclerotic taxi monopoly. Here is an example

Urban transportation has looked the same for a long time – a really long time – thanks in large part to regulatory regimes that don’t encourage innovation. We think it’s time for change. We’re a tech company sure, and we’re working in the transportation space, but at the end of the day we’re disrupting very old business models. Our Public Policy team prefers winning by being right over some of the darker lobbying arts, and so we’re looking for a Policy Economist to tease smart answers to hard questions out of big data. How do the old transportation business models impact driver income? What effect if any is Uber having on the housing market or drunk driving or public transit? To what extent are the different policy regimes in New York City and Taipei responsible for different transportation outcomes? Just a few of the questions we want you to dig on.

Read their placement ad for the full description of the opportunity. And note the Perks:

  • Travel like a European diplomat: employees are showered with Uber credits 
  • Ground floor opportunity at a fast growing company that is changing the face of transportation worldwide 
  • As an early member of our business operations team, you’ll shape the business direction of the company 
  • We’re not just another social web app: we’re moving real assets and real people around their cities 
  • We have access to an amazing list of advisors and investors that we actively engage

If I were a young economist that would look like a big chance.

Uber Might Be More Valuable Than Facebook Someday. Here’s Why

Über iPhone app

This is pure speculation – but it is an exciting spec. Not all of this will happen, but possibly other big opportunities will emerge. This is just a sample:

So, step one: Take over taxi industry. Step two: Kill ownership. From there, who knows what could happen in the long term? Uber could start using self-driving cars made by Google (one of its investors) to eliminate the need for human drivers, driving down its costs even more. It could introduce a near-instantaneous delivery service to rival Amazon’s drones. It could roll out a subscription service, akin to Amazon Prime, that would include perks like predictive transportation, so that, for example, when Uber sees an appointment on your Google calendar for a cross-town meeting, it sends a car to your office automatically at the right time. There’s no reason that other companies couldn’t try to do these things, too. But Uber has first-mover advantage, and it’s got most of the kinks – customer interface, payment, fleet management, supply-and-demand considerations – worked out already, making it a prime candidate to beat competitors to new product areas.

The result of Uber’s efforts, in other words, could be the creation of a techno-metropolis, in which people and goods are ferreted around seamlessly and, perhaps, automatically. It would be like something out of a sci-fi movie. And Uber would be standing at the center of it all, collecting a cut of every transaction.

 

DC Taxi Commission Still Gunning for Uber

I’m a fan of the Uber startup. For a running expose of the corrupt Washington DC politics, there is no better source than Megan McArdle:

As I chronicled in the Atlantic six months ago, upstart limo dispatch service Uber is embroiled in a long-running war with the DC taxi commission. Uber allows you to order a sedan service from your smartphone, and is much beloved by affluent DC DINKs. It is also a favorite of the limo drivers, who like being able to get rides at good pay rates, and without paying kickbacks to the dispatchers. A couple of nights ago, I took an Uber to a work event (you still can’t reliably get a cab in my neighborhood), and the driver told me that he’d just bought the shiny new Lincoln he was driving to strike out on his own. Uber is what made that happen, according to him; under the old system, it was hard for drivers to go solo, because there are network effects in black car services-; large services tend to get most of the clients. He was beaming as I inspected his brand new wheels, as proud of that car as if he’d baked it himself.

However, Uber is not beloved of DC taxi drivers. As Bob McNamara of the Institute for Justice told me, “Like any other business, taxi drivers think it would be great if no one could compete with them.” Taxi drivers and owners provided a lot of support for our current Mayor, Vincent Gray, in his hotly contested primary race with former Mayor Adrian Fenty. (They also seem to have offered some illegal support to the city council staff; one member’s former aide got jail time for accepting bribes.) The commission has become quite cosy with the industry incumbents in recent years, to the point of issuing a de-facto moratorium on new taxi and limo licenses. The election did nothing to reverse that relationship.

The taxi commission has been gunning for Uber since last year, when they launched a “sting” featuring Commission head Ron Linton, which ended in the unlucky driver having his car impounded. Originally they said the service was illegal because you couldn’t use a black car to charge for time and distance; when Uber’s supporters pointed out that the taxi code contained a “sedan” designation that seemed to allow black cars to do just that, they suddenly came up with a new rationale: Uber was illegal because it didn’t offer you a paper receipt. I was unable to find an Uber customer who expressed any desire to have a paper receipt, but perhaps they are out there, frantically lobbying the taxi commission.

 

Uber and the delicate business of creating a platform

Joshua Gans examines Uber’s challenge in mediating what customers want and what drivers want. When I first read about Uber’s dynamic pricing I thought that was brilliant – prices will raise until demand is satisfied, the New Years Eve taxi market will clear! Turns out things are more complex. Here’s a snippet:

Over the last year, a new app has been changing the way people get limos in some major cities in the US. Uber — founded by Garrett Camp, Oscar Salazar, and Travis Kalanick, and launched in 2010 in San Francisco — allows people to get and pay for taxi rides easily. Here’s how it works: after you have signed up for an Uber account, you can launch the smart phone app and instantly find limos or town cars equipped with the service. One click hails them, and the nearest driver comes and picks you up. At the end of the journey, your driver charges your account. No standing in the rain trying to hail a cab. No grabbing for cash or fiddling with credit cards.

(…) If this were a one-time mishap, we could set it aside. But sticker shock has actually turned out to be a ongoing issue for the company. This was demonstrated most clearly in New York on New Year’s Eve, a night that should have been a triumph for the start-up. Because of high demand and the accompanying ever-higher prices, Uber’s supposedly simple and straightforward transaction became complex. Consumers saw that their ride home could be seven times the price of their ride into town. Consumers who were used to easy clicking missed the notice and became (reasonably) upset when the bill arrived. Either way, they weren’t happy. Basically, to satisfy one side of its market — the taxi drivers — Uber upset the other side — its customers.

(…)

Joshua concludes with some revised pricing schemes that may resolve this challenge. I sure hope it works – Uber is a long-needed breakthrough. More…