For those who’ve been wondering, I wanted to let things cool down a bit before I posted anything about Uber’s recent fare cuts. Some of my worst decisions in life have been made impulsively and if given the opportunity, I think it’s always better to ‘sleep on it’. And as we all know with the internet, once you write, tweet or post something, it can’t be deleted.
Well, I’ve slept on it long enough and I still can’t help but feel like, as drivers, we’re getting screwed over by Uber right now. I mean there are only so many times you can handle getting your pay slashed and be expected to go out there on the road and stay positive. For most drivers, this is their second pay cut in just the past 6 months. And although Uber claims lower fares means higher earnings for drivers, I think we all know by now that statement is bullshit.
Compare declining driver pay with the growth at Uber and the salaries/equity of Uber employees and that will probably make you even madder as a driver. Uber recently raised another $1.2 billion and is currently valued at just over $40 billion. My hope has always been that ‘partners’ would see parallel growth, but it appears we’re headed in very different directions.
The Rate Cuts Have Hit Hard
The rate cuts in 48 cities have been tough on drivers and they even hit home last week when rates in the LA/OC area were dropped down to 90 cents/mile. Over the past two weeks, there has been a lot of anger on social media, driver forums and even my own site (normally a safe haven against this kind of stuff), but I don’t blame those drivers. It’s human nature to be upset knowing that you have to go out and do the same job that you did last week but for less pay.
Over the past year, we’ve seen fare cuts of up to 50% in cities across the US. Maybe drivers were paid too much a year ago but the overwhelming sentiment right now is that drivers are not paid enough. As you guys know, I’m a part-time driver so I have the luxury of scaling back my hours if I’m not making enough, but not everyone is so fortunate.
There are also ‘partners’ who have made life-altering decisions to drive full-time and they are now at the mercy of Uber. Looking back now, that obviously seems like a poor decision but there was a lot of promise at one point with rideshare and I don’t think anyone ever figured rates could drop this low. And there are others who just enjoy driving and don’t want to give it all up because Uber won’t pay them a fair wage.
Let’s Dispel The Earnings Myth Once And For All
Uber loves to cite the ‘fact’ that lower fares means higher earnings for drivers. But as any seasoned driver can tell you, they are now working harder than ever, putting more miles on their car and most definitely making less money.
Correlation Does Not Imply Causation
Uber seems stuck on the notion that lowering prices increases ridership (thus increasing earnings for drivers) but maybe they should pick up a copy of the book Freakonomics. I read this book a few years ago and one of the biggest takeaways I got was that just because there is a correlation between two variables that doesn’t mean one necessarily causes the other. There could easily be a third variable that causes this correlation.
In this case, it is beyond clear to me that lower prices are not the only thing causing increased ridership. Unlike Uber HQ, I actually get out on the road and drive. I listen to passengers and I talk to hundreds of other drivers on a weekly basis. One of the reasons why my site has struck such a cord with drivers is because I know what it’s like to be in their shoes. There is a huge disconnect between drivers and Uber HQ because they don’t know what it’s like to be a driver. I do.
Do Riders Even Care?
A majority of riders actually don’t even know how pricing works half the time. Here’s a screen shot (to the left) from my phone taken just a few days ago. There aren’t any prices listed per mile, per minute or even the base fare.
The only way to get this information is to log on to Uber’s website, find your city and then look up the rates manually. I can guarantee you there aren’t too many riders willing to go through that trouble just to figure out whether their fare is going to be $7 or $8.50.
Lower pricing may have helped increase ridership but it’s definitely not the only reason:
- Uber gives out free rides to new users like candy to kids on Halloween. Uber is still giving out $20 free rides to new passengers and who doesn’t like free money? This referral program has worked very well for them and I know many passengers who have been enticed by this offer.
- Riders prefer the convenience and superior quality compared to a taxi. I can’t tell you how many times I used to walk, bike or even make my mom drop me off somewhere because I refused to get into a taxi. I didn’t even know how to call one. Now with the click of a button you can have an Uber at your house in less than 5 minutes.
- Uber has replaced the word taxi in the English language. I often hear friends say “Let’s get an Uber” even if they are getting a Lyft or a taxi! There are hundreds of companies popping up that dub themselves “Uber for Mechanics”, “Uber for food delivery”, etc. and all of this usage has clearly played a huge part in Uber’s recent growth.
But Uber Has Data!
Uber is known as the king of data but unfortunately for drivers, the media and the public we don’t get access to any of that information. In fact, their recent nationwide fare cut was predicated on data from only two cities that showed lower fares meant more income for drivers.
Uber provided us with some nifty graphs for New York a few months ago but this data is beyond useless to me considering that NYC operates nothing like traditional UberX markets. In NYC, you need a TLC license and they limit the number of UberX partners. Right now, you can’t even sign up as an UberX driver in NYC. So the ‘data’ from New York is useless for comparison’s sake.
Uber’s data from Chicago is really the only thing we can trust at this point (and given Uber’s track record I wouldn’t be too surprised if there was some massaging of this data). I won’t go too in depth into the numbers since there is a great analysis over on Pando by Michael Carney, but their Chicago data showed a 45% increase in demand over the course of one year and an 11% increase in the average driver’s earnings.
11% or $1.79 per hour sounds alright, but Uber’s analysis doesn’t take into account the increased operating costs (and mental strain) that come along with 45% more rides. That cuts into nearly half of the 11% increase meaning drivers are now working 45% harder and earning $1.09 per hour more than before. Sounds pretty good for Uber since they get 20% of each ride and a $1 safety fee but no so good for us partners.
My Plan Going Forward
I’m not planning on swearing off Uber completely, but my hope is that every driver out there realizes that Uber doesn’t want to be our friend. They want to grow. And unless driver unrest gets in the way of that growth, things will continue to trend downwards. Over the past couple weeks, we’ve seen the usual social media angst and even a couple protests over the recent fare cuts, but there are still a lot of drivers who need to work (it did not appear as if the protests had much of an effect on driver availability). They can’t afford to take time off or stop driving, they just have to roll with the punches.
Uber has deflected some of this criticism with their new ‘hourly guarantees’ but there are definitely strings attached. Guarantees sound great for drivers but it reminds me of a strategy that companies like Walmart used to use: they would come in to a new city and lower prices so everyone would shop there instead of the local businesses. Then once the competition went out of business, they jack up their prices again.
I feel like Uber’s guarantees are doing just that. They are a clear attempt to pull drivers away from Lyft (that along with their $500 promotion for Lyft drivers who switch to Uber) and I’m not going to be falling for it. Despite what some of you may think, competition is a good thing for drivers and I hope that Lyft stays around for good.
Going forward, I’m definitely going to be shifting more of my attention towards Lyft and my hope is that they do not try and lower fares to compete with Uber. My strategies for driving haven’t really changed, I’ll likely be making less money but I’m still going to do my best to leverage both apps whenever it suits me best. I have always maintained that I prefer driving for Lyft but I make more money with Uber. Well now the latter isn’t true anymore so it looks like my decision just became a lot easier.
If you want to see how much money you’ll make driving Lyft vs Uber in your city, I’ve just updated my fare calculation spreadsheet. You can view it here.
Drivers, what do you think about Uber’s treatment of drivers? Do you think there are enough drivers who are upset about fare cuts to do something about it?
Update (1/19/2015): Looks like Lyft is reducing fares in certain cities too.
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