Uber is Testing New Surge Pricing

Uber is running a test in Charlotte, North Carolina right now that could drastically change how surge works for drivers. There’s no guarantee it will roll out everywhere, but similar tests have become permanent features as part of the 180 Days of Change campaign recently.

Surge is one of the most important aspects of driving so it’s important to keep an eye on the developments here.

So What’s Changing?

According to Uber, this test is designed to make surge more stable, simple and attainable for drivers. So far, so good, since I get a lot of complaints from drivers who are sitting in surge zones but never get a ride (or get pulled out on a non-surge ride). For a lot of drivers, surge can feel like a gamble since you may go out of your way to drive in surge zones/times, yet there’s no guarantee you’ll get a surge ride.

Here’s the e-mail Uber sent to drivers in Charlotte:

Let’s break down each section:

Longer Lasting

Surge areas remain on the map longer, giving you more time to get to those locations. More stability means more opportunities to earn extra.

This sounds like a good thing since there are a lot of drivers who chase the surge, but it still seems like a risky proposition since you don’t know how much longer the surge zone is going to last. Right now, the surge zones update every 30 seconds or so but with this new test, it will be closer to 8-12 minutes.

Personally, I’d rather see a quick notification that says something to the effect of ‘if you drive to this surge area 5 miles away, we’ll give you a guaranteed $5 bonus’. That way you’re not taking a big risk by driving to a surge zone and seeing the surge disappear before you get there.

Simpler to understand

Exact dollar amounts on top of your fares let you know the extra amount you’ll make for each trip, regardless of length.

This is the most controversial part of what’s being tested since this change makes surge amounts ‘simpler to understand’ but now you’ll make the same amount extra for each trip, regardless of length.

So if you’re sitting in a surge zone and the app shows +$13.00 on your next ride, it doesn’t matter if it’s 2 miles or 50 miles, you’ll still get $13 extra. Obviously this works to a driver’s benefit on shorter rides, but it limits the potential upside.

With this new system, you won’t ever get the $2-$300 long fare on surge anymore. Even though these types of rides are rare, psychologically, it’s nice knowing they’re available.

Here’s what it looks like in the app:

Based on your location

When you’ve reached a surge area, that extra dollar amount will be added to your next trip, no matter where you pick up a rider.

Surge amounts will be added to your next trip as long as you remain online and accept your next trip request.

This is probably my favorite part of what’s being tested, since it can be frustrating to sit in a surge zone not getting any requests and slowly see the surge dropping down to zero. Now, as long as you can get into a surge zone, you’re guaranteed that your next trip will receive the bonus shown on the app.

My Thoughts: This Smells Like Upfront Pricing

I like that Uber is trying to make surge less of a gamble. Basing it on the driver’s location as opposed to the passenger’s location makes sense. Now, as long as you get into a surge zone, you’re guaranteed to get a bonus (which will be displayed right there on the app as seen above) which removes the possibility of getting sucked out of a surge zone on a non-surge ride or not getting a surge ride at all.

But it seems like this is an attempt to apply upfront pricing to surge pricing (UberMan had a good video on this topic). Most drivers are not fans of upfront pricing because it breaks the link between what the passenger pays and what the driver gets.

With upfront pricing, Uber loses money on some rides, makes money on others, but doesn’t tell drivers what their total percentage from the fare is (they do for individual trips though). And with upfront pricing, since there are some rides (often long rides), where Uber takes close to 50% of the fare, it’s easy to point to this and say, ‘look how greedy Uber is!’.

So Uber is telling drivers to trust them, but if you look at their history with drivers (bad) and their finances (bad), it seems like an opportunity ripe for abuse. Uber has worked hard to improve the driver experience with their 180 Days of Change but they lost $3 billion last year and in order to get profitable for a 2019 IPO, Uber can only do two things: charge passengers more or take more from drivers on each fare.

Uber does not want to charge passengers more since it stunts growth and would allow a surging Lyft to take more market share, so their only real move is to take more from drivers. This has been the big worry with upfront pricing and if this new surge system gets implemented, that would be my worry too.

What are Drivers Saying?

Here’s some feedback from our Facebook page and Twitter.

I don’t see the point. How does this “improve the driving experience”? Can’t imagine drivers were asking for this.

— PDXUberLyftDiaries (@PDXUberLyftDiar) November 15, 2017

FAQs

Has Uber changed to a new surge system?

No not yet. But they are testing a new surge system with drivers in Charlotte, North Carolina.

How does (the original) Uber surge work?

In cities outside of this test, Uber charges passengers an upfront price for the ride and pays drivers a surge multiplier based off the exact mileage and distance. So if you get paid $10 total for going 7 miles and 10 minutes, with a 2.0x surge multiplier, you would now get $20.

-Harry @ RSG