Harry here. This week, we’re trying something new with a two part article on Uber and lower rates. Today’s article will talk about why we’ve seen so many fare cuts lately and what the future holds. On Wednesday, our article will cover what you can do about lower rates if you’re fed up, or feel you deserve to be paid more.
Over the past couple years, rate cuts have become a part of doing business with Uber. For passengers, this has been great, but if you’re a driver in one of the cities that’s been cut, you’re probably pissed. But you’re also not alone in your feelings of anger.
It seems like there’s a new rate cut every few weeks nowadays and every time it happens, drivers are left wondering what they should do. I tend to get a lot of angry e-mails from drivers whenever there’s a rate cut, and I completely understand why.
It’s never a good feeling to have to go out and do the same job you did yesterday but for less pay today. Uber likes to
Unfortunately, I don’t see this problem going away any time soon and here’s why. Uber is a very customer-centric company, and in order to provide the ultimate customer experience they need as many drivers out on the road as possible. Drivers, on the other hand, really want as few drivers as possible online since that means more requests, more surge and more money in their pockets. So when you think about it, Uber and its drivers are always going to be somewhat at odds on this issue.
Why Are Rates Being Cut?
Now before we tell you what you should do when Uber lowers rates in your city, I think it’s important to understand why it’s happening. Most drivers don’t realize this, but there’s a huge untapped market out there for Uber, and it’s not new customers.
Uber has pretty high market penetration at this point, but where the real opportunity lies for Uber is getting customers to ditch their car in favor of Uber. The only way this would ever make sense though is if Uber can lower the price of a ride to the point where it’s significantly cheaper to take Uber every day than it is to drive.
Here’s a recent quote I found from Uber’s CEO that I think is extremely telling of the company’s future direction:
On the surface, that all sounds great. Lots of big words like ‘price elasticity’ and ‘ultra-high efficiency’, but what it really boils down to is that Uber needs to charge less in order to get someone to ditch their car.
Now this is where drivers come into play since they obviously have to pay the driver something right? Although recently, it seems like Uber has flirted with just how little they can get away with. But when you think about it, in its current state, they really can’t lower prices much more unless they start introducing more efficiencies onto the platform.
UberPool to the Rescue?
The biggest example of increased efficiency is a service most drivers are familiar with and many also dislike: UberPool. I’ve touched on UberPool before but in short, it requires more work from the driver (multiple pick-ups/drop-offs, more riders to keep happy, more things to manage, etc) for about the same amount of pay.
Drivers really don’t make much more on an UberPool ride but the passenger saves almost 40-50%! That is a huge savings for passengers and it’s why we’ve seen such a high UberPool adoption rate in cities like San Francisco and Los Angeles.
Passengers are happy to pay UberX rates but they’re even happier to pay half the price of UberX.
More ‘Efficiencies’ On The Way
If you couldn’t tell by now, I’m not a huge fan of UberPool as a driver. Flat out, I think drivers should be paid more for UberPool since they’re doing more work. But UberPool isn’t the only thing Uber is working on.
One of the main findings from analysis I’ve done on my nights out driving, is that in order to maximize your earnings, you really need to cut down on your down time. Drivers are only paid when a passenger is physically sitting in the car so all the time you spend waiting for a request, driving to the passenger, and waiting for them to come outside (I’m looking at you Uber pax!) is unpaid time.
Going forward, it’s really in Uber’s best interest to help drivers eliminate all this down time. And we’re already seeing that in certain cities.
In San Francisco, Uber is currently testing smart routes that run along three main arteries of the city and allow passengers to save money if they’re willing to get picked up and dropped off anywhere along these smart routes.
It’s a little bit less convenient for passengers since they may have to walk a block or two but it does make things better for drivers. Drivers are able to drop-off and pick-up on the more convenient side of the street, meaning less time wasted going to pick up and/or wait for a passenger and more money in their pocket.
Some other features related to efficiency are:
- Hot Spots: Lyft Line (Lyft’s version of UberPool) currently uses this feature to encourage passengers to go to designated pick-up spots, thus making Lyft Line pick-ups easier on the driver.
- Destination Filter: This is another Lyft feature that allows drivers to only receive ride requests headed in a certain direction. Dead-heading or returning home without a passenger can be a huge income killer and it’s only a matter of time before Uber implements their own version of this feature.
- Suggested Pick-ups: This is a feature that Uber has tested at places like professional athletic events and concerts. By helping to coordinate pick-up locations, this saves the driver time they would normally spend looking for a passenger and means they can do more rides per hour.
- Infinite Uber-Pool Pick-ups: If you’ve done an UberPool ride lately, you may have realized that you can now get more than one match per pick-up. So if you have customer A and B in the car on an UberPool ride, as soon as you drop off customer A (or even B), you could get matched with customer C. Eventually, you could be in a continual UberPool loop and never be without a passenger.
- Back to Back Pick-ups: This is actually an original Sidecar feature that allows drivers to accept a second request before the first trip ends. Uber is currently testing this feature out in a few cities.
More Efficiencies = More Fare Cuts
Savvy drivers are already doing everything they can to be more efficient while driving since they know this will increase their bottom line. I realized early on that Uber passengers take forever to come outside so I started tapping the arrive button 1-2 minutes before I actually arrived, or would text passengers to come outside before I was actually there.
But what should be clear by now is that Uber is working on all of these efficiencies so that they can continue to lower rates.
Lower rates might increase ridership but it also means that drivers have to drive more per hour to make the same amount of money. And when you drive more, your expenses will be higher. And since drivers are responsible for their own expenses, these efficiencies could end up costing you money.
I think a lot of these added efficiencies are going to benefit passengers (by making rides cheaper) and Uber (by getting more customers to take more rides) but I don’t see them working out as well for drivers. Uber hasn’t shown a willingness to really listen to its drivers over the past couple years, but in order to achieve the efficiencies that they are going after, they are really going to need the buy-in of drivers.
Ultimately, Uber does dictate a lot of the terms of employment, but drivers do have options at their disposal. I know some will say if you don’t like it, you should quit. But personally, I like driving rideshare and I’m going to do everything I can to try and make it work. Quitting would be the easy way out, and many drivers have and will continue to quit, but I’m not quite there yet.
Drivers, have you had rates lowered in your city recently? Why do you think this is happening and what are your predictions for future rate cuts? On Wednesday, we’ll cover what tools you have at your disposal if you’re unhappy with rate cuts in your city.
Want to read part two? Click here!
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-Harry @ RSG