Did John’s last post give you hope you may see an increase to driver fares? Well, this is Part II of John’s series on Uber/Lyft fares, and this one is a bit more pessimistic. If you missed part one, click here. Senior RSG contributor John Ince provides five arguments for why drivers should not expect to see any increases in driver pay.
When former CEO Travis Kalanick got into an argument with one of his Uber drivers, and a video of that argument went viral, the issue in dispute was fares – and whether or not Uber had dropped them. The driver said that Uber’s price cuts had bankrupted him. TK explained that raising fares would risk losing riders.
So it goes, almost two years later. The same issue and same arguments still underpin all the other issues facing rideshare companies. It’s the central question facing the industry. How Uber answers the question will likely determine whether new CEO Dara Khosrowshahi succeeds or fails.
For years, the rideshare companies have been using the same models. With these driver pay models, they’ve been have been losing money, tons of money, more money than any private company has ever lost in history. Consider these astounding levels of loss: in FY2017, Uber lost $4.0 billion. Lyft lost less, but it was still considerable.
The reasons Uber and Lyft won’t raise prices are complex and, to be fully understood, you have to get what Silicon Vally tech is all about these days – growth – something not intuitively obvious. To spur ridership growth, increasingly Uber and Lyft are competing with public transit. An Uber fare across town in San Francisco is comparable now to a Muni bus ticket or a BART trip.
The price issue also touches the matter their companies’ valuations. Executives and investors both know the perception of how valuable this company will be will take a hit if their grow curve starts to level off. So in the end, what’s driving these decisions is perception – the investor perceptions.
Here are Five Reasons Why Uber and Lyft Will Not Raise Prices.
1. Fear of losing passengers will keep prices steady
Uber is the dominant player and the price leader. If Uber execs remain beholden to the prevailing Silicon Valley growth ethic, growth at all costs, they will remain in a defensive mode on prices. Fear will keep them from raising prices – fear that they will lose ridership if they raise rates.
Uber has the data. Their fears may be based upon good information, but nobody really knows how much a price increase would affect ridership unless they try it.
2. Driverless cars will not come soon enough to justify a price increase
The operative fantasy in ridesharing is that the driver can be removed from the equation and the driverless car will be such a seamless experience that passengers will pay more. Sorry, that day is way off in the distant future – if at all.
3. Their financial advisors tell them that they do not have to show a profit before they go public
Investment bankers purport to know the market for stocks they are issuing. If the feedback from sales reps is that demand for Uber stock in an IPO is strong, that will relieve pressure on the company to show a profit and raise prices before the IPO. They will cite Amazon and others as examples of companies that have gone public prior to showing the clear path to profitability. Editor’s Note: this already seems to be happening, as Uber CEO Dara Khosrowshahi has said Uber does not need to be profitable to launch an IPO.
4. The economy will go into recession
If the economy tanks, people will become much more frugal. Many of those who regularly take an Uber or Lyft will now think twice about it. Then they’ll take the bus or walk instead. Uber and Lyft executives keep close tabs on their customers and the data will quickly tell them if their passenger base is becoming more price conscious. And in a worse off economy, there will likely be even more people willing to drive for Uber.
5. Despite their carefully choreographed programs like 180 Days of change, Uber (and Lyft) don’t really value the interests of drivers
To Uber and Lyft management, drivers are the labor pool. They’re the factory workers of this industry, and since when do factory workers rank high on the priority list for executives? Meanwhile, the companies face a whole host of challenges in trying to keep drivers happy – happy enough that they keep turning on the app. The papers are filled with stories about disappointing pay, violence and any number of other deterrents the driver. Unfortunately for drivers, Uber executives and the board are pretty well insulated from driver input. When drivers speak, it’s only heard if a video, like the one above with TK, goes viral.
For all these reasons, Uber and Lyft won’t raise prices. In fact, they’re still lowering prices. According to a recent article in Quartz,
“Uber is experimenting with letting riders wait longer in exchange for cheaper fares… The ride-hailing company has started testing a feature that gives riders the option to trade a shorter wait for a cheaper fare. …The option to wait longer in exchange for a cheaper ride is being tested among all Uber employees in San Francisco and Los Angeles, … Waiting a couple minutes before booking can lead to a price that is either dramatically higher or lower. The exact science behind Uber’s fares has also become more obscure since summer 2016, when the company quietly switched from the old model, where it flagged surge pricing to users, to one in which it quoted them the ride price “upfront” at the time of booking. This “upfront pricing” model allowed Uber to charge the rider one price, and pay the driver based on another. (A 2017 analysis by driver blog The Rideshare Guy showed the math tended to work out in Uber’s favor.)…
So, if this is going to be the state of affairs, what can drivers do about it?
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Ultimately, the issue will find its way into the political arena. In Seattle, when the city council sought to legislate price increases, Uber reacted by circulating a petition, which read:
The City of Seattle is considering new regulations to nearly double rideshare rates. This could make rideshare unaffordable for many existing riders, and reduce the number of trips that thousands of drivers rely on for income.
By requiring a minimum fare for companies like Uber and Lyft, the City is pricing individuals, many of whom are already struggling with rising costs of living in our city, out of safe and reliable transportation options.
Tell your elected official to keep ridesharing accessible for everyone by signing the petition below.
Bottom Line: If drivers want higher prices and better pay, they’ll have to organize, organize and then organize some more. Looking for tips on organizing drivers? Check out this article for tips on organizing a group of drivers.
Drivers, do you think Uber or Lyft will raise prices on riders to pay drivers more?
-John @ RSG