This is a weekly column that offers news, insights, analysis, and user tips for rideshare platforms like Uber and Lyft. Look for it every Monday after the live show (well except for this past Monday cause of vacations and other stuff happening), right here on dailytechnewsshow.com.
Uber’s financials are apparently not as rosy as everyone thought. Despite the company claiming to make a small profit on every ride given in the United States, the company has still posted a massive loss of over a billion dollars so far this year. Even by tech company standards, that’s astonishing. The reason for the huge losses? Driver subsidies, which are incentives and bonuses paid above what the company earns from fares to get enough drivers out there on the road to increase demand. No wonder the company can’t wait for the self-driving car era. Still, with losses this huge, can Uber keep operating the way it has been until that day comes?
Before I get to that, lemme back up and talk about how Uber got into this mess to begin with. Uber is first and foremost a tech company, and it measures success with the same metrics. First, you grow by getting more people using your product or service and more people talking about it. Then, you figure out how to monetize all of those people. With Uber’s beginnings as something of a premium-but-slightly-cheaper alternative to a taxicab, they hit a wall early on in growth. By lowering fares, they were able to attract people who would never use a taxicab; in some markets, fares are now so low that a door-to-door UberPool trip can be cheaper than taking public transit. The growth strategy has worked.
Drivers, however, haven’t benefited from that growth. Fares in most markets have been sliced almost in half between 2014 and 2016, and driver earnings with them. After the Great Rate Cut of 2015, many veteran drivers decided to call it quits (including myself). Faced with a driver shortage leading to monumentally high surge prices (and a very negative rider experience), Uber decided to roll out a variety of incentive programs to keep enough drivers on the road to satisfy demand. These incentives can take the form of either hourly guarantees, such as $30 per hour if a driver takes at least one trip per hour, or per-trip incentives that increase payouts by 50-100%. This means that on a trip where a passenger pays $6, a driver’s payout with incentives can equal $8 after Uber’s commission. Someone’s definitely losing money with that math.
Another side effect of the fare cuts is that as the rides get cheaper, so does the experience. The quality of the vehicles and drivers is rapidly declining as veterans find less and less reason to spend their time with Uber, and they’re being replaced with drivers who are unsafe and have limited English-speaking ability (one of the biggest complaints apparently). The quality of passengers has gone down as well; whereas people used to understandably gripe about excessive surge pricing, today’s riders are up in arms if their Pool fare is $4 instead of $3. In this exact circumstance one passenger accused me of intentionally trying to rip her off because the fare estimate in the app was slightly off (and you wonder why so many drivers hate Pool). Drivers are now in the game of competing on price, the one aspect of the ride we have no control over.
On the bright side for the company, Uber is still showing increases in revenue. This will probably keep investors happy and supply Uber with enough cash to keep operating, even with losses, until JohnnyCab shows up in ten years. Hopefully Uber can afford to keep its fleet of driver-owned vehicles on the road until then.
Sekani Wright is an experienced Uber driver working in the Los Angeles metropolitan area. If you have any questions you would like answered for this column, you can contact him at djsekani at gmail dot com, or on twitter and reddit at the username djsekani. Have a safe trip!