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Tuesday, February 02, 2016

Uber and Economics fail to Connect

Uber Support usually respond to Partners with vague excuses for reducing prices. First, they thank Partners for their great service. Then, these clueless members continue on with how fare cuts stimulate trips and increase driver earnings.

Simple way to measure earnings is reviewing Uber Weekly Summary. If your hourly pay decreases and your number of trips increase, this is accurate information explaining the impact of price cuts. 

A large number of clients had no idea Uber reduced prices. Therefore, Uber is doing their Partners wrong for reducing rates to stimulate trips. 

The internal motivation to reduce the cost of fares is probably to push out the competition. But for the most part, Uber can never say this to anyone. External motivation of price cuts is to help drivers earn more money. Drivers didn't ask Uber to reduce prices to help them make more money. They already knew business would be slow after the holidays. 

Drivers won't make money taking longer trips to slow areas. Another setback is that trips per hour will be much lower taking longer trips, so this can disqualify drivers when a particular time slot is weighed against hours driven. It is easy to miss the 2.2 trips per hour requirement set in San Francisco during peak times. Rush hour traffic is a cancer on downtown SF. 

Uber somehow worked on ways to ensure drivers the price cuts are aimed at stimulating business. When drivers review Uber Weekly Summary, the stats show proof that fare cuts impacted overall earnings. Driver weekly deposits prove that fare cuts are reducing their earnings. 

Why does Uber continue to explain their reason for reducing prices? They don't make sense, especially suggesting price cuts generate additional trips per hour and this increases hourly earnings. The truth is that reducing prices will push out the competition, rival Lyft and taxi industry, and this will help Uber gain a monopoly on ridesharing apps. As a result of this, Uber can increase prices since people rely on their service to get around. If Uber believes in their deception that Partners are completing additional trips and making more per hour, they are gullible. 

Pay attention to Uber Weekly Summary. Don't believe in faulty charts showing false data. You know that reducing anything requires more production to make the same money. What Uber is generating are poor quality trips, minimum trips that net drivers $3.20 after fees. Uber is stimulating more trips so they can enjoy additional safe ride fees. With minimum trips, Uber is taking 39% of the fare. In return, they are looking good to investors for stimulating a higher volume of trips during a slow period. 

The real losers are Uber drivers spending more money on gas, wear and tear on vehicles, maintenance cost, repairs, more time on the road, and more production to make the same money. Is Uber suggesting that drivers who earned $42 an hour before the holiday season, can still make this much taking additional trips per hour under price cuts? East Bay drivers once earned $35+ an hour before price cuts. Now some East Bay drivers are making only $15 an hour before fees. When it's said and done, East Bay and South Bay Uber drivers may see $9 an hour in their weekly deposits. 

Allow Uber drivers to trade places with Uber employees. Let these Uber employees go out there and apply their poor economics skills to make that extra money driving clients around. See if they believe in their comments about recent price cuts stimulating trips and increasing overall earnings. With clients taking additional time to get ready, drivers will make less money and complete less trips. 

Uber Support informed an Uber driver they're also losing money with these fare cuts. Since Uber takes a commission on overall earnings, their share of the price cut is not impacting them as much. Uber's 20-25% percent commission with a 15-20% price cut is not as much as a driver losing 15-20% earnings on 75-80% of their fare. If more trips are completed, Uber is making up this difference through additional safe ride fees at $1.35 per rider. 

Maybe showing raw data to explain this price cut case will prove to drivers that this move is really about pushing out the competition and increasing overall production to look good in front of investors around the slow period. Many Uber drivers are not seeing higher pay and more trips per hour. 

Price cuts translate into cheaper rides. Thus, drivers are expected to increase hours to make the same money before price cuts. Whatever the percentage of price cuts, drivers will need to make up this difference by increasing their hours on the road. They must drive in busy areas, in places they dislike and at times they usually avoid. These adjustments are necessary to withstand price cuts. 

Uber and Economics fail to connect. It is unfortunate Uber can't tell the truth of their real motivation for reducing prices. Clients can now get cheap rides at the expense of their drivers.