Startups are always in the spotlight for being, for lack of a better word, new and edgy. They like to challenge business conventions (especially when they’re of the technology variant) and it often gives them a chance to get on the soapbox and show what they’re made up. However, I have some reservations about a popular startup called Uber which has been getting some positive and negative attention alike.
Uber, for those who don’t know, is a startup trying to be a sort of black car and taxi service hybrid, plus a special pricing method. The idea is pretty interesting on paper: A taxi you can get via mobile app that handles everything quickly and conveniently, though it doesn’t charge a fixed rate. Instead, Uber users are charged based on what the “going market rate” of a taxi is, depending on the weather, demand and a number of other factors. While I think it’s great that a service like Uber is trying to bring legitimate and high-quality travel alternatives to major cities, I have serious reservations about the idea of its pricing model.
The issue with Uber’s pricing model has to do with how it sees itself as a taxi company before a private, black car service, but in contrast its pricing model is one that is very exclusionary, not to mention just plain old bad business. Uber at first looks like a taxi rate, but a closer look reveals something else. While the company, just like you’d expect, features a base rate plus time or mileage cost, what it doesn’t show at first glance is its unique “surge price” feature to adjust prices.
Uber claims this feature is what makes it a better taxi service. In order to get more drivers on the road during high-volume days, holidays, or poor weather, Uber may double, triple, or pretty much set whatever price it wants in order to attract more drivers to meet demand. While the alternative means that there may be no drivers during hours that Uber cannot attract them at a standard rate, it also leaves a pricing model that is going to hurt itself in the long run.
The reason why this model hurts Uber is because the company is not trying to compete with the already-saturated market of black car and private travel services. It has clearly advertised itself as the cool, hip alternative to taxis. Taxis, in contrast, work by an everyday standard rate based on reliability, but also regulation. Taxis have to answer to city or even state authorities that control pricing to keep a balance between the drivers and the customers. Uber wants to be the every-day service, but it doesn’t have any of this regulation, and it changes prices as it sees fit.
In case you needed another reason to not like this pricing method, it is completely elitist and exclusionary, and follows a principle that those who cannot afford it will simply not utilize the service. Sure, this is true, but it’s one thing to be a luxury service and always charge the luxury price. It’s a whole different ball game when you claim to be the revolutionary, every-person’s option, and then shift prices to maximize profitability, or to get more drivers on the world, or whatever excuse you want to give. Even if it is great economics by some business claims, it’s supporting a price model that is similar with hotels and airlines, which are also known to “price surge,” or by its more common terminology, price gouge. The difference, though, is that even these businesses must disclose their caps at which they will not charge more. Uber has yet to do this.
I’m a fan of technology when it collides with the real world, spurring awesome new products that try to improve on long-standing norms and just make our lives easier and more productive. We’ve seen innovation and improvement on steroids thanks to the innovations and efforts of things like smartphones, tablets, and many other gadgets that didn’t exist just a few years ago. That said, it doesn’t mean every idea takes into consideration the ways it respects social expectations and unspoken agreements for fair and good business. I don’t think Uber took this into consideration, seeing a higher price as always worth it, so long as people are willing to pay. Yet we have numerous examples in our society where this just doesn’t fit and I think there’s no excuse for this tech-savvy, potentially great, but still concerning startup.
Even if Uber’s model is a unique one, it isn’t one I’d recommend, lest you appreciate alienating customers and promoting poor business practices. Let me note I am not an economist—far from it. That said, I think from a technological, business and ethical standpoint there is a reason you do not see this method of pricing across all services and products. When you head to the supermarket, the price of a gallon of milk may adjust to competitors, or to a national milk shortage, but not because the store is selling a lot of milk and wants to adjust pricing to take advantage of in-the-moment demand. When you hire a painter, you will not negotiate prices based on how many customers they have that day, but by what they see as their fair market value against other painters.
Simply put, this “surge pricing” model of Uber allows for customers to pay many times the price of other users for the identical service, even if their orders are just minutes apart, depending on circumstances Uber sets. As a result it remains a service that lacks pretty much any consistency, which is a challenge Uber will face in the months to come once customers feel they like the company and what it offers, but then realize it costs a whole lot more than they thought.
For now, Uber remains a competitive service, especially since it has a ton of seed funding and a long way to get where it wants to be. As a result, it will for the foreseeable future, in most cases, be a cheaper or equally affordable option to the local taxi company. Uber is already trying to win over the hearts and minds of customers by offering prices (most of the time) cheaper than immediate competitors, but heed that this method of pricing should not be encouraged at all, no matter how tech-savvy or easy to use it is compared to traditional services on the market.
Love Uber or hate it, it’s fine; think what you will of the company. I agree it looks appealing now because it’s still keeping prices low to try to compete with other taxi companies. Remember though, this pricing model, for what’s worth, is nothing more than price gouging, and it should be considered with caution.
—Joshua Sherman ’16 is an English major.