Why Uber might win

aaaLast week I took my first couple of Uber rides when I was in Los Angeles. I had resisted the temptation for some time, for several reasons. First, I wasn’t happy with their corporate culture and saw my one-man boycott as something personally meaningful, if a bit useless. Second, ride hailing is illegal here in St. Louis, where we have a Neanderthal taxi commission that has laid a nice featherbed for its own drivers. Finally, I don’t take all that many taxis for the most part, other than to and from the airport, and again, see point #2.

The Uber trips in LA were very enlightening. Both drivers appeared within minutes upon clicking the request on the Uber mobile app. In one case, I was at LAX airport and got to see how efficient the Uber pickups were: in the short time that I was waiting for my driver, about a dozen millennials had met their drivers and zoomed off. Before they got into their cars, I could tell they were Uber customers. They were staring at their screens, watching their cars approach the airport. LAX, unlike St. Louis’ Lambert airport, allows Uber to pickup passengers in a certain spots, in between the terminals. There is no need to queue up like at a “normal” cabstand, because you have already been assigned a driver.

This watching your car approach – or indeed, any nearby Uber car available at that moment – is the real genius idea behind the service. Often I have waited for a taxi pickup, not knowing where the cab is. With Uber, this uncertainly is removed. You have a countdown clock that tells you, quite accurately, when your car is to arrive. You see the name of the driver, the license plate, make and model of the car, and you can directly contact the driver to confirm exactly where you will be. With one ride, for some reason the app displayed a nonsense address for my location, but the driver called me and we clarified where I was actually standing.

Most of the cars that morning at LAX were Priuses and both my rides were Priuses, too. (Cnet has a funny story about how people just assume that all Priuses are Ubers here.) One driver explained the economics of operating even a fuel-efficient car with a Prius, showing me how much more profitable the hybrid can be. The cars were clean, relatively new models. One had a charging cable for my phone, a nice touch. The rides were about 20% less than what a typical cab fare would be too. On my return to the airport, I was told by the Uber app that because of congestion at that moment if I wanted a ride I would have to pay 30% more for it, or I could wait a few minutes for the price to drop. I waited, and was notified by the app when this happened to book my ride. That is another nice touch.

A final benefit is that when you get to your destination, you just get out of the car. There is no need to go through the payment process: that is handled automatically by the app. The driver doesn’t carry any cash: my fare is deducted from my credit card and the driver’s fee is added to his or her bank account. You then get an email receipt within seconds.

Both of my drivers shared that they were making decent livings with Uber, more than $50,000 a year and about $30 an hour. This is more when compared with driving a regular yellow cab in LA. One of my drivers was a former cabbie and told me that he never made as much as he does now with Uber. Both drivers also mentioned to me that they can drive when they want to: one gets up early and covers the morning rush, then takes a few hours off and returns for the afternoon and evenings. Many cabbies don’t have that flexibility because they aren’t working for themselves, they have to make the most of their employer’s cabs.

Granted, my data is just incidental. What about overall trends? Fortunately, the New York City taxi commission data is available for anyone to download and Todd Schneider has done just that. His latest post shows that there are more Uber cars in the city, and not surprisingly that yellow cabs are losing market share in terms of the number of daily riders, even though they take more fares per cab.

Schneider also shows that the market for Uber is becoming more competitive, as the number of cars on the road has rapidly increased. (Lyft, Uber’s main competitor, has a smaller market share.) This could be one reason why Uber is dropping its prices in NYC. Schneider estimates that Uber made about $220 million during all of 2015 in NYC. Given their commission rate, that means they have added about a billion dollars to the city’s economy last year.

I know I am late to the ride hailing party, but these services are certainly changing the economics and the process of taking taxis to be sure. I think they have a lot of benefits, and I certainly will use them more frequently in the future. I hope they can win their legal battles here in St. Louis and elsewhere around the world.

3 thoughts on “Why Uber might win

  1. I have the same qualms about Uber as a company. Here in Philadelphia I used them for a while because the cabs were so spectacularly obnoxious and failing in every way at responding to the challenge with at least an equal grade of customer service. Also throwing a huge hissy fit about taking credit cards, every single time. O NOES, they might have to pay taxes! Yeah, you know who has to pay their taxes? Almost every single one of your customers, because we don’t operate cash businesses. Sigh.

    But thanks to the competitive pressure from Uber, taxi service has actually improved a lot in Philadelphia. Drivers no longer stick their hand over the credit card slot (yes really) to keep you from paying with one. They no longer fail to show up for scheduled pickups. And there is an app for hailing and booking cabs which works reliably; it’s pretty bare bones, but it gets the job done.

    (Disclaimer: so far I’ve used it for advance bookings only.)

    Booking a cab in advance is something Uber won’t do at all. And what if there’s an issue with your credit card when you need to get to the airport right now? A taxi driver can pull over at an ATM. You can’t book Uber at all in that situation, as precious minutes tick by, flipping through your wallet and tapping 16 digit numbers into a smartphone.

    Which is not to say I don’t ride Uber. Simply put, some places, there is no longer a choice. My sister lives in Tacoma, Washington, where taxis no longer exist due to the competition from Uber.

    I’d like to check out Lyft, because a big part of my beef with Uber is their flagrantly laddish attitude and open intention of getting rid of human drivers as soon as their investments in automated cars bear fruit. Unfortunately, Lyft doesn’t recognize my Republic Wireless phone number as valid… and offers me no other way to sign up. Womp, womp.

  2. I don’t want to see cabs go away. I agree that cabs could improve, but among the numerous issues I have with Uber/etc. is an issue not transparent to us now, and thus not covered in this piece. What about the back-end data? What happens to it, what risks might it be subject to, or what will happen to the back-end data in the future?

    I think the whole business model is ‘about’ the back-end data. That’s an additional issue for which leadership poses a problem.

  3. I don’t think Uber is going to make it in the long run. There may be a few $50,000/year Uber drivers in New York and Los Angeles, but in the rest of the country their decision to undercut cab fares has been a disaster for their drivers. Lyft is a little better than Uber, but works in much the same way.

    Meanwhile, some of the NYC outer borough car services are setting up their own automated dispatch systems, and these are old-line transport guys who know what they’re doing. In the end they’re tromp Uber — and there are other alternatives both local and national starting to compete for drivers, and driver recruiting/retention is the most critical factor for Uber, Lyft, and all their competitors until automated cars throw the drivers onto the dung heap.

    Look for local driver co-ops to become the next wave in the transport biz. I remember when I jumped from the taxi into a car service (that I started) some years back in Baltimore I heard repeatedly that I could not possibly compete with Carey Limo and Boston Coach. Really? We did fine. And my old partner is *still* doing fine, Uber or no Uber. Personal service still rules!

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