Earlier today, The Boston Globe’s
Scott Kirsner said UberX drivers in his city were planning to go on strike. The reason: a few days ago, Uber recently slashed fare prices for its lower-cost rides, UberX.
Uber is a car service and mobile app that picks passengers up in real-time. It recently was valued at more than $US3 billion by investors. The flagship service is a high-end black car service. Uber has since launched more a reasonably-priced service, UberX, which rivals taxi fares and other car services like Lyft.
Uber CEO Travis Kalanick says the reason the drivers are upset is because they aren’t looking at the data.
He says the drivers are actually making 22% more per hour now that the fares have been cut to favour the passengers.
The company has issued a response to the strike on its blog. It reads (emphasis added by Business Insider):
At Uber, we do everything we can to pack as much value into every price point. It’s how we have built loyalty among our customers and become a mainstay for getting around the Greater Boston Area. What what we don’t always do a great job of communicating, is that there are two parts to the equation. It’s not just about the riders, it’s also about the drivers. If the price is too high, customers go away. If the price is too low, our partners and transportation providers cannot make a living. There is a natural tension there that we always have to balance, and honestly, it can be quite tricky at times, especially when the economic outcomes can be non-intuitive. For example, Uber started a bold initiative several months ago to lower prices on the uberX product across the country with the premise that lower prices would actually generate disproportionately more fares for drivers due to huge demand at lower prices.
Our hypothesis played out and we have seen increased net income for our partners after huge price reductions in Los Angeles, San Diego, San Francisco, Seattle, Chicago, DC and many other cities.
Last Tuesday, we announced lower prices on Boston’s uberX. The win for riders is obvious: lower fares make Uber more accessible to more people more often. But as we’ve seen in other cities, lower fares have resulted in greater gross income for the transportation providers we partner with. In fact, Boston’s uberX drivers are earning 22% more per hour since Boston’s uberX fares dropped a week ago. This additional income has also resulted in a 5% increase in the amount of time that drivers are spending on the system, resulting in 30% more income per week for drivers since our price cut last week.
It almost seems too good to be true, but what we’ve seen in cities across the country is that with lower costs, Uber becomes more accessible to more people, increasing demand for rides, especially during previously slow times. For Boston, this is particularly important in an area with over 200,000 college students, where the cost of living is already high, and where safe, reliable, affordable transportation can be hard to come by. In fact, since the fare reduction, we’ve seen a 40% increase in uberX usage in Boston.
We will continue to monitor this marketplace to ensure that riders and drivers are getting the best value possible. As always, we will continue searching for ways to improve the product and the service while decreasing the costs for consumers — it’s innovation at it’s finest! So we’re excited for our recent price reduction and encourage riders and drivers who have yet to try our new fare structure to give it a shot. We think you’ll find it a win.