- Uber CEO Travis Kalanick’s offhand attitude toward his driver in a recently leaked dashcam video is NOT why that video is interesting.
- Kalanick’s discussion of Uber pricing with his driver gives us unexpected but crucial insights into Uber’s finances.
- Uber drivers say the driver in the video is actually right: Uber has driven down prices to the detriment of drivers.
- An analysis of leaked Uber financial data shows Uber has increased its “take” of driver fares from 17% to 31%.
Uber CEO Travis Kalanick received a ton of criticism for the way he treated an Uber driver on Super Bowl Sunday, in an exchange caught on video.
Most of the negative publicity has focused on Kalanick’s high-handed attitude with the driver. Kalanick has published an apology and promised to “fundamentally change” how he works as a leader.
But the important part of that conversation was not Kalanick’s defensiveness. It’s what the driver was saying: That Uber’s ever-changing driver compensation rates are leaving him feeling poorer.
Business Insider spoke to several Uber drivers and other sources close to the company. They told us that the argument Kalanick’s driver was trying to make is actually correct: Uber has changed its compensation policies over time, often to the detriment of drivers.
Uber declined to comment for this story.
We also learned that Kalanick has less power over the price of Uber’s fares than an observer might think: The company struggles to keep prices high, a fact that Kalanick alludes to in the video.
Why the driver said Uber fares declined from $US20 to $US2.75
The crucial exchange in the video occurs at the 4-minute mark, when driver Fawzi Kamel engages Kalanick in a relatively detailed conversation about Uber’s pricing strategy:
The driver says:
“I lost $US97,000 because of you, I bankrupt because of you.”
“… We started with 20 dollars. How much is the mile now? Two-seventy-five?”
“… You know what? … Some people don’t like to take responsibility for their own shit. They blame everything in their life on somebody else. Good luck!”
That conversation makes more sense when you realise that the driver, Fawzi Kamel, has been with the company a long time — since 2011. Back then, Uber mostly focused on its high-end, high-priced Uber Black service, which favoured expensive vehicles like Lincoln Town Cars and Mercedes. At that time, the minimum fare was very high. Some drivers were so attracted by the service that they bought multiple high-end cars to keep mini-fleets on the road, Business Insider has been told by a source familiar with the market. That’s how you can “lose” $US97,000 working for Uber — by buying a high-end car.
UberX hurt a lot of Uber’s earliest drivers
This chart of Uber prices from Techsportation from 2013 shows just how lucrative the service used to be for Uber drivers. Trips started at $US15 in 2013, and charged $US4.90 per mile. A driver could easily make $US20 on even very short trips:
Today, Uber Select in San Francisco is $US2.75 per mile, Uber Black is $US3.75, and the minimum fares are $US10.75 and $US15 respectively, according to multiple websites that provide Uber fare estimates, such as Uber Estimate. (Uber’s fares are calculated in a large variety of ways, and differ from town to town, so these numbers are a broad guide not an exact measure.) Here’s a current chart:
Between 2011 and now, Uber introduced UberX, the discount service that the vast majority of Uber passengers now use, and it’s even cheaper: Minimum fare is $US6.75 with a per-mile rate of $US1.15. Uber Black competes against UberX, for many passengers.
This is what Kamel is referring to when he says Uber started at $US20 and is now down to $US2.75. He is right in the context of Uber’s historic reduction of fares via the introduction of UberX.
“Take-home pay fluctuates like crazy. Pay is unpredictable, most people don’t really know.”
Business Insider exchanged messages with five Uber drivers over the last few weeks in an attempt to track whether Uber is reducing driver compensation. For a long time, Uber’s “cut” of each fare was understood to be about 20%. Over time, Uber introduced a large number of different offers and incentives, and for some drivers the rate of Uber’s cut has changed. Factors such as the country or city they drive in, the date they joined the company, and whether Uber is running promotions, all affect driver pay. The wide variety of factors affecting their compensation actually makes it hard for them to figure out how much Uber is taking as a percentage, in aggregate, from income they earn.
A San Francisco driver told us: “Take-home pay fluctuates like crazy. Pay is unpredictable, most people don’t really know.”
Other drivers told us they believed Uber had increased its take of their fares over the past year or so. “They now take 25% on every fare from new drivers and 20% from old,” one driver told us.
Another, based in the UK, said: “A commission starts at 20% on X and 25% on XL. And now, for new drivers, it starts from 25%. They used to pay £50 if a driver accepts 50 or more requests per week, and they have stopped it over two years ago.”
Uber also charges drivers a “booking fee” on each ride which further reduces the take-home pay of the driver. The result is that super-short and super-long rides are bad for Uber drivers because short rides don’t cover costs and they have to drive back empty on the long rides. Drivers are not allowed to reject a rider’s destination when they receive the trip request, because experienced drivers would never accept short or long ride requests. In that sense, drivers actually subsidise Uber by taking non-optimal rides.
“Business owners get to choose to do something — but Uber doesn’t show the driver the destination, so they can’t make the decision if something is not worth it. An experienced driver would never accept if they knew,” says Harry Campbell, who publishes The Rideshare Guy, a blog for drivers.
Uber has increased its cut of drivers’ fares
The amount of money Uber takes on each ride is a crucial issue for Uber. The company is chronically unprofitable, according to its leaked financials, and its losses routinely run at more than 100% of its revenues. The more money it can take from each fare, the lower its losses will be.
Uber’s financials show that the company prepares its accounting by looking at “gross bookings” first, and then “net revenue.” Gross bookings are the total amount of fares taken by the entire system. “Net revenue” is Uber’s take from that — the amount that drivers typically understand as something like 20% or 25% from each fare. Over the last few years, net revenue has run at between 17% and 31% of Uber’s gross bookings. This chart shows Uber’s net revenue percentage in the few accounting periods for which we have leaked data:
The long-term aggregate trend dovetails with the anecdotal evidence from Uber drivers who spoke to BI and Kalanick’s own driver, Kamel: Uber once took about 20% of any fare but sometime in 2015 it began taking a greater percentage, up to 31% of all money running through the platform.
That dovetails with a recent report in The Information, which said that Uber is moving toward a 25% take-rate:
“To break even across the U.S., excluding fixed costs, company staffers have calculated that Uber needs to keep an average of 23% of the price of a ride, including the booking fee. Right now, Uber’s overall ‘take rate’ is above 20% but below 23%. That’s because many drivers enjoy ‘grandfathered’ rates where Uber takes as little as 15% of the fare. Nowadays Uber typically takes 25% from new drivers on UberX trips.”
“We went low-end because we had to because we’d be out of business”
But that doesn’t explain why Uber is nickel-and-diming its drivers. Turns out, the answer to that question is contained in the video, too. Kalanick tries to explain to the driver why Uber pivoted from being a high-end provider of luxury limo rides into a mostly discount ride-share app:
“We started high-end. We didn’t go low-end because we wanted to. We went low-end because we had to because we’d be out of business.”
“… If I didn’t do the things I did, we would have been beaten, I promise.”
Kalanick is right, a source with knowledge of the company’s internal thinking tells Business Insider. The company believes its customers are incredibly price-sensitive, and that they arbitrage rides between Uber, Lyft, local ride-sharing apps (there are dozens globally), regular taxis, and their own cars. If Uber’s fares aren’t cheap, people go elsewhere. $US20 one-mile rides won’t cut it in the long run.
So Uber is stuck between a rock and a hard place: It must pay drivers enough to attract them to use the app, but it cannot charge too much because riders will go elsewhere. It loses money providing this massive ride-sharing infrastructure, but its margins can improve if it takes a larger cut of gross bookings. However, doing that reduces the incentive for new drivers to join or stay in the system.
From that perspective it is, perhaps, no wonder why Kalanick might have a hair-trigger temper when it comes to pricing: He’s running a company that finds it extremely difficult to make money for itself and its drivers at the same time.
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