Uber Drivers Try To Fight Rate Cuts With Technology

To survive new lower rates, some drivers are pitting the service against its chief competitor

(Mary Altaffer/The Associated Press)

Uber’s decision last January to cut rates by 15% on UberX—the company’s low-cost option for rides—spurred strong reaction from the company’s drivers in New York, including protests and slowdowns, as drivers said the rate cut slashed their income. Then, in February, Uber’s biggest competitor, Lyft, matched the cuts in NYC. Now some drivers are using the same technology that created Uber and Lyft to fight back—by making themselves available to drive for more than one app-based transportation service.

Farrukh Khamdamov, for example, drives both for Uber and Lyft. He says he simply chooses the most profitable option. This could be either the more expensive ride or the service that has surge pricing (the surcharge in times of high demand and low supply) in effect.  He has alternated between the two services since Lyft grew and become popular over the last few months in NYC. Loyalty to a single service lost out after the cuts, according to Khamdamov and other drivers (who did not want their names disclosed), and more drivers simply accept the ride requests that are most profitable.

In the past, Khamdamov says, the majority of drivers wouldn’t choose to have more than one app on at the same time, because they didn’t like the distraction. But now, he contends, they have no other choice than to follow the app that offers the best deal, in order to sustain their income.

The company claims that reducing the fares actually increases demand, which in turn benefits drivers because it decreases the idle time between rides and ultimately leads to higher hourly earnings. In an email response to an interview request, an Uber representative said that since the January cuts, drivers have been working less and earning more. The spokesman said that the average hourly earnings for an uberX driver have gone up by 17 percent and the time drivers spend on the road every day has gone down from 5 hours, 35 minutes to 5 hours, 23 minutes.

But Khamdamov, who has been outspoken in public on Uber driver issues, says he makes less money after the cuts. He recently posted on Twitter a screenshot that compares his total weekly earnings in March 2016 to what they were a year ago, prior to the fare cuts. According to these screenshots of his Uber driver’s app, Khamdamov’s fare earnings—before surge profit, tax, tolls, black car fund (an injury insurance surcharge), and Uber fees—were $120.62 lower in March 2016 compared to what they were in March 2015—even though he completed a higher number of trips in approximately the same hours.

Will the drivers’ dual loyalties have an effect on Uber? Maybe not, at least for now. “Uber has so many drivers, they don’t care,” says Khamdamov. And, indeed, data shows that that Uber has gained numerous drivers over the past couple of years.

According to the Uber representative, there are now about 34,000 Uber driver-partners in NYC. And that number is only one indicator of how rapidly Uber has grown in the city. The company entered January 2015 with six NYC car bases—the addresses to which a car is registered—and after a year it had twenty-nine, according to data provided by the Taxi & Limousine Commission (TLC). The same data shows that in the beginning of 2015, Uber made an average of 400,000 trips per week, a number that by January 2016 had grown to almost a million.

Courtecy of Farrukh Khamdamov
Courtesy of Farrukh Khamdamov (Twitter)

There are about 34,000 Uber driver-partners in NYC

Uber

Uber’s and Lyft’s cars operate through For-Hire Vehicle  bases, which provide prearranged service through bases licensed by the TLC. The bases allow passengers to contact companies that have networks of licensed drivers and vehicles that can pick them up. According to TLC’s website, there are three classes of For-Hire Vehicle service in New York City: Community Cars (aka Liveries), Black Cars, and Luxury Limousines.

Analysis of the number of cars dispatched weekly from the For-Hire Vehicle bases provides some insight into the number of drivers who are affiliated with each kind of car base. The interactive map below depicts the size of city bases based on their average number of unique dispatched cars in 2015. As the data indicates, Uber car bases (concentrated in Long Island City) appear to have the highest number of affiliated drivers compared to every other kind of For-Hire Vehicle base in New York. In the map, the smallest circle corresponds to bases with up to 659 vehicles, whereas the largest one depicts bases with up to 6,584 vehicles, on average.

When it comes to traffic, Uber is again the front runner against the rest of the For-Hire Vehicle services. The following interactive graph shows the total number of trips of all For-Hire Vehicle car bases and all Uber bases in 2015. The horizontal axis shows the weeks in 2015, starting from January 2015 and running through the end of January 2016. Uber claims a big share of the trips, especially for the first half of 2015, and never drops under having 40 percent of the total number of trips done by all the For-Hire Vehicle bases in New York.

According to Brendan Burns, an associate professor at Columbia University’s Business School, Uber’s success lies both on its ease of use and affordability, but also is built on the inadequacy of the pre-existing product, which had gaps that Uber came to fill. “With a few clicks on my mobile device now I can have a car in a relative predictable amount of time,” says Burns. “I have transparency in terms of where that car is, and I can communicate directly with the driver. None of those factors really existed before.”

Burns says that Uber’s strategy for deciding its fares is that both the company and its drivers have to make enough money out of the service—without overcharging the customer.

Uber’s next step to achieve growth, Burns said, is for the company to sell more services to its customers. “If I have the most recognized brand and I am trusted and I am perceived to provide a great service at a fair price, there are other services that I could provide and people would buy from me,” he says. In fact, Uber recently launched a new service for food delivery, UberEats.

But as Uber expands, another startup, named Juno, will enter the market of online transportation this spring, and it relies on the dissatisfied drivers from Uber and Lyft. The app-based service was founded by Talmon Marco, the creator of Viber, the app-based phone service. Juno has already begun testing its services by paying drivers to have it on while they are working on other apps. The company, according to Bloomberg, plans to charge the drivers only 10 percent commissions for the first two years and give them stock on a regular basis so that they can become real partners. In the meanwhile, some of the drivers have also been developing their own app, called Swift, which allegedly is on its testing phase, but drivers who are involved with it wouldn’t share more information on its release date or how they will plan for commissions.

Burns says that it’s possible for both newcomers to succeed in the online transportation market if they are well positioned and the drivers feel that they have a stake in the app. “If they turn themselves into a legitimate competitor, they will have the people who are providing the service be also the owners. In that case, the customers will have better experience on a lot of levels.”

(The data in this piece was collected by the NYC Taxi & Limousine Commission and can be found on the Comission’s Research and Statistics web page under the name FHV Base Aggregate Weekly Report.)

 

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