Sunday, January 03, 2016

Is Uber a ripoff?

Quick note: As CTV's Technology Analyst, I often talk and write about tech. As tech moves increasingly mainstream and touches more of us no matter how tech savvy we may be, I'm going to share more "work" stuff here on the blog. Hope you enjoy!

The Uber ride-sharing app/service has been getting more than its fair share of attention over the last few months, largely because it threatens to decimate the established - and highly regulated - taxi industry. It's a classic case of new vs. old, tech vs. traditional business, and like so many other tech-driven revolutions, it'll probably claim lots of victims before the war is finally over. Assuming it ever ends at all.

Headlines blared on New Year's Eve after some riders complained of huge bills to get home, including $1,100 in Edmonton, $650 in Montreal. The company uses something called "surge pricing" during periods of high demand, and as horrifying as it might seem to pay as much to drive across town as others might to fly across the country, there's a reason for it.

As part of my research, I pulled together a few key talking points that we should all keep in mind the next time we see another Uber-rips-off-poor-consumers headline. As with most tech-related themes, there's often a lot more to the story than initially meets the eye. Here's what you need to know:
  1. Surge pricing is a direct outgrowth of the supply-and-demand ethos that underpins the capitalist economy. Like it or hate it, it's more or less how our broader economy works.
  2. Uber has caught flack for seemingly scandalous surge pricing during times of crisis - like the Toronto floods in 2013, Hurricane Sandy in 2012, and when a subway shutdown sent Toronto commuters into the streets last year.
  3. The operative term for most customers should always be "buyer beware", but as consumers have shown time and again when it comes to tech-based services, they fail to do their homework.
  4. Perversely, Uber isn't ripping anyone off: No one is forced to pay this rate, and anyone can walk away at any point in time - before the ride begins. 
  5. With that in mind, few of us read the terms of use after installing the app, and we often fail to ask questions when we get into the Uber driver's vehicle. Uber explains its Dynamic Pricing model rather clearly here.
  6. Eliminating surge pricing could very well have an impact on non-emergency-period pricing - in other words, Uber rides during "regular" periods could become more expensive to make up for the lost crisis-period revenue.
  7. That's because demand-based pricing models often use elevated rates during high-demand periods to balance off artificially low rates during lower-demand periods. Ever book a beachside hotel when it's snowing outside? Yes, just like that.
  8. With this in mind, no one complains when their Uber ride is significantly cheaper than an equivalent trip in a conventional taxi.
  9. If it wants to, Uber could very well curtail surge pricing to win some PR points. It has agreed to do so under some circumstances - i.e. during times of crisis - in New York.
  10. Uber has received a number of well-deserved black eyes for the rough-and-tumble way in which it operates. It is no stranger to controversy, and this latest round doesn't do its brand any favours. This is common with boundary-pushing companies like this that disrupt traditional businesses using technology.
  11. That said, it's ultimately up to customers to determine whether Uber lives or dies. Customers vote with their wallets, and if they feel they're being ripped off, they'll find an alternative.
  12. Right now, only Lyft offers much competition, and even then in relatively few cities/markets - and not in Canada, yet. That could change over time, however, and once again the markets will determine who wins and loses.
So as much as we like to rage on Uber for being the tech bad boy of the shared economy - and as gawd-awful the optics of surge pricing are - folks who pay three- and four-figure bills to get a ride have no one to blame but themselves.

The app makes it abundantly clear that surge pricing is in effect, and it's no one's fault but the consumer's for failing to read the screen before getting in the car and agreeing to the rate.

Eyes open, folks.

Your turn: Uber vs. taxi. Which side are you on?

One more thing: I spoke with Kevin Gallagher for a report he filed for last night's CTV National News. Video link is here. Story is here.


Anonymous said...

Uber is so cheap because it doesn't have any overhead, and in many cases it isn't regulated. If consumers are fine with a company setting us business and completely ignoring all rules and regulations, then so be it, but I'm not.

Uber is a taxi service, full stop.

Few people care right now because it's "just the taxi industry" but someday it won't just be taxi's affected by this.

Someone is also going to explain to me how the "sharing economy" is a good thing. If we have people driving cars as a second job or renting out a bedroom for Air BnB, explain to me how that's a good thing. People who are well off financially don't need second jobs.

Andrew Williamson

jason kukurudziak said...

UberX is able to offer "cheap" service because it follows no existing regulations.

Not paying commercial insurance, not having cameras, no police background checks, and no MOT safeties, to name just a few, allows them to be cheaper than a licensed taxi.

Touching only on the insurance issue, drivers are told by Uber that it is their responsibility to have proper insurance, and that has been reinforced with the new contract that all UberX drivers have to agree to. The $5 million contingent insurance only protects Uber and leaves the drier in the lurch. In Ontario there is no insurance to cover UberX drivers for carrying passengers. No UberX driver carries the OPCF 6a endorcement to carry paying passengers and Intact has failed to create a policy as was widely reported that they were going to create.

Insurance companies such as intact, wawanesa, cooperators and dejardin are now asking customers at renewal time if they are driving for a ride sharing company. If you answer yes then they will not renew your policy. The message board shows that the drivers are aware of the problem and choose to lie to stay in business. They would rather risk themselves and their passengers for a quick buck.

Let me add one last thing, most cab drivers are immigrants. They left countries where laws are arbitrary and corrupt. By allowing UberX to flaunt the laws without serious repercussions makes them upset, questioning whether politicians and bureaucrats are on the take. Some are beginning to question the system, as they are seeing it slide towards the system they escaped.

This may turn into a fight about rule of law as well as supply and demand.

Jason Kukurudziak

Michael Manning said...

Carmi: I enjoyed watching Jerry Seinfeld and Jay Leno call Uber when a DeLorean they were driving over-heated and had to be towed away. I have never tried Uber. I'm a bit cautious. But then, some cab drivers strike me the same way. I feel comfortable using shared van shuttles from well known companies to and from the airport.