Uber NYC & the Surge: Right, Wrong, Lessons Learned

While my hometown of NYC recovers from the aftermath of #Sandy, there’s been a different verbal maelstrom out West – the question of whether Uber NYC’s surge pricing is gouging or simply an effort to balance supply and demand.

My TLDR is: Uber’s an algorithm-driven company which responds to emotion with facts. However, especially in times of distress, people want to hear empathy, not data. I don’t believe Uber set out to maximize profits in the wake of a hurricane but I do think there are several steps they should consider in future extraordinary situations.

The longer version:
There are aspects of Uber’s culture which remind me of early Google. Uber believes in data and algorithms. Their secret sauce, as CEO Travis K will note, are their algorithms which attempt to minimize response time. They do this through routing (where should drivers be) and a pricing model which allows prices to “surge” during periods of intense demand such as holidays and weekend evenings. Their argument, which I believe to be valid, is that their drivers are free agents. If they can get better rates with their private clients they will seek to service that market and not Uber patrons. Uber effectively increases their takehome pay during surge moments in order to encourage a driver to work within the Uber pool, or even extend their already long day to pick up a few more passengers (think of it as the price of overtime). This is how supply and demand works, regardless of whether you’ve ever read Atlas Shrugged.

Uber is *not* a nonprofit public service. They are a company which sells a premium service to customers who choose to pay. As such they’ll need to play within the evolving rules and regulations of the cities in which they operate. To date this has caused some issues in Boston, DC, and now Chicago. It’s worthy of a separate post, but my general feeling is that some of the regulatory efforts are legitimate and aimed at passenger safety and a level playing field. Others are purely smokescreens from incumbent transport companies who have been able to get away with providing crappy services in the face of no competition.

So being a private company, of course surge pricing is generally about getting more cars on the road for Uber customers. And Uber benefits from this directly (since they take a % of fare) and indirectly (strengthening the general appeal of their service for drivers and riders). It’s a two-sided value proposition that Uber needs to manage: drivers need to feel like they’re getting paid enough and passengers want enough comfort and speed for their dollars. If there’s enough demand, Uber succeeds. If not, Uber fails. Personally I use Uber occasionally and mostly for city-to-airport travel in SF and NYC. But back to Sandy….

In the wake of Sandy, Uber NYC implemented a set of decisions meant to increase supply (drivers) to meet demand (passengers). Uber probably didn’t have a “what to do in a human tragedy” playbook and instead ran their normal operating procedures. This included putting 2x surge pricing into effect. In response to public outcry over gouging, they continued to pay drivers the 2x but charge passengers 1x, costing the company $100k/day (effectively they were subsidizing the marketplace). Then they put the surge back in place, but said they wouldn’t take their share of profits — all money would go to the drivers.

In response to the criticism Uber published lengthy posts explaining the dynamics of marketplaces. They were right, but oh so wrong. While the logic was true, the humanity was missing. The average person just heard that Uber was charging New Yorkers more post-hurricane. I used to see Google make this mistake frequently in our communications on controversial topics. Data and logic told us we were correct and we’d just keep showing you more of it, or describing our thought process. We greeted emotion with facts. In the face of emotion, data can be a foreign language. It doesn’t matter how loudly and slowly you say it, I don’t understand. In fact, all you’re doing is pissing me off.

The people who are piling on Uber are largely doing it from (a) sunny West Coast and (b) imagining that some unethical CEO/Investors are pulling strings to exploit NYC. Knowing members of the Uber team I’m comfortable asserting that you basically have good folks, working under incredible circumstances, trying to make the right call for a startup that, no matter how much good press and fortune they’ve had, is still a small business growing and evolving its model.

Assume that coming out of this past week, the Uber team will write a “what to do in disasters” playbook. Here’s what I bet it includes:

  • Local GMs can work w HQ to declare “emergency:” During this time, Uber won’t collect money on a passenger fare, effectively helping to increase supply of drivers by giving back to the passenger community which supports the company during the 99.9% of the year which is normal.
  • App can show messages next to surge pricing info: Imagine how much clearer it would be if next to the “Surge Pricing in Effect 2x” it said “To those impacted by Sandy: we need to charge more to meet demand during this challenging time in order to get more Uber drivers on the road. Uber will not take any fees. All proceeds go to the drivers. We hope you are able to stay safe, dry and get to your destination quickly.”
  • Public Communications Which Leave the Economic Theory for Later: They’ll have a set of FAQs and better responses which help to put a human face on Uber – not just employees but driver and passenger stories. Now they need to be careful to do this without blaming the drivers – ie “don’t look at us, these drivers want more money.”
I saw some other interesting tweets about allowing the Uber community outside of impacted areas to subsidize surge pricing. And I wondered if sponsors would subsidize. But both of these are kinda red herrings – Uber is going to live and die by the algorithm. 
Contrast Uber’s week with Airbnb who immediately waived their booking fee on tens of thousands of listings in impacted areas. Airbnb had their crisis moment a year ago when someone returned to a trashed apartment. Airbnb’s initial response was fact-based (this happens to very few people). They soon realized that it wasn’t okay to appear they were comfortable that this happens to ANY of their customers and put better messaging, customer support and other assurances in place. 
Uber just had their trashed apartment moment. I could be wrong, but my guess is they’ll do better next time.

Updated 10:01pm based on some information about internal Uber conversations

2 thoughts on “Uber NYC & the Surge: Right, Wrong, Lessons Learned

  1. Gauging s/b gouging. Gauging is measuring something, gouging is ripping people off. Decent post but you made me grit my teeth because of that.

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