Uber’s New Fare System Raises Its Cut While Angering Drivers
Uber has acknowledged that an experimental pricing system it introduced last year may result in drivers collecting a smaller portion of some fares. The ride-hailing company made the disclosure in an email sent to drivers on Friday, confirming suspicions that have been breeding driver resentment for months.
Under the new system, in place in 14 major markets, driver pay is no longer directly tied to how much passengers pay. Instead, Uber can increase fares based on factors like destination and time of day, but still only pay drivers based on mileage and time spent on individual rides.
All drivers must accept the new agreement by Monday to continue driving.
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Speaking to Bloomberg, Uber head of product Daniel Graf said the new fare system, billed as “route-based pricing,” crunches historical ride data to evaluate how much customers were willing to pay. As an example, Bloomberg suggested that a rider traveling from one affluent neighborhood to another may be charged more than a rider taking the same length of trip in a less affluent part of town.
However, Uber clarified in follow up comments to Engadget that it is not profiling riders based specifically on their apparent wealth.
(Either way, this appears to contradict previous statements Uber made to Fortune that it charged some riders more because it overestimated the length or duration of the ride.)
“Route-based pricing” is part of the upfront pricing system that Uber introduced in June to certain markets that also have Uber’s lower-priced UberPool carpooling service.
Drivers quickly noticed that their payouts remained based on the old distance-based fares, rather than the Upfront fares charged to passengers. In April, a driver in California filed a lawsuit that described the system as “an active, extensive, methodical scheme … to defraud drivers.”
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The new pricing system does also sometimes charge riders less than the standard fare, particularly for UberPool, while keeping driver pay the same. Graf says this arrangement lets Uber “serve more people in more places at fares they can afford.” Translation: it creates a bigger price spread between Uber’s high- and low-end services.
In an informal survey of 165 trips across multiple Uber service tiers in New York City, the blog TheRideShareGuy demonstrated earlier this month that the upfront fare structure often lowered the cost of UberPool rides, while raising the price of higher-end services like UberX.
But the survey found, in aggregate, that Uber kept a larger share of ride payments. The site’s very rough estimate suggested the structure could generate an extra $7.43 million monthly for Uber in additional revenue in New York alone. That sort of shift, if it were broadened to more markets, could offset a meaningful portion of Uber’s consistent operating losses, which totaled $2.8 billion in 2016.