What Uber’s leaked financials say about its surge pricing model
Uber’s revenues were
leaked on ValleyWag this month, revealing that the car
service company is potentially making far more than initially
expected.
Kara Swisher at AllThingsD
initially projected that the company, which took on $258
million in funding from Google Ventures and TPG investments in
August, was on track to earn $125 million in 2013. ValleyWag now
estimates that, based on the listed weekly revenue streams, the
number is closer to $213 million, but AllThingsD
maintains that the actual figure is somewhere between the two
estimates.
With little choice, Uber’s CEO, Travis Kalanick, confirmed the
revenues to AllThingsD, noting that the leaked information doesn’t
include Uber’s non-car services, which he recently told Bloomberg
that he
wants to expand. It’s unclear how much profit the company is
making, as its expansion from 35 cities to 60 this year has
contributed to the company’s short-term costs, while maximizing its
long-term potential.
That Uber is doing well might not surprise anyone, and it may have
allegedly upset Kalanick. Yet, like all leaks, it has the
convenient side effect of shifting the conversation about Uber from
discussion of its surge pricing, which is always in effect around
the holidays, and putting it back on its profitability.
Complaints about surge pricing are nothing new. Last year, one
tipster reported paying $219 for a 7.67
mile ride from the Upper East Side to DUMBO. This year, I
called an Uber in desperation, to get from the East Village to the
Financial District in a torrential sleet storm, and ended up paying
$100 for a 13 minute, 3 mile ride.
Would I do that again, given that there wasn’t a single standard
yellow cab on the street and it was early in the morning? Probably
yes, for better or worse. Is it fair to complain, when I do have
the choice of walking 15 minutes to the subway in sleet? I don’t
think so.
But, as
many have argued, it’s a sore point for the company,
branding-wise. It’s one thing to offer surge pricing during a
terrible winter storm, and another to offer it during Hurricane
Sandy or a similar natural disaster, when pointing to the validity
of the economic model can sound tone deaf, Hunter Walk
points out.
CEO Travis Kalanick had made his point that surge pricing is a
critical element of the company’s business model, as it crucially
minimizes response times by getting more cars into the market,
allowing the company to provide “relentless reliability,” he
bluntly told
Wired. “We did more trips because of our approach, not
fewer. We gave people more options to get around, and that is the
whole frickin’ goal.”
But, in contrast with transactions that require longer planning
times, like air travel, Uber’s price hike can seem more personally
offensive, because prices exploit an urgent, in-the-moment need,
Tim Worstall at Forbes
argues.
So can Uber make surge pricing sound human?
It might be an easier sell in Saudi Arabia, where private taxi drivers already take advantage of somewhat inelastic demand to charge higher rates for travel in the evening, and drivers were recently accused of further hiking prices to take advantage of the plunge in supply given the recent crackdowns on illegal foreign workers.
Thus far Uber hasn’t officially opened in Saudi(although it
appears to be looking for an Operations & Logistics
Manager), but the company’s General Manager in Dubai,
Jean-Pierre Mondalek, confirmed that surge pricing was alive and
well on New Year’s Eve in the UAE:
“This is the busiest time of year for Uber globally. Our growth and
popularity in emerging markets, including the Middle East, has been
exceptional and we are experiencing rapidly increasing
demand. As a result, at times, surge pricing does go into
effect in the region in order to ensure the reliability Uber users
count on.”
To make it more palatable, the company also added some tips to suggest to users
when they are least likely to be gouged (unsuprising: right after
midnight was not recommended). That and a video by Travis Kalanick explaining
how surge pricing works might succeed in defending the model and
making customers aware that they do have choice, after all.
So, again, a peek at the company’s financials perhaps reveals that,
whether some customers are offended by surge pricing or not, online
skewering of its brand values aren’t really affecting its bottom
line. And perhaps if the company iterates towards developing
its own fleets, the awkwardness of surge pricing will be a relic of
the past.