Uber's Hubris Giving Lyft a Lift

Uber’s ride sharing service is unique in that it is loved by its customers and hated by its drivers. This creates a special dynamic as Uber drivers are universally pleasant to chat with during rides, but the subject often turns to the miserable working conditions under which these drivers operate.

At issue is the compensation brinkmanship constantly being applied by the company as a tool to drive usage. Driver compensation consists of several elements including base fare, per mile charge, per minute charge, safe ride fee and a minimum fare. In addition, there are varying incentives designed to reward drivers who drive more frequently and accept a higher proportion (90%) of ride requests.

It’s all a little confusing to a non-Uber driver, but even more confusing because it is variable based entirely on the whims of Uber and its competitive objectives. The latest twist is a network-wide jiggering of fares across the U.S. launched under the rubric “Beating the Winter Slump.”

In Detroit, Beating the Winter Slump has entailed reducing the per-mile charge from 75 cents to 30 cents. In the context of a fare structure that drivers say hands 45% of their earnings to Uber in the first place, the change in the per-mile charge is devastating.

The significance of this compensation reduction to passengers is the fact that Uber users/customers already well know that the service is a fraction of the cost of taxi service. Uber users/customers also know there is no such thing as a free lunch and the crazy low fares can’t continue.

I routinely tip Uber drivers on top of the fare knowing that the fares are simply too low, unnecessarily low. The bizarrely named Beating the Winter Slump campaign is particularly noteworthy given the fact that the recent inclement weather in Detroit has only made ride sharing services such as Uber more, not less popular. What Winter Slump?

But the drastic reduction in driver compensation has inspired a sufficient degree of anxiety among drivers and management that Uber has seen fit to provide armed guards at its local office in Detroit. This fact alone indicates a certain awareness by management that the fare reduction would not be warmly received by drivers.

It points up the fact that this Silicon Valley darling, Uber, is rapidly becoming something sufficiently dark and unpleasant that customers will feel motivated to explore options. GM’s $500M investment in Lyft was a New Year’s reminder that there is at least one prominent alternative to Uber worth exploring. It’s noteworthy that one rarely hears complaints regarding Lyft screwing its drivers.

The two services are intense rivals and Uber has done its best to poach Lyft drivers and disrupt Lyft’s operations. Again, Uber’s behavior leaves enough of a bad taste to cause its customers, such as myself, to consider their options.

Uber drivers, too, have options and many will no doubt switch to Lyft. It may even be possible that Uber is trying to thin its own driver ranks even though the stated purpose of the Winter Slump campaign was to increase the available drivers and raise their level of driving frequency.

The reality, though, is that Uber’s pricing change was the equivalent of a lash across the back of already taxed workers. The problem for Uber is that its driver workers are universally intelligent, entrepreneurial and ambitious types who are likely to find alternatives to making money by driving either by starting their own private services or shifting to Lyft.

Last year was the year of Uber with strategic acquisitions such as deCarta and further dramatic global expansion and competitive wins. It’s looking like 2016 will be the year of Lyft.

Uber’s crass corporate behavior gives one pause to consider the service’s various other shortcomings. The app’s ability to provide accurate location for pick-ups remains flaky. I have tried to summon Uber drives in Atlanta while Uber thought I was still in Amsterdam, for example. Other times, it is difficult to tell from the map on the app precisely where the app has pinpointed your location – so a call to the driver becomes necessary, in spite of the potential distraction to that driver.

Drivers have complained that the Uber app does not allow for tipping the driver, something most other taxi-related payment apps do provide for. This is another case of customer convenience that outright abuses the driver.

I won’t complain about surge pricing. When demand is high it seems fair to charge a higher fare, but Uber’s surge pricing is famously outrageous.

Uber is also singlehandedly helping to stimulate renewed interest in labor unions, which have been in decline across the U.S. Seattle has agreed to allow Uber drivers to unionize and California is considering similar legislation. If it weren’t for the abuses of Uber it’s not likely that unionization would have ever become an issue.

The sad reality is that Uber’s capricious compensation tweaking has converted one of the greatest transportation success stories into one of the saddest employee relations stories. Hiring armed guards at headquarters is a clear indicator that something has gone awry and that your organization is aware of its own unpopularity with its workforce.

It’s enough to make customers start calling regular cabs – which are increasingly available via apps such as Flywheel and Curb among many others.

It’s too late for Uber to put this genie back in the bottle. It’s looking like competition for Uber will be heating up in 2016 with car companies now getting into the game.  It's as if the world has suddenly realized that the barriers to entering Uber's business are non-existent.  Uber may have the brand appeal and awareness, but the risks now facing the company include driver and customer defections and the unionization of its workforce.

It’s hardly a surprise that Uber is investing its millions in developing driverless cars. The company may need those driverless cars sooner than it previously intended.

It is sad, but perhaps inevitable that Uber would face these business challenges. The saddest part is that these challenges are of its own making. While Uber has fought valiantly and successfully against regulators, taxi drivers and municipal and federal government bodies around the world seeking to ban or restrict the service, the seeds of its potential demise are being sewn by its own management.