ON A recent visit to Washington, DC, Babbage and a companion tried to hail a cab just after rush hour in pouring rain. Taxis would slow, drivers would ask if your correspondent was headed to Virginia (a lucrative run and the destination of many bureaucrats) and then promptly speed off on learning that he wasn’t. Finally, one cabbie took mercy, but not before the hapless hailers were thoroughly drenched. Babbage should have used Uber.
Tap a button on a phone app and Uber magically summons a private car. It does this by engaging yield-management principles that tie together smartphones, GPS locations, existing licensed drivers, user ratings, all-in-one billing and back-office organisation. Uber maintains an inventory in the form of potential rides and uses demand-based pricing to increase supply during peak periods. “The yield-management creates a new market opportunity that didn’t exist before”, says Travis Kalanick, Uber’s co-founder.
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The company, set up in 2009, contracts with limousine operators and drivers who own private cars and are licensed to ferry passengers. Rules vary from place to place and some taxi commissions have (predictably) raised objections, but Mr Kalanick maintains his operation is perfectly legal.
Drivers fire up an app whenever they are able to accept a fare. Like a taxi, but not a private-car service, the driver does not know the destination before arriving, and must accept a fare to anywhere in the covered area. Uber calculates the total fee on arrival, adds tax and a mandatory tip, and then charges the whole fee to a credit card registered with a user’s account. No money or cards change hands. GPS tracking prevents driver padding, and passengers can file a complaint about a circuitous route or wrong turns.
Mr Kalanick says the firm pegs the rates it charges at 50% above a city’s taxi fare schedule, although that is often substantially below typical private car-for-hire rates. In practice, the premium charged varies by region from 30% to 80%, based on what a given market will bear to get the right mix of supply (drivers) and demand (riders). A flat per-ride fee on top of mileage and wait times makes longer trips more cost effective than shorter ones. (Uber offers flat-rate airport trips in many cities, often costing the same as an equivalent taxi ride.) The firm does not disclose its cut, but Mr Kalanick says it is small and in line with similar fees charged in the industry.
To engage a ride a user simply launches a smartphone app, and either sends the phone’s GPS location or sets a pick-up spot on a map. The app reveals cars in the area for which a driver has told Uber he is available. Tapping a pickup button sends a request to the nearest driver (or drivers). Uber requires drivers respond quickly. It can take just a few seconds for a driver to accept the job, and a message to appear with the driver’s name and photo along with an estimated time of arrival. Notification is sent when the driver pulls up, just in case.
At the completion of a trip, a passenger is asked to rate the driver; the driver, in turn, rates the passenger. Drivers who have poor ratings do not last long, Mr Kalanick says, while poorly-behaved passengers may have trouble securing a ride, since a driver can decline a fare if the hailer has a bad reputation.
Cars may not yet be reserved in advance, which means that Uber requires a density of active drivers in any given area at the time a lift is needed. The firm publishes its rates, but does not calculate an estimated total, except for flat-rate trips to airports. It also uses dynamic pricing, charging more when demand is high and drivers scarce.
Mr Kalanick says this price multiplier cajoles drivers to hit the road at times like New Year’s Eve, say, though customers charged over $100 for routes that typically cost a quarter of that last December 31st protested at being extorted. The firm issues a warning in its app when rates are above normal, though since the route is unknown in advance, the total fare remains uncertain.
Uber operates in 13 cities, including a few outside the United States, with thousands of town cars in its aggregated fleet. But there is competition. GroundLink, which launched last year, allows both advance reservations and selection of particular vehicles, including exceptionally large ones, such as a party bus. It offers pre-calculated pricing for trips by distance, adding any tolls, wait time, tip and tax. It already has links to 45,000 ground-transportation providers in 5,000 cities through its more quotidian software used by these firms for routing. RideChange’s Sedan Magic started its app-based service in May, also with an advance-booking option and fee calculation.
Traditional cab services have not been standing still, either. Before Uber hit the road, RideChange offered Taxi Magic, which has grown since 2008 to cover 25,000 taxis in more than 40 American cities by connecting to existing dispatch systems. Taxi-calling apps have been springing up across Sweden, Germany, Spain and Britain, too.
Mr Kalanick dismisses competition from taxi apps. His firm’s typical customers, he says, have been burned in the past by being unable to get a cab when they want one or have one fail to show up. They expect a clean, “classy”, unmarked car and want to avoid arguing with drivers over credit-card payment. If Uber’s 20-30% monthly growth is any guide, the ranks of potential punters are bursting.