If Uber CEO Travis Kalanick is Keyser Söze, this is the moment in The Usual Suspects when he stops limping, sparks up a cigarette, and rides off in a sleek black car. Today, the e-hailing company announced "the most aggressive price cut the company has ever made," in order to handicap the competition.
The goal for Uber is not just to make its service more attractive than the competition, but to make UberX the cheapest option available period. That means undercutting fares for taxis and ride-sharing services like Lyft and Sidecar, sometimes by a large amount.
First you sell a luxury black car service, then you bulldoze your way into taxi markets, then they get mad at you, then wait where the fuck did all of my competitors go?
"When it's 20% cheaper and more reliable to use Uber X, why would you use a taxi?"
I reached out to Uber at the time to ask why Kalanick would call taxis useless when Uber kvetched, hustled, and cried "incumbent" in order to break into New York City's taxi market. "We'll pass on this one. Thanks," an Uber spokesperson responded.
Perhaps the answer was a little too obvious. To put it plainly: Uber makes no money in New York from people like me who use the app to hail a yellow cab or one of the borough taxis. All that fuss about surge pricing? It didn't apply to the taxi button on your Uber app. "The rates are simply standard taxi rates; there are no fees for either clients or drivers and no surge pricing," a representative confirmed when I asked just before New Year's Eve.
The Taxi and Limousine Commission told me the same thing. Unlike Hailo, said TLC spokesperson Allan Fromberg: "Uber doesn't charge passengers for e-hail service. They would need to file e-hail rates with us if they wanted to do that." Rather, the payout for Uber from its public battle in New York City and elsewhere were headlines out the wahzoo.
Now, once again, Uber is willing to cut into its own margins. This time to rebrand itself as the cheapest option out there. Is that a sustainable strategy? Perhaps just long enough to get sticker-shocked customers like me to try Uber X—and nudge startups like Lyft and Sidecar toward the deadpool:
For a business that operates on low margins already, that's a pretty dramatic reduction. And it will put a whole lot of pressure on the competition.
But that's just part of the story. The fare cuts are also designed to make Uber more accessible to more people.
To demonstrate how it's doing that, Kalanick ran through a couple of real-world examples with me to show how much cheaper UberX would be than the competition. In L.A., a ride from LAX to Hollywood, for instance, would cost $51 in a cab, but traffic permitting, an UberX would cost just $29.50. In San Francisco, a cab ride from the Mission to SOMA costs about $11, but an UberX would be just $8.
With each previous reduction, Uber has seen the number of trips per driver increase, which means that even with the lower fares drivers end up making more money. In the case of this fare reduction, Uber is cutting its own margins in some markets to help push prices lower.
To contact the author of this post, please email email@example.com.
[Image via Getty]