Uber's new pricing model could upset drivers

BI Intelligence

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Uber has been experimenting with a new pricing method in several cities that uses machine learning algorithms to predict the amount a customer is willing to pay for a given ride, Bloomberg reports.

Uber hopes to grow its revenue with this new “route-based pricing” system, as it continues to bleed money for rider discounts and driver bonuses in order to grow users and ward off heated competition from Lyft.

The new pricing method determines fares based on the specific route taken and time of day. This allows the company to potentially charge more based on factors like the pickup and dropoff point, differing from Uber’s traditional method, which factors in the mileage and duration of the trip, along with current local demand for rides. For example, a rider going from a posh neighborhood to an expensive restaurant could be charged more based on the new system than with Uber’s traditional pricing.

This approach grew out of Uber’s introduction of “upfront pricing” last year, which told customers the exact amount they’d pay before they booked. To provide this transparency on pricing, Uber had to figure out how to calculate those upfront charges. It then started rolling out the new system to specific US cities late last year. Uber seems to be moving forward with expanding its use of the new pricing method, which it currently uses in 14 US cities. It will start reporting to drivers the amount that each rider agrees to upfront, and will update its service agreement with drivers to reflect the new system.

However, the new pricing seems to have stoked the ire of Uber’s drivers, who are not making more money when the system results in higher fares. Uber instead pockets that extra money, likely to give itself a helping hand on the path to profitability to please investors. In doing so, Uber risks alienating its drivers, who typically leave the platform after less than a year, mostly because of low pay. Uber’s relationship with its riders has already been strained by a slew of very public scandals in recent months, and putting its driver relationships at risk could be another major blow to the company. Its drivers could easily go to work for rival Lyft, which may provide better income for them since it allows riders to leave tips, unlike Uber.

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