Was New Year’s Eve a Netflix Moment for Uber?
On New Year’s Eve, some users of Uber’s driver-on-demand service discovered that a quick tap of a smartphone app could cost them $75 or more for a ride across town, thanks to demand-based pricing.
But despite the fact that some customers were dismayed, Uber isn’t throwing in the towel on dynamic pricing. In fact, the company, which is usually very transparent about its surge pricing plans, is considering whether to raise fares regularly on weekends.
Could this be a Netflix-like moment for small start-up Uber, just as it’s trying to grow?
You’re probably thinking, and rightly so, that Netflix and Uber are two very different companies: Netflix is a 14-year-old public company that faces tough competition in a growing premium video-streaming market; as of the quarter ending Sept. 30, it had around 24 million subscribers. Uber is a 1-and-a-half-year-old start-up using a mobile phone application to create a marketplace that connects consumers with a limited number of town-car drivers. Netflix is available in the U.S., Canada and 43 countries in Latin America and the Caribbean; Uber currently operates in six U.S. cities and in Paris. Subscribers pay a monthly fee to Netflix; Uber users pay per ride.
But Netflix provides a recent example of price adjustments that resulted in negative consumer reaction, to put it mildly. The company said last July that it was eliminating the option to combine DVD and streaming video services, and in doing so, hiked the price by 60 percent for consumers who wanted both options. Netflix’s stock plunged; the company later cut its guidance by one million subscribers, and eventually reversed its plans to offer a DVD-only service.
As Uber has explained a few times now, the sticker shock some customers experienced on New Year’s Eve was the result of surge pricing, which Uber has started putting into effect on nights when drivers might be busier than usual. Travis Kalanick, Uber’s founder and CEO, has pointed out that if Uber doesn’t make it worth its drivers’ while to be on the platform, there won’t be any drivers available.
When it comes to tech products and services, users often don’t react well to change — at first. Professionals and consumers alike become accustomed to a product, and some initially see change as disruptive to their productivity or proficiency in that tool. There’s also often a backlash when the change results in a threat — real or perceived — to privacy, as we’ve seen with reactions to Facebook’s ever-evolving settings.
But when the change ultimately costs users or subscribers something they can peg a dollar amount to — such as the Netflix price change, or as with last week’s Verizon Wireless convenience fee — the options being weighed become that much clearer for the consumer.
In other words: Should I stay, or should I go now?
Uber does not have to worry about shareholders, or FCC scrutiny. The number of complaints logged — 97 disgruntled users and 15 whose Uber apps on their smartphones might not have been working correctly — was a small percentage of the thousands of Uber rides that were booked on New Year’s Eve. It could be said that this is more of an Airbnb moment than a Netflix moment for Uber: A case of a small start-up needing to do a little damage control.
From a business perspective, Kalanick says, New Year’s Eve was still a success. Early-stage Uber investor Jason Calacanis tweeted that he “loves” Uber’s surge pricing, as it ensures availability. (Calacanis did not immediately respond to AllThingsD’s request for comment on his tweet.)
Another regular Uber user, SproutSocial CEO Justyn Howard, said he used Uber on New Year’s Eve, and noted that his car ride didn’t seem any different than usual. He said he believes Uber is especially good with data-driven strategy, and that supply-and-demand management will become easier for Uber over time. “Overall, I expect the feedback and data gathered from NYE will be put to good use,” Howard said.
Uber is currently refunding some unhappy customers, on a case-by-case basis.
But for Uber, and many other start-up companies, reaching the average consumer will be critical if it wants to grow into a bigger company. By working with town-car companies and not taxis — as some other app platforms do — and charging a $7 to $8 base fare for rides, Uber is already a company that delivers a premium service that not everyone can afford.
If Uber institutes dynamic pricing on regular weekend nights, the company could solve the problem of ensuring there are enough drivers willing to opt in to Uber’s app platform, but at the risk of losing out on customers that aren’t willing to pay two times or more the standard fare.
The tech-savvy crowd, after the initial sticker shock, might accept this.
The “normals,” however, will likely stand outside a little longer hailing taxi cabs — or find other means of getting around town.
(Image courtesy of Flickr/McSmith86)