Uber-nomics

[Deepanshu Geed]

Recently grabbing a lot of attention in the news about the rape of a 27-year old women of Delhi by a Uber-driver, Uber is not only facing problems in India due to this incident. It was a controvertial topic in the cities of other countries as well. So, let us try to understand what Uber is all about and why there is so much hype about it?

• What is Uber?
  

Uber is a rideshare and taxi service company headquartered in San Francisco, California, which operates in cities in several countries. The company uses a smartphone application to receive ride requests, and then sends these trip requests to their drivers. Customers use the app to request rides and track their reserved vehicle's location. As of August 29, 2014, the service was available in 45 countries and more than 200 cities worldwide, and was valued at more than US$40 billion in December 2014.  

-Wikipedia

Uber was one of the phenomenon in the startups few years ago when it was founded in 2009. It has received funding of about 3.3 billion in 8 rounds from 38 investors some of which include Google Ventures, Lone Pine Capital, Goldman Sachs and Jeff Bezos(Founder, President, CEO, & Chairman @ Amazon).

• Specifics of Uber
  

As stated above Uber is a platform where the potential passengers can contact the drivers to where they want to go. One can think of it as a marketplace that links buyers(riders) to the sellers(taxi-drivers). Uber's drivers are all independent agents i.e. Uber does not own cars and does not employ drivers. These drivers are not bound by exclusivity. Many of them work on multiple services, and many have “regular customers” that they engage off the Uber platform.

Having said that the majority of Uber fares go to these independent drivers. On average, over 80% of gross fares end up in the hands of drivers.  What is the key point of Uber is that it is accessible and is affordable by anyone or by majority atleast. It has also led rise to the term of "sharing economy" which means a socio-economic system built around the sharing of human and physical resources.

Uber also has a dynamic pricing (“surge pricing”) system which means that on special days like New Year's or the Halloween the price of the cab will be higher than the usual. This is justified on the ground of simple supply-demand economics. On a New Year's night there will be more customers demanding the cab. So, to meet the needs of everyone if we increase price then more absolute rides are fulfilled precisely because supply increases. On an average, Uber’s dynamic pricing affects a tiny minority of all Uber rides, less than 10% of trips. Also Uber is remarkably tranparent about the dynamic pricing.

For the customers, Uber makes it lot easy to travel. One just have to enter the location that he/she needs to go. If cab is available then it will confirm. Also, the app links directly to the debit/credit card of the customer. So, there is no need of worrying about the cash. Thus, Uber provides a cheap, quick and easy ride to passengers without the worry of cash.

• The Controversy
  

Despite being having a well established model, Uber is facing a lot of controversy and banning in different cities primarily due to two reasons-

1. It is cut-throat to the local taxis and cab providers due to its functioning as a low price substitute and availability. It has revolutionised the whole transport business. Now, more and more people prefer Uber and due to this the livelihood of these local cab providers are getting affected. For example, over the past two years the cab use in San Francisco, Uber’s home city, declined by 65% according to a recent report by the Metropolitan Transportation Agency. So there has been a lot of protests againts Uber in cities like Berlin, Munich etc.

2. It also provides fares to the drivers without the licences. So, it raises the issuue of illegal taxi-driving. Also, the procedure of hiring drivers and checking is not proper as can be seen from the Delhi incident. Thus it is being questioned on these levels and is being ban in several cities.

• Concluding remarks
  

It is of no doubt that the idea that Uber proposes and the vision that it has is very important in the transportation sector. But the model and the functioning has to be dwelled so that it provides benefit to the passengers rather than harm as every passenger wants a cheap, quick, safe and easy journey to his/her destination.