So we have written in the past about Uber, the San Francisco based company that lets you hail a car service from your smart phone. Now both Fast Company (Stop Hailing A Taxi And Come Ride With Uber CEO Travis Kalanick, Jun 13) and Wired (For Limo Service Uber, Downtime and Idle Resources Are Fuel for Profits, Jun 22) have stories about them. The former has a nice video showing how the service works. Go here to see it (sorry, I couldn’t get it play properly here). The latter has some information on how the system works for drivers.
For its customers, Uber is a pleasant splurge, but for its drivers the service is a godsend, a ticket to a whole new standard of living. Uber doesn’t employ the drivers directly, but what it does is arguably better: It taps into the luxury rides and professional chauffeurs already employed by existing car services. Because of the inefficiency of typical dispatch systems, those cars can be empty for much of the day, even when their owners—sometimes the drivers themselves and sometimes small businesses—would love for them to be carrying fares. (Jankosky’s vehicle is part of a seven-car fleet owned by a firm called 7×7 Executive Transportation.) Uber can fill those fallow hours with brilliant efficiency. One San Francisco chauffeur estimates that the work he gets through Uber nets him more than $45 per hour, on average. Another says that his total earnings are now roughly $2,100 a week, with $920 of that coming from the service. Since the cars are already paid for and the drivers want to work, Uber is like found money for everyone: the drivers, the owners, and of course Uber itself, which takes 20 percent off the top of every ride.
What lies behind this is a view that there is a lot of capacity that is not being well-utilized at any given point in time. A system that efficiently matches supply and demand then has the potential to unlock a lot of value.
What Uber represents is not just a single startup but a new way of thinking about personal resources and infrastructure: the stuff we own, the skills and free time we possess, the untapped potential all around us. One of Uber’s investors, entrepreneur and venture capitalist Shervin Pishevar, calls it an example of an “excess capacity” company. “eBay, which lets people sell unneeded stuff from their garages, was the original excess-capacity company,” he says. “This is the next generation.” If this new model of resource maximization succeeds, it won’t just put extra money in the pockets of everyday people like Jankosky and other Uber drivers. It will also change the way we think about work and consumption, with every purchase becoming a potential investment, every idle hour a potential paycheck. In an Uberized world, there will literally be no such thing as a free ride, because every seat will be filled with a paying customer.
OK, so maybe that last quote is a little over the top in its “this changes everything” vibe, but it is an interesting idea. I am not sure I completely like the idea of living in an “Uberized world.” If every idle hour is a potential paycheck, then there is no relaxation. Implicitly taking a vacation means turning down an opportunity to earn more. Having that made explicit makes it hard to actually enjoy the vacation.
A related aspect is that people should be willing to participate as long as they hit some sort of reservation wage. A driver/car owner should be willing to sign in to Uber up until they don’t expect to earn enough to compensate for the cost of operating the car and foregoing a nap. But Uber benefits from signing up as many drivers as possible since that provides faster service for customers. The article reports that drivers already seeing some diminishing benefit to being part of Uber as more drivers sign up.
Though Uber won’t reveal the exact number of drivers on its system, Kalanick says there are thousands worldwide; in just San Francisco, drivers guess that they number 200 to 300. Once Uber accepts a driver, it sets them up with what’s essentially a yield-management system, pricing fares dynamically and handling all payments behind the scenes. Depending on their ownership of the car or arrangement with their employer, drivers take home anywhere from 30 to 80 percent of the total fare. It’s not a bad cut, especially when you consider what they would have gotten from that time in the days before Uber: zero. …
As for the drivers, they all acknowledge that business has fallen off slightly. At least in San Francisco, the growth in the number of chauffeurs has outstripped the growth in ridership somewhat, causing downtime to tick up a bit and average fares to drop. “In the beginning it was like gold,” says Uber driver Marcos Costa, 24, on a particularly slow Presidents’ Day weekend. (A disproportionate share of Uber’s drivers in San Francisco are from Brazil; the city’s Brazilian drivers have clearly helped to bring one another onto the service, and they stay in touch through chat rooms on GroupMe as well as through old-fashioned phone trees.) Costa says that one common route that used to cost $70 now costs more like $40. Karine Mourjan, one of Uber’s few female drivers, tells a similar story: “When I first started it was nonstop—beep beep beep,” she says. But Mourjan, who spent 16 years as a DHL driver before leaving to chauffeur a black car, still loves the service, and she describes her job as “relaxing.” Not only does Uber fill her off hours, but she doesn’t have to hustle for those extra fares—the system takes care of everything.
There is an interesting research question here: How do you schedule unscheduled workers? Uber can only control the total number of drivers who are authorized for the system. It cannot control when they work or whether they are willing to take a given passenger. If all drivers are the same (and have the same availability in terms of scheduled work), they should spread out to equalize the utilization across hours of the day. (That statement requires a few additional caveats. How do I know? Jan and I have a paper that would basically solve this problem.) In such a setting, expanding the number of drivers should provide better service around the clock — increasing the number of rides Uber can sell.
What’s more interesting is if the drivers all have private information on their availability and outside options. Then it is not so clear that Uber benefits from signing up every driver with a smart phone and a black car. They may be better off limiting the number of drivers. Fewer drivers would guarantee a better return for those who make themselves available.